I secretly would like to be laid off and collect unemployment while I try make a new income stream. I’d be producing a product and selling it. That might be a bad idea given excess cash has and will dry up, but it’s more of a dream than a sure thing. One important thing would be another good made in the US and potentially exported.

Although I think if my company got chopped in half, I’d be on the favorable side of the knife. Then I guess I should just be considered lucky to have a job. I guess it’s a win-win in a twisted way.

Many thanks for this site. I read it daily, it’s been an eye-opener to say the least. You’ve helped more people than you probably will ever know. Thanks for all the very hard work and for keeping it free on the net.

Thanks also to all of the posters who keep it informative, lively and interesting. You make it what it is. Best wishes to all of you as well this holiday season. Let’s hope that 2009 brings better news & times for us all.
Mel

Strangely, we have no H.4.1 statement from the Fed today as promised…. Can’t say I have ever seen them miss a date…

To what might you attribute this little anomaly? It seems as though a certain problem must have developed…

http://www.federalreserve.gov/releases/h41/

MM, your work is much appreciated by me. It’s been very helpful for my asset allocation for the coming year. Your insight and analysis are as good as I’ve seen. Please keep it up.

Thanks

What’s in Your Wallet

Many of you probably would not touch mortgage paper with a 10 foot pole and if you did, you would apply a steep discount to reflect true value. What if mortgage backed securities were creeping into this “backing” behind the paper that you carry in your wallet? For each dollar issued by the Federal Reserve, there is a corresponding dollar held as collateral against the note issued.

Every Thursday at 1630hrs EST, the Federal Reserve releases a statement called the H.4.1 statement “Factors Affecting Reserve Balances”. At the very, very bottom of that report in item 9 contains the information regarding the backing of our Federal Reserve Notes. Of course when Christmas falls on a Thursday, it would be released on a Friday.

At one time when we were on the gold standard, our notes were backed by gold in the form of certificates. That was subsequently downgraded to gold certificates, treasury and agency debt and IMF Special Drawing Rights certificates. In addition there has been another classification called “Other”. I for one think that the American public deserve to know what “other” is. In the very least, Congress should be informed. Many of you are likely aware that Bloomberg has been sniffing around the Federal Reserve asking questions about “What’s this and what is that and who got what where.” After failure to obtain the desired information under a FOIA request, Bloomberg filed a lawsuit to properly obtain this information. The answer came back “Trade Secret”.

Does the backing on our paper dollars also fall under this “Trade Secret” status? I can understand a formula for a soft drink falling under trade secret status, but placing that on our money? Do we not deserve a note to the financial statement? This category called “other” has been creeping into the backing. It started with about 30 billion at the beginning of the year. It is now over 300 billion dollars, about half the TARP.

Let’s take a moment and enter the time machine and go back to a time when the current crisis was having to do with Mexico and Pesos. You are entering the period of early 1995 and sitting at the table of a FOMC meeting with Greenspan at the chair. Our current crisis is mortgage paper. If Bernanke ran short, could we end up with MBS on the balance sheet backing our Federal Reserve Notes? Would Congress be notified in such an event? It is time to enter the FOMC meeting at page 135 of the document transcript.

MR. MELZER. One last question and then I have just a couple of comments that I would like to make. This has to with the excess collateral in terms of backing U.S. currency. I recall that when we warehoused a lot of foreign currencies for the ESF before, we got into a problem with fairly narrow excess collateral. If we do this $20 billion, we will then in effect substitute these foreign currency holdings for domestic securities. And when we have to sell domestic securities, we will have less of what is viewed as acceptable collateral to back the currency. If we exceed those limits, we have to announce to Congress that we are backing our Federal reserve notes with other types of assets. What is the likelihood of having to make that sort of announcement?

MR. KOHN. I do not know what the current situation is. My guess is–and it is a wild guess–that if the warehousing got up to $20 billion, we could be in that situation.

MR. TRUMAN. I don’t think we have an obligation to announce to Congress. We have an obligation in the sense that Governor Partee once said to Congress that we would use our foreign exchange holdings last to collateralize our Federal Reserve notes.

CHAIRMAN GREENSPAN. If we get to that point, we can always
do an off-market swap with the Japanese or the Germans.

So just exactly want is this category of “other”? Is it Yen, Euro, Mexican Peso’s or Mortgages? All we know at this time is what it is not, the gold and treasuries are already listed. The Fed might be able to brush off Bloomberg with “Trade Secret” but with BertDilbert it is just not that easy. I believe that Americans have the right to know at minimum with a footnote explanation.

Here is a link that is one statement back from “current release” If I gave you the current link it would change tomorrow when the new release comes out. It is at the very bottom of the release and the amount in question is 336 billion and change.

http://www.federalreserve.gov/releases/h41/20081211/

The tsunami is coming! Surfs up!!

Wishing everyone a better New Year.

The best to you and yours in the upcoming year.

Thanks for your due diligence.