The Phaserl


Is the Fed Due for Downsizing?

from The Daily Bell:

Politico tells us that the “Fed pushes back as Congress eyes its billions” and that “Congress is aiming to take billions out of the Fed’s accounts to help pay for a new highway and transit bill.”

Beyond explaining the intentions of Congress in this regard, the article speculates on why the Fed hasn’t been more vocal about Congress’s intended raid on its coffers.


The Fed is balking, registering “strong concerns about using the resources of the Federal Reserve to finance fiscal spending.” But members of Congress who consider the Fed money to be the only politically feasible way to fund a long-term transportation bill are wondering why the central bank didn’t try to stir up opposition sooner.

The Fed has clearly been in Congress’s cross hairs since at least July. Congress has until Dec. 4 to vote on a bill, whether it be a long-term deal or another temporary patch.

The article quotes Rep. Bill Huizenga, a Republican from Michigan as saying he doesn’t understand why the Fed waited until so late to register objections. He suggests that the Fed wanted to be neutral regarding Congress’s intentions, though the Fed is “not neutral or quiet on a number of other things.”

To explain the Fed’s lack of objections, lawmakers and aides have claimed that the Fed was faced with a kind of “either/or” situation regarding resource raids.

Congress was considering siphoning off Fed dividends (paid out to banks) and this was the alternative to confiscating a portion of the surplus account – which the Fed preferred. From the Fed’s point of view, having Congress drain US$29 billion out of a US$4 trillion balance sheet is apparently preferable, the Politico article suggests.

But this still leaves unanswered the question of why the Fed hasn’t fought harder. We’ve argued in the past that the Fed is a beleaguered institution in retreat on a number of fronts. A troubled institution may simply not have the organizational firepower to take on so many battles and critics … or perhaps Fed officials are cognizant that they need to retain what little credibility they have left to expend on really important issues.

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1 comment to Is the Fed Due for Downsizing?

  • Ed_B

    “The Fed has clearly been in Congress’s cross hairs since at least July.”

    That does seem to be the perception but the reality is likely far different. The banksters have purchased more than enough politicians to protect their interests. They consider this just a cost of doing business. The big NY banks own most of the Fed, so the Fed’s primary mission is to serve THEIR interests. Buying influence is not beyond their capability.

    The hacks in congress are always looking for a bandwagon issue that they can use to drum up support. Funny how the Fed has long escaped falling into that category, isn’t it?

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