BOW BEFORE THE FED

More federal reserve act...

Section 15. Government Deposits

1. Federal Reserve Banks as Depositaries and Fiscal Agents of United States

The moneys held in the general fund of the Treasury, except the five per centum fund for the redemption of outstanding national-bank notes may, upon the direction of the Secretary of the Treasury, be deposited in Federal reserve banks, which banks, when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks, and disbursements may be made by checks drawn against such deposits. [12 USC 391. As amended by the act of March 18, 1968 (82 Stat. 50). Also, in effect amended by Act of May 29, 1920 (41 Stat. 654).

The Finer Points of the Federal Reserve Act

Federal Reserve Act

Section 2a. Monetary Policy Objectives

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

[12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).]

Section 10A. Emergency Advances to Groups of Member Banks *

1. Authority of Reserve Banks to Make Advances

Upon receiving the consent of not less than five members of the Board of Governors of the Federal Reserve System, any Federal reserve bank may make advances, in such amount as the board of directors of such Federal reserve bank may determine, to groups of five or more member banks within its district, a majority of them independently owned and controlled, upon their time or demand promissory notes, provided the bank or banks which receive the proceeds of such advances as herein provided have no adequate amounts of eligible and acceptable assets available to enable such bank or banks to obtain sufficient credit accommodations from the Federal reserve bank through rediscounts or advances other than as provided in section 10(b). The liability of the individual banks in each group must be limited to such proportion of the total amount advanced to such group as the deposit liability of the respective banks bears to the aggregate deposit liability of all banks in such group, but such advances may be made to a lesser number of such member banks if the aggregate amount of their deposit liability constitutes at least 10 per centum of the entire deposit liability of the member banks within such district. Such banks shall be authorized to distribute the proceeds of such loans to such of their number and in such amount as they may agree upon, but before so doing they shall require such recipient banks to deposit with a suitable trustee, representing the entire group, their individual notes made in favor of the group protected by such collateral security as may be agreed upon. Any Federal reserve bank making such advance shall charge interest or discount thereon at a rate not less than 1 per centum above its discount rate in effect at the time of making such advance. No such note upon which advances are made by a Federal reserve bank under this section shall be eligible under section 16 of this Act as collateral security for Federal reserve notes.

[12 USC 347a. As added by act of Feb. 27, 1932 (47 Stat. 56).]

Section 16. Note Issues

1. Issuance of Federal Reserve Notes; Nature of Obligation; Where Redeemable

Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are hereby authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.

[12 USC 411. As amended by act of Jan. 30, 1934 (48 Stat. 337). For redemption of Federal reserve notes whose bank of issue cannot be identified, see act of June 13, 1933.]

Call it a Comeback

Today was easy. Take it down low on the open after yesterday's bad news. Bleed anybody dry who had the balls to hold through yesterday's debacle. Then rip it in their faces right after they sold at the bottom. Classic example of the most people doing the worst thing at the least opportune time.

FED INJECTS 630 BILLION INTO CREDIT MARKETS OVERNIGHT

In a point that I cannot emphasize enough, the federal reserve has the ability to print money and effectively raise funds ad infinitum (until the whole system falls apart, but thats not going to be now). That means that this vote today was simply a formality; the great and powerful bernanke chose to let the treasury and the congress look like they could handle the bailout (with his blessing, of course). But when our politicians dropped the ball, the US central bank let everyone know who was really in charge.

The fed wields blunt instruments, but they are hugely powerful. As the dollar is the world reserve currency, the fed can create money out of thin air in a way people only dreamed of under the gold standard (GS). They can pump prime the lending markets until the rapture because nervous investors have driven treasury bill yields to historic lows.

Everywhere Dead Bodies

Bombs exploded everywhere. Naz down 9.14%, sp500 down 8.79%, dow down 777. financials took the worst hit, as was to be expected when the ground drops out from under a sector. xlf down 13.18%, some individuals down much more. my boy ntrs down close to 20%.

no one was safe. pot down 15 pts, agu 10, mos 12. oil streaked down 11%. The terror stalked from sector to sector. goog down 11%. bidu 11%. end of world.

the grim grizzly bear reaper slit the bull's throat and paraded its corpse around wall street. then it strangled all the sheep with lengths of entrail.



while the US congress was the catalyst for today's decline (vote ended 13:42:00, take a look at ze chart), the fact of the matter is that declines like this are largely endogenous events with exogenous triggers. The congress rejecting the senate bill was outside the market, in the political environment of an election year. That catalyst found a vulnerable market; punch drunk, bleeding, and reeling with the failure of wachovia.

The Strategy Surreal

If anyone was watching both the vote on C-SPAN and the SPY's today, you could have made a fortune. The second that the nea's surpassed the yea's the SPY's dropped 3.5 points without stopping. While the market was pretty wild, this unexpected trade was the big winner of the day.

The Chinese Liquidity Mechanism: Visual Explanation

Here is a visual explanation of the post below