Playing Chicken: Is the Fed bankrupt?
Saturday, September 27th, 2008There seems to be some suspicion around the Fed’s balance sheet at the moment and questions are beginning to be asked about its capital adequacy.
It’s dolling out cash like sweets at a birthday party. Where is it all coming from?
Last week bank borrowing from the Fed reached an average of $188bln a day!!
All the primary dealers (all 3 of them GS, MS and ML) were in at their teat, the Primary Dealer Credit Facility, for over $100bln.
This is the stuff of legend.
Parker Brothers will be rushing out new Monopoly sets soon with an extra 6 zeros added.
To say the banking system is on life support would be an understatement. Its actually getting CPR……one billion, 2 billion, 3 billion…………
Even the Fed must run out of cash at some point.
Sure the Treasury can sell more paper….but whoa……who is going to keep funding the US Treasury in order to buy toxic paper from the banks?
Who will bail out the Fed?

