Wednesday, February 24, 2010

"Whoa, Fed Revives a New Reserve Drain Method"

From Economic Policy Journal:
The Federal Reserve is reviving its ability to drain reserves via the Treasury. Here's the Treasury release:
The U.S. Department of Treasury today issued the following statement on the Supplementary Financing Program (SFP):
"Treasury anticipates that the balance in the Treasury's Supplementary Financing Account will increase from its current level of $5 billion to $200 billion. This will restore the SFP back to the level maintained between February and September 2009

This action will be completed over the next two months in the form of eight $25 billion, 56-day SFP bills. Starting tomorrow, SFP auctions will be held each Wednesday at 11:30 a.m. EST, unless otherwise noted."
The program was halted because the Treasury was nearing its debt ceiling, now that the ceiling has been raised, the program has been restarted.

That it is being put right back into action is somewhat of a surprise, though, and indicates that there will be no net-boost in money entering the system from the final $200 billion in mortgage backed securities that will be purchased by the Fed, as the Treasury SFP raise of $200 billion that will be deposited at the Fed sterilizes the purchases....MORE