The Financial Times is reporting Treasury eyes stronger powers for Fed.

The Federal Reserve could use proposed new regulatory powers to try to stop credit and asset market excesses from reaching the point where they threaten economic stability, the US Treasury said on Tuesday.

David Nason, assistant secretary for financial institutions, said the Fed could even use its proposed “macro-prudential” authority to order banks, hedge funds and other entities to curtail strategies that put financial stability at risk.

By “leaning against the wind” in this way, the US central bank could “attempt to prevent broad economic dislocations caused by potential excesses”, he said.

The proposed new powers – outlined in a Treasury blueprint published last month – require legislation and may never be authorised. But policymakers see the plan as offering a template for future regulation.

The blueprint envisages giving the Fed roving authority to collect, analyse and publish market data from a wide range of institutions, from banks to hedge funds.

“The market stability regulator must have access to detailed information about all types of financial institutions,” said Mr Nason.

Hedge funds are uneasy about this proposal. However, many European central bankers are eager to acquire the kind of macro-prudential powers the Treasury would like to give to the Fed.

Free Market In Jeopardy

Mr Practical is concerned about a Free Market In Jeopardy.

Do not underestimate the dark power of this legislation and do not listen to the innocuous presentation by government officials.

The proposal essentially would grant vast authority to the Federal Reserve and the government to virtually control markets. It will give them the ability to gather private market information and unilaterally decide if positions taken with that private money for private investment is somehow negative for the financial system. It could then force the unwinding of those positions. Initially the powers will be used to supposedly prevent over leverage in the system (that the Fed created itself). But it doesn’t exclude the situation where a hedge fund that is long puts can be forced to unwind those puts at the government’s discretion.

The Federal Reserve and the treasury are very clever in blaming free markets for the mess we’re in to garner more power. Ironically it’s government intervention in markets that has caused the problem in the first place. Through their policies creating negative real interest rates for years, speculative forces in the economy have been able to create vast amounts of debt.

If we continue to bend to government, we will eventually get what we deserve, fascism. Not the Hitler kind of fascism, but simply the government existing and growing for the sake of the government and not the people. This will result in even more massive mis-allocation of capital and stagnation. It will result in slower technological development and a much lower standard of living for our children.

A Disgusted Mr. P

Fed Uncertainty Principle Strikes Again

Fed Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

The Fed has blown bubble after bubble with their economic policy. Instead of removing the Fed, we are seeing new fascist proposals.

The only market stability regulator that is needed is called gold. It’s no wonder credit exploded after Nixon closed the gold window. A gold standard in conjunction with the elimination of the Fed, elimination of fractional reserve lending, and balanced budgets out of Congress is what it takes to cure the problem, not increased fascist powers by those who created the mess.

Mike “Mish” Shedlock
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