So, if the Fed buys government securities from commercial banks in the open market, will that have any implications for the cost of fed funds? The Fed is a private bank. The Fed’s open market purchases of government securities are not regulated.
Commercial banks are private institutions and, as such, are free to do business with whom they want. They can set their own prices, choose whom to lend to, and do whatever the hell they want. The Fed is supposed to regulate commercial banks but it is a private entity.
The fed can’t tell us much about what’s going on in the financial world. We have to figure out how to control it, and that’s not going to give us much help.
The fed does have some control over commercial banks. The Fed can make sure that commercial banks can’t do anything that puts them at risk. For instance, the fed could buy the stock of a commercial bank with the intention of causing it to fail. That is, the Fed could buy the stock of a commercial bank and then cause the bank to fail. This method has been used to a limited extent in the past, but not to the extent that we are seeing now.
We have a lot of banks in our country that we can’t really control. The fed could attempt to control these banks, but it would almost always fail. We would have to control the stock market directly as well. The Fed would just buy the equity of the banks, and if that doesn’t work we would just have to find the individual companies that control the banks and take over them.
In a world where most financial institutions are in a state of complete collapse, it is inevitable that large corporations will be forced to take on huge amounts of debt. Some of these companies will do it with government issued debt, but more often than not these companies will pay out their loans in the open market. In that event we would have to find the companies that owned the banks that were the least likely to fail, and take over them.
The Federal Reserve, the Federal Deposit Insurance Corporation, and other government agencies are not institutions that would be harmed by a government takeover of a bank, but rather by the bank taking on enormous debt that they would then have to pay back to the government. If these banks fail and the government then tries to collect its debts, the government would not be able to seize the banks’ assets.
To get a better sense of how much the Fed has bought, watch out for the Fed’s new official numbers and what’s in the market for the Fed. The Fed doesn’t have to pay much attention to the market’s news, and the prices of many securities, as the Fed doesn’t even have a real way to gauge the interest rates they’re taking on.
The more you think about it, the more you realize that the fed must pay its debts on time, and that it must be paid in a way that is legal and doesn’t violate the law. Not to mention that the government could then use the money to pay off the banks, effectively giving the fed government the ability to create money on its own. The only question would be if the fed would be able to create enough money to pay off the banks before the economy collapses.