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Fed Is Secretly Planning (To Avoid) Default

A second expose of the secret planning going on despite the denials to the contrary, from Reuters:

Exclusive: Fed planning for potential default

By Kristina Cooke and Tim Ahmann Wed Jul 20, 2011

PHILADELPHIA (Reuters) – The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government’s $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday.

Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the U.S. central bank has for the past few months been working closely with Treasury, ironing out what to do if the world’s biggest economy runs out of cash on August 2.

"We are in contingency planning mode," Plosser told Reuters in an interview at the regional central bank’s headquarters in Philadelphia. "We are all engaged. … It’s a very active process."

The Treasury has repeatedly said default was unthinkable and that there was no alternative to raising the debt ceiling. Plosser’s remarks marked the most extensive public comments yet on preparations for a default from a U.S. official

One aspect of the Fed’s contingency planning is purely operational: the Fed is developing procedures about how the Treasury would notify it on which checks would get cleared and which wouldn’t, Plosser said.

The Fed effectively acts as the Treasury’s bank — it clears the government’s checks to everyone from social security recipients to government workers.

"We are developing processes and procedures by which the Treasury communicates to us what we are going to do," Plosser said, adding that the task was manageable. "How the Fed is going to go about clearing government checks. Which ones are going to be good? Which ones are not going to be good?"

This sure sounds like they are working with the Treasury Department on prioritizing spending, which would prevent any default. Just as we have predicted. And note that this Fed official says the task is "manageable."

Fed Chairman Ben Bernanke last week warned that a default could have "catastrophic" effects on financial markets.

Plosser, a former dean of the Simon School of Business at Rochester University, was more circumspect.

"It could be very bad. At some level we don’t really know what the consequences could be. It could be very serious. It could be less serious. Do we really want to run that experiment?"

Somebody better get to Mr. Plosser and shut him up. He is letting too many cats out of the bag.

By the way, note how Reuters puts Mr. Plosser’s less than panicky comments at the very bottom of the somewhat lengthy article.

This article was posted by Steve on Thursday, July 21st, 2011. Comments are currently closed.

7 Responses to “Fed Is Secretly Planning (To Avoid) Default”

  1. BigOil says:

    “It could be very bad. At some level we don’t really know what the consequences could be. It could be very serious. It could be less serious. Do we really want to run that experiment?”

    It is not a matter of wanting to run this experiment – we need to run it. Lets call it the ‘balanced budget experiment’ and see if we like it.

  2. tranquil.night says:

    “All of which raises the troubling question, if the Treasury Department and the rest of the administration will lie to us about something as important as the country going into default, what else could they be lying about?”

    Call the bluff!! It’s nothing but a stinky onion of big lie after big lie.

    Meanwhile as they sit there and stew over what they’ve gotten themselves into by taking a stupid gamble with the US Economy, we have our own fail-safe for preventing default. It’s called the Cut, Cap, and Balance Act of 2011. Even if your suicidally loyal Senate votes it down to save the Won from the consequences of the veto, that does not mean it’s gone. The Go6 turd sandwich and McConnell option are out of play because they’re fraudulent for one and wouldn’t protect America’s credit.

    The choice is not going to be between total abdication and a rotten deal for the country. The People’s House will not be dictated to.

  3. BannedbytheTaliban says:

    if the world’s biggest economy government runs out of cash borrowed money

    Had to fix that. Two lies in one sentence is too much, even for Reuters.

  4. Chinnubie says:

    I really hope they hold true to their liberal ideals and forget to pay the military. That’ll put a charge in the right place to get this president doing the right thing. The only way a government can be changed for the better is to vote out problems but that hasn’t worked for a 100 years, the other is for the military to throw out the current administration and hopefully allow the citizens to vote in another. I’m confident they would do the right thing unfortunately, most of them would be so worried about failing and the repercussions that would follow. Gee, I’m sure glad George Washington and the boys weren’t as spineless. I know they are rolling in theirs graves right now with the lack of fortitude they bestowed on us.

  5. proreason says:

    The debt ceiling will be lifted.
    There will be no substantial spending cuts.
    There will be smoke and mirror spending cuts.

    The only questions are whether 1) there will be a kabuki theatre of delaying the lift, 2) whether the lift will be for one year or two, and 3) whether the Republicans fold on new taxes.

    I’m betting that there will be a temporary shutdown but that taxes will not be raised. The duration could go either way; it doesn’t really matter anyway because if the duration isn’t for two years, the next one will happen just like this one.

    And unbelievably, the brain-dead RINOs will call it a victory.

    Don’t expect anything new until and unless we win both houses, and if the Moron isn’t defeated, expect 6 more years of this….or worse. Probably much worse.

  6. tranquil.night says:

    The regime always trots out its “experts” from Academia and Wall Street whenever they need to cite someone for talking points.

    It’d be nice if all these disgruntled businessmen going on open rants against the most anti-business administration ever could be persuaded to support rational policy in Washington.. like the Cut, Cap and Balance Act.

    This would be the realm a very effective presidential campaign would tackle. IMO there is too much focus from our generals at winning every little strawpoll and bellweather mark the media sets for them. Yes it’s important to maintain the trend of momentum for the primary, but there are so many disgruntled Democrats all up the ladder. Go out and win them, not by compromising principle but by calling every single deceitful move of the people they think represent them out. The one who can will totally redefine how people perceive their electability.

  7. JohnMG says:

    …..”We are all engaged. … It’s a very active process.” …

    And just how reasuring are statements such as the above?

    It’s not that I don’t believe what he said, but it begs the question…….engaged in what??!!

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