Is Fed’s Balance Sheet In Trouble?


Where does Uncle Sam come up with huge sums of money during a financial emergency? Like the rest of us, the government taps available reserves and, if needed, it borrows some more.

Well, guess what? After the recent buying spree (also known as bailouts) the Fed needs some dough. As a result, the Treasury Department has begun to sell bonds specifically to fund the Fed’s coffers.

Just minutes after unveiling the financing program, the Treasury said it would sell $40 billion of cash management bills -- essentially a fresh batch of debt -- on Wednesday at the U.S. central bank's request as part of an attempt to "help them better manage their balance sheet."

In other words, the nation is taking on more debt to prevent AIG , as well as Freddie and Fannie from collapsing.

That sounds like a bit of a problem, but former Federal Reserve governor Wayne Angell says that’s not the case.

"I am very comfortable with the Feds actions, he says on Fast Money. “The most important thing to remember is the Fed’s balance sheet is not finite. It’s infinite. It can expand.”

What does he mean by that?

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"They are not going into the monetary base at all. They are simply acquiring assets at a stressful time, almost like a resolution trust company. And in doing that they’re going to make money."

That’s right, Angell said make money. “The Fed isn’t going to want to acquire assets and lose money on them because if they do, their reputation is damaged. “Don’t worry,” he concludes, “I’m very pleased.

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Trader disclosure: On Sept 17, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (WMT), (MSFT); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (AAPL) And (AAPL) Collar; Najarian Owns (MS) And (MS) Collar; Najarian Owns (TSO) Call Spread; Najarian Owns (WB) Put Spread; Najarian Owns (XLF) And (XLF) Collar; Finerman Owns Owns (GS), (JNJ), (MSFT), (SUN), (TSO); Finerman's Firm Is Short (XLF), (IYR), (IJR), (MDY), (IWM), (SPY), (BBT), (COF)

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