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To: Goose94 who wrote (14794)	11/10/2015 8:16:17 AM
From: Goose94	Read Replies (1) \| Respond to of 203421

Congress Bullying The Fed For Gov’t Funding – Former Fed Chair Bernanke brookings.edu The idea of using Federal Reserve capital to fund government spending is a “bad” one, says one former chairman of the central bank, arguing that officials on Capitol Hill may be manipulating their way into the Fed’s purse. “The House voted Thursday to pay for planned highway construction by drawing on the Federal Reserve’s capital,” former Fed Chair Ben Bernanke stated his blog post on the Brookings Institute Monday. “Although the Federal Reserve is not a private bank and can in fact operate with little or no capital, it’s not good optics or good precedent for Congress to be seen as raiding the supposedly independent central bank to pay for spending,” he argued. Bernanke called this move by Congress a “form of budgetary sleight-of-hand.” “Legislators who care about the integrity of the budgeting process should not support this budgetary sleight-of-hand,” he said. According to Bernanke, the Fed is already a major source of revenue to the federal government and by taking from the Fed’s capital account, the government may be hurting its potential revenues over time. “The Fed earns interest on its portfolio of securities. This income, less the Fed’s operating expenses and interest paid on Fed liabilities, is sent to the Treasury on a pretty much continuous basis,” he explained, adding that the central bank has already sent nearly half a trillion dollars to the Treasury over the last six years. “Unlike the Fed’s remittances, which are real resources whose availability reduces the burden on the taxpayer, drawing down the Fed’s capital provides no net new funding for the government,” he said. “Consequently, rather than being truly paid for, the additional highway spending would be reflected dollar for dollar in increased current and future budget deficits,” he added. Bernanke illustrated this by asking readers to consider what would happen if Congress required the Fed to reduce its capital. “To comply, the Fed would sell some of the government debt that it owns and send the proceeds from the sale to the Treasury. (That money is what Congress proposes to count as funding for highway construction),” he said. “But while the Treasury would receive some money up front, the Fed would also have to reduce its future payments to the Treasury by the amount of interest foregone on the securities it sold.” According to Bernanke, the net effect would be the same as that resulting from issuing fresh government debt. “Again, drawing on the Fed’s capital provides no new resources and amounts to ‘paying’ for the spending by issuing new government debt,” he said.