doug/53; that’s what they used to call “Enron accounting”, shuffling P&L and Balance Sheet items via that third instrument. Three Card Monte. Enron used subsidiary companies to hold certain liabilities and balanced those books with Enron stock –which worked as long as that stock valuation was high, whichy for a time it was, due to Enron’s P&L showing income from transactions between it and itself. Our gov’t third entity is the transaction between Treasury and Fed, and the dealers are, for the last few months since Goldman and Morgan were encouraged to become Bank Holding Companies rather than Broker/Dealers, not regulated by SEC but by –you guessed it –the Fed. Now you know why Bernanke is being set up for a fall –so that capo Summers gets the job and –voila –

BTW, Gary Gensler, O’s head regulator, helped design the Enron model, and help write the regulations which seemed to legalize the model (of course, it wasn’t as dirty in the beginning, before the left-open channels filled up). The target was then as it is now,, of course the prevention of ‘price discovery’.

Anyhoo, ‘quantitative easing” is the same principle, improved via being legal because it’s the gov’t doing it. The Fed balance ratios don’t change, the transaction just goes on both sides at once –the balance sheet doesn’t load up with liabilities, it simply expands. How can this be? because the Fed is pricing the collateral, and the price rule is, a dollar of liability equals a dollar of asset.

USA can do this awhile, so long as the military is globally dominant and also willing to follow orders from the executive branch.