The FRB bubble

The Midwest state of Montana submitted a proposal to circulate a new currency backed by bullion for transactions by the state government and the private sector, alongside the US banknotes issued by the FRB. The Montana State congress was concerned that the FRB was printing too much dollar and the anticipated inflation when its value goes down. Rare metal commodities such as gold and silver are known to fluctuate less than cash currencies. Identical proposals have been discussed in other states of Indiana, Colorado, Missouri, Georgia, and Maryland.
State considers return to gold, silver dollars (World Net Daily)

Old rivalries
Since the creation of the Union, the debate between the federalists and the democratic-republicans (and later Jacksonians, Monroevians) has never ceased in the US. The FRB system, though its power is concentrated in New York, is officially a collaborative conference of 12 geographically-spread reserve banks. Democratic-republicans tended to distrust the FRB and tended to perceive the federal government as having been hijacked by the Wall Street capital owners. Use of bullion-backed money instead of the federal dollar has been discussed for a long time. The stimulus package has contributed to FEB’s 17% increase of money supply, whose seigneurage is to be used to support the unsold treasury bills. State governments are worried.
Beyond the dollar (Asia Times)
Recently, the FRB has published a thesis that advocated the strong interest rate policy whose desirable rate would be minus 5 percent. A negative rate is practically impossible for interest rates so the only option must be the quantitative easing by overprinting of the dollar.
Fed study puts ideal US interest rate at -5% (Financial Times)
Then, will the US at the state level be able to avoid the negative impacts from the dollar fall? Most likely not. US economy is fully integrated as a nation, such that no state has a stand-alone economy. Gold coins are just proposals, or expressions of dissatisfaction to the federal policy. The most radical Democratic-republicans go beyond just another currency but call for the demolition of the FRB system itself. A number of libertarians insist that scrutiny on the FRB would be necessary. If the true amount of non-performing loans owned by the FRB is publicised, the credibility of the Federal Reserve will plummet to the ground. One of the most important functions of the FRB is to print the dollar and supply the money to buy the treasury bills or commercial papers, or reduce the money circulation by selling them. This is called an open market operation. During the normal times, it provides stability to the real estate markets and ease inflation pressures, and allocate the right amount of capital for the economic activities. Money balance will have its equilibrium.
However, since 2007, the FRB has kept on increasing its dollar output, by ignoring inflationary pressure as well as instability of real estate collateral equities. If the government bond market falls, the interest rate of the bond will go up, taking the housing loan rate with it, such that the real estate market will even worsen. The FRB bought equities from private banks, but booked for its paper company and not on its own balance sheet. Congress audit will not be able to detect the kinds of equities that the FRB had received from banks. Before the crisis, major US banks had created out-of-book special investment vehicles (SIV), and operated high risk equities there. The FRB has many ‘super SIVs’.
Why Obama’s new Tarp will fail to rescue the banks (FT)
Volcker says Fed’s authority probably to be reviewed (Bloomberg)

Everybody’s the Fed
If the FRB survives on its credibility creation function, the private sector did the same by securitisation. Just like the FRB can transfer the nation’s credibility to the value of the dollar, corporations could transfer their credibility to the value of their corporate bonds and commercial papers. Credit rating agencies determined the value of those bonds, and safety net such as credit default swap (CDS) strengthened the new system. Non-creditworthy enterprises or individuals could easily obtain monies by securitisations and real estate collaterals. American and British economies benefitted much from this. The 2007 crisis is the end of the ‘everybody is the Fed’ system. Ten trillion dollar worth of value created by securitisations is at stake.