The Financial stability Oversight Council, (FSOC or Council), formed as part of the Dodd-Frank, is charged with three main responsibilities:

1. To identify risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace.
2. To promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the U.S. government will shield them from losses in the event of failure.
3. To respond to emerging threats to the stability of the U.S. financial system.

The FSOC recently issued a report discussing the financial crisis. The report found that among other conditions, the U.S. economy continues to heal from the 2007–09 recession (the longest since the Great Depression). Consumer spending and business investment have increased, but housing markets remain depressed and the unemployment rate is elevated. The global economy is also recovering, albeit at varying rates across advanced and emerging economies.

Moreover, the report found the financial crisis produced great upheaval in the U.S. financial sector, but the impact on the economy was even more devastating. At the height of the crisis, credit conditions tightened for households and businesses, as well as for financial firms of all sizes, reflecting severe disruptions to a range of financial markets that proved far more damaging than the disruptions from the initial credit losses themselves.

The FSOC notes, government budgets, both federal and nonfederal, have been strained by the cyclical response of revenues and expenditures to a weak economy as well as the fiscal actions taken to ease the recession and aid the recovery. The federal government deficit grew from 1.2 percent of GDP in 2007 to 8.9 percent in 2010, and net publicly held federal debt outstanding rose from $5 trillion to $9 trillion. This public borrowing largely replaced private borrowing in the credit markets, and global financial markets readily accommodated the increase in federal debt. Even after economic conditions return to normal, the federal government faces a long-run imbalance between revenues and expenditures. This need for long-run fiscal sustainability has been a focus of recent attention from credit rating agencies. Achieving longrun sustainability of the national budget is crucial to maintaining global market confidence in U.S. Treasury securities and the financial stability of the United States.

State and local government revenues were also severely affected by the economic downturn. While state finances started to improve in the second half of 2010, several quarters into the economic recovery, local governments remain challenged. The municipal debt market exhibited evidence of considerable stress last year.

In the period after the financial crisis, the legal, regulatory, and accounting framework of our financial system has changed significantly.

The Dodd-Frank Act, which created the Council, was intended to close gaps in the financial regulatory framework and strengthened supervisory, risk management, and disclosure standards in important ways. The new Basel III international standards for banks, negotiated with major input from U.S. regulators, will require banks globally to hold more capital, particularly when they take market risk, and will subject banks to a liquidity standard for the first time, and new accounting rules will serve to limit financial institutions’ off-balance-sheet activities.

For the first time, information on trading in swaps will be available through trade repositories. In addition, standardized derivatives will have to be traded on regulated trading platforms and centrally cleared, improving price transparency and reducing counterparty credit risk for market participants. Once regulators complete the implementation of the Dodd-Frank Act, the mix of complex structured credit products, derivatives, and short-term wholesale funding that helped produce the financial crisis is unlikely to reappear in its previous form.

Still, U.S. regulators continue to work out the details of several important initiatives, including those mandated by the Dodd-Frank Act and those agreed to with their international counterparts. For example, the Council has defined the characteristics under which it will designate systemically important financial market utilities for enhanced supervision.

The Council is also in the process of defining the characteristics under which it will designate nonbank financial institutions for Federal Reserve supervision, and the Federal Reserve, in consultation with other Council member agencies, is establishing tougher supervisory guidelines for large financial institutions. Regulators are also developing new reporting and disclosure requirements for designated nonbank financial companies.

Tomorrow’s bloticle will discuss issues related to federal regulation.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Why is This Topic Important To Wealth Managers? Today’s Blogticle discusses issues surrounding international money transfers. The information serves as a discussion point for those wealth managers with, or who are considering working with, international clients.

A report recently released by the Consumer Financial Protection Bureau (CFPB) recommends principles for maximizing consumers’ ability to receive and use exchange rate information when making remittance transfers, and examines the incentives and challenges related to using remittance data in credit scores.

Each year, consumers in the United States send tens of billions of dollars to family members, friends, businesses, and others abroad through remittance transfers – electronic transfers from U.S. senders to recipients in foreign countries. The report, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), analyzes two subjects related to remittance transfers: the transparency and disclosure to consumers of exchange rates used in remittance transfers, and the potential for using remittance histories to enhance the credit scores of consumers.

Remittance Transfers and Exchange Rates

The Dodd-Frank Act will require remittance transfer providers to disclose, in most circumstances, the exchange rates they use and other information at the time that consumers request remittance transfers and when they pay for those transactions. The Board of Governors of the Federal Reserve System has proposed rules to implement those and other new requirements related to remittance transfers. The CFPB will assume responsibility for issuing final disclosure rules and will review comments received by the Board following the close of the comment period on July 22.

The CFPB’s report  recommends that, with respect to exchange rates, policymakers and other stakeholders observe four principles for enhancing consumers’ ability to receive and use exchange rate information:  (1) design, test, and use disclosures to maximize consumer comprehension; (2) facilitate consumers’ comparisons of remittance offerings; (3) adapt disclosures to the growing variety of channels that consumers use to initiate remittance transfers; and (4) couple information about exchange rates with an indication or estimate of the combined effects of fees and the exchange rate.

Remittance Transfers and Credit Scores

Credit files do not routinely include remittance data. If remittance histories can help assess or predict the credit risk that consumers pose to lenders, adding such data to credit files could produce a change in the credit scores of some remittance senders.

If remittance histories are predictive of credit risk, the addition of remittance data might also allow credit scores to be generated for some consumers who are otherwise unscorable.

To use remittance histories in credit scores, market participants would need to adjust their business systems and processes to adapt to and make use of the new data. If remittance histories are predictive, then any remittance-based credit scores that were developed might have particularly positive implications for some consumers born outside of the United States. These consumers send a large proportion of remittance transfers. Earlier research suggests that certain foreign-born individuals may be disproportionately likely to have credit histories that are insufficient to generate credit scores. In other cases, existing credit data may overestimate the credit risk such individuals pose to lenders. But the actual impact of any remittance-based credit score would depend on the business model, the scoring model, the data used, and the individual. In some cases, credit scores might increase; in other cases, they might remain the same or decrease.

Tomorrow’s Blogticle continues our Casual Friday series.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Why is this Topic Important to Wealth Managers? This topic is presented to keep wealth managers informed and aware of the current federal regulatory environment regarding insurance. Federal oversight concerning insurance has generally expanded since the new regulatory laws were passed last year. Thus we discuss current trends of federal regulation of the insurance industry.

The Treasury Department has determined that it is in the public interest to establish the Federal Advisory Committee on Insurance. A Charter for the Committee has been prepared and is expected to be filed next week.

The stated purpose of the Committee is to present advice and recommendations to the Federal Insurance Office (FIO) to assist the Office in carrying out its duties and authorities.

It is intended that the FIO will benefit from the knowledge and regulatory experience of the State and Tribal insurance regulators, who are the functional regulators of insurance, as well as the experience and perspective of industry experts and others.

The Treasury believes that it is in the public interest to establish, under the provisions of the Federal Advisory Committee Act, the Federal Advisory Committee on Insurance (FACI).

The FACI shall be a continuing advisory committee with an initial two-year term, subject to twoyear re-authorizations. The Committee will provide a critical forum for State and Tribal insurance regulators and/or officials, distinguished members of the property and casualty insurance industry, the life insurance industry, the reinsurance industry, the agent and broker community, academics, and consumers. These views will be offered directly to the Director of the FIO on a regular basis.  The Treasury states that there exists no other source within the Federal government that could serve this function.

The FIO was established in Subpart A of the Federal Insurance Office Act of 2010 [1] Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act. [2] The FIO’s authorities extend to all 3 lines of insurance except health insurance, long-term care insurance (except that which is included with life or annuity insurance components), and crop insurance.

Generally, the duties and the authorities of the FIO are:

• The FIO advises the Secretary of the Treasury on major domestic and prudential international insurance policy issues.
• The FIO Director serves as a non-voting member of the FSOC in an advisory capacity.
• The FIO has the authority to recommend to the FSOC that FSOC designate an insurer (including affiliates) to be an entity subject to regulation as a nonbank financial company supervised by the Board of Governors of the Federal Reserve.
• The FIO monitors all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system.
• The Director also plays a role in authorizing the resolution of any insurance companies subject to regulation as a nonbank financial company
• The FIO coordinates and develops Federal policy on prudential aspects of international insurance matters, including representing the United States, as appropriate, in the International Association of Insurance Supervisors (or a successor entity), and assisting the Secretary (with the United States Trade Representative) in negotiating certain written bilateral or multilateral agreements regarding prudential insurance measures with respect to the business of insurance or reinsurance.  The Office assists the Director in determining whether State insurance measures are preempted by such agreement or agreements.
• The FIO monitors the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance, except health insurance.
• The FIO assists the Secretary of the Treasury and other officials in administering the Terrorism Risk Insurance Program.

In carrying out these functions, the Office may receive and collect data and information on and from the insurance industry and insurers; enter into information-sharing agreements; analyze and disseminate data and information; and issue reports regarding all lines of insurance except health insurance.

Tomorrow blogticle will continue to address issues surrounding the insurance industry.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] 31 U.S.C.§ 313, et seq.

[2] P.L. 111-203, 12 U.S.C. 5301 et seq. (July 21, 2010).

Facing the onslaught of Republican legislative attempts to weaken Dodd Frank, Barney Frank (D-MA) seems unconcerned. His unwillingness to push for the prompt implementation of Dodd-Frank suggests that his resolve is weakening. And in recent weeks, Representatives have used the implementation lull to introduce a handful of bills that, if passed, would repeal or delay parts of the Dodd-Frank Wall Street Reform Act.

Dodd-Frank implementation was originally scheduled for July 21, but Mr. Frank has no problem allowing agencies additional time to translate the hundred-something provisions of the reform into regulations. “There’s no gun at their heads. Nobody gets fired,” he stated.

But delaying implementation could give the Republicans time to repeal Dodd-Frank one provision at a time.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Dodd-Frank financial reform in Advisor’s Journal, see Republicans Look to Erode Dodd-Frank (CC 11-75).

Why is this Topic Important to Wealth Managers? In keeping with this week’s trend, this blogiticle discusses the Federal Reserve banking system and the recent publication of its annual financial statements. Wealth managers who are interested in economic policy may find the information interesting. Thus we have presented a review of the Central Bank’s operations via financial statement analysis.

The Federal Reserve System on Tuesday released the 2010 combined annual comparative financial statements for the Federal Reserve Banks, as well as for the 12 individual Federal Reserve Banks, the limited liability companies (LLCs) that were created to respond to strains in financial markets, and the Board of Governors.

Total Reserve Bank assets as of December 31, 2010, were $2.428 trillion, which represents an increase of $193 billion from the previous year. The composition of the balance sheet changed notably. Holdings of U.S. Treasury securities increased $261 billion and holdings of federal agency and government-sponsored enterprise (GSE) mortgage-backed securities (MBS) increased $86 billion. These increases were partly offset by a $96 billion decrease in loans to depository institutions and a $23 billion decrease in loans extended under the Term Asset-Backed Securities Loan Facility, largely due to early repayments by borrowers.

The Reserve Banks’ comprehensive income increased $28 billion over the previous year to $82 billion for the year ended December 31, 2010. The increase was primarily attributable to an increase of $24 billion in interest earnings on the federal agency and GSE MBS holdings.

The Reserve Banks transferred $79 billion of their $82 billion in comprehensive income to the U.S. Treasury in 2010, a $32 billion increase from the amount transferred in 2009.

The combined annual financial statements for the Federal Reserve Banks and the consolidated annual financial statements for the Federal Reserve Bank of New York include information about the assets and income of each of the consolidated LLCs, such as overall financial results, portfolio composition, asset quality, and asset value information. The statements also contain summaries of the associated credit and market risks for each significant holding.

The consolidated LLCs also contributed to the increase in Reserve Banks’ 2010 comprehensive income, with net earnings of $8 billion for the year ended December 31, 2010, a $2 billion increase from the 2009 net earnings of $6 billion.

The twelve Federal Reserve Banks  re part of the Federal Reserve System created by Congress under the Federal Reserve Act of 1913, which established the central bank of the United States.  The Reserve Banks are chartered by the federal government and possess a unique set of governmental, corporate, and central bank characteristics.

The Reserve Banks perform a variety of services and operations.  These functions include participating in formulating and conducting monetary policy; participating in the payment system, including large-dollar transfers of funds, automated clearinghouse operations, and check collection; distributing coin and currency; performing fiscal agency functions for the U.S. Department of the Treasury,  certain Federal agencies, and other entities; serving as the federal government’s bank; providing short-term loans to depository institutions; providing loans to individuals, partnerships, and corporations in unusual and exigent circumstances; serving consumers and communities by providing educational materials and information regarding financial consumer protection rights and laws and information on community development programs and activities; and supervising bank holding companies, state member banks, and U.S. offices of foreign banking organizations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which was signed into law and became effective on July 21, 2010, changed the scope of some services performed by the Reserve Banks.  Among other things, the Dodd-Frank Act establishes a Bureau of Consumer Financial Protection as an independent bureau within the Federal  Reserve System that will have supervisory authority over some institutions previously supervised by the Reserve Banks under delegated authority from the Board of Governors in connection with those institutions’ compliance with consumer protection statutes; limits the Reserve Banks’ authority to provide loans in unusual and exigent circumstances to lending programs or facilities with broad-based eligibility; and vests the Board of Governors with all supervisory and rule-writing authority for savings and loan holding companies.

Tomorrow’s blogticle will continue discussion related to finance.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

The Federal Reserve may consider downsizing its original plan to purchase $600 billion in Treasury bonds over fear that inflation could be driven to dangerous levels by the revitalized economy. Quantitative easing—the purchase of Treasuries by the central bank—is intended to raise the price of Treasuries, which should lower long-term interest rates and provide banks with cash to lend to their customers. The expectation is that lower long-term rates will encourage home refis and boost corporate investments and expansion, which, it is hoped, will created new jobs.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of quantitative easing in Advisor’s Journal, see Fed to Purchase $600 Billion in Treasuries in Move to Stimulate Economy (CC 10-94).

Why is this Topic Important to Wealth Managers? This topic discusses the evaluation report of the financial crisis issued by a Congressionally appointed body. The report presents discussion of events and causes leading up to the ordeal, as well as indications and factors which presented its forthcoming. The discussion is aimed to allow wealth managers to intelligently discuss some causes of the financial crisis with clients and colleagues.

There was a new report issued earlier this year by the Financial Crisis Inquiry Commission, which was created to “examine the causes of the current financial and economic crisis in the United States.” [1] In this report, the Commission presents to the President, the Congress, and the general public the results of its examination and its conclusions as to the causes of the crisis.

The Commission was established as part of the Fraud Enforcement and Recovery Act passed by Congress and signed by the President in May 2009. [2] The independent panel was selected by Congress and composed of private citizens with experience in areas such as housing, economics, insurance, market regulation, banking, and consumer protection.

The report is intended to provide a historical accounting of what brought our financial system and economy to a precipice and to help policy makers and the public better understand how this calamity came to be.

Below are some of the findings issued in the report:

The financial crisis was avoidable. Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. These were ignored or discounted. There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms’ trading activities, unregulated derivatives, and short-term “repo” lending markets, among many other red flags.

The widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The report notes that more than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had removed key safeguards, which could have helped avoid catastrophe. 

The dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis. There was a view that instincts for self-preservation inside major financial firms would shield them from fatal risk-taking without the need for a steady regulatory hand, which, the firms argued, would stifle innovation. Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding. In many respects, this reflected a fundamental change in these institutions, particularly the large investment banks and bank holding companies, which focused their activities increasingly on risky trading activities that produced hefty profits. 

A combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis. In the years leading up to the crisis, too many financial institutions, as well as too many households, borrowed to the hilt, leaving them vulnerable to financial distress or ruin if the value of their investments declined even modestly.

The government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial market. The report notes that key policy makers—the Treasury Department, the Federal Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of the financial crisis.  Other agencies were also behind the curve. They were hampered because they did not have a clear grasp of the financial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis. This was in no small measure due to the lack of transparency in key markets. They thought risk had been diversified when, in fact, it had been concentrated. Time and again, policy makers and regulators were caught off guard as the contagion spread, responding on an ad hoc basis with specific programs to put fingers in the dike. There was no comprehensive and strategic plan for containment, because they lacked a full understanding of the risks and interconnections in the financial markets. Some regulators have since conceded this error.

Tomorrow’s blogticle will discuss new and exciting planning aspects of 2011.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts

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[1] The Financial Crisis Inquiry Report. Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States.

January 201.  http://c0182732.cdn1.cloudfiles.rackspacecloud.com/fcic_final_report_full.pdf.  Last Accessed 2/27/2011.

[2] See Public Law 111-21.

Why is this Topic Important to Wealth Managers? Clients will often ask for your “take” on the annual federal budget.   It is important to show the client a command of the the facts and figures before addressing the political perspective of spending and revenue.  Any producer can “mime” someone else’s perspective.  Distinguish yourself with a command of the underlying numbers.  Thus, this week Advanced Market Intelligence presents the facts and figures of the proposed federal budget for fiscal year 2012. 

The new 2012 Federal Budget was released today by the President.  Below is a summary of the inflows and outflows concerning next year’s proposed budget (in billions of dollars).

Outlays:

Appropriated (“discretionary”) programs:   Security $ 884/Non-security 456; Subtotal—appropriated programs: 1,340

Mandatory programs: Social Security $ 761, Medicare 485, Medicaid 269, Troubled Asset Relief Program (TARP) 13, Other mandatory programs 612; Subtotal, mandatory programs 2,140, Net interest 242, Disaster costs 8

Total outlays 3,819

Receipts:

Individual income taxes $ 1,141, Corporation income taxes 329

Social insurance and retirement receipts: Social Security payroll taxes 659,Medicare payroll taxes 201, Unemployment insurance 57, Other retirement 8, Excise taxes 103, Estate and gift taxes 14, Customs duties 30, Deposits of earnings, Federal Reserve System 66,Other miscellaneous receipts 20

Total receipts 2,627

2012 Deficit $ 1,101

Here are some noted observations of the current budget: 

• By 2020 individual income taxes will more than double from their 2012 levels of 1,141 to 2,439 billion. 
• The Proposed corporate tax rates increased from 2011 to 2012 to over 60% from 198 billion to over 329 billion (the budget notes that The President is calling on the Congress to work with the Administration on corporate tax reform that would simplify the system, eliminate these special interest loopholes, level the playing field, and use the savings to lower the corporate tax rate for the first time in 25 years—and do so without adding a dime to our deficit.)
• By 2020 the annual interest owed will balloon to over $729 billion, or an increase of over 300% from the 242 billion 2012 levels. 
• The cost of Medicaid will more than double by 2020 as compared to 2012 levels. 
• The estimated deficit for 2020 is 735, which means the overall national debt by year end 2020 is estimated to be over 21.5 trillion dollars. 

The Department of Defense and Department of Homeland Security together make up the largest spending area in the budget.  Here’s a list of some of the highlights the security spending provides for. 

• The allocated amount reflects the continued investment in national security priorities such as cybersecurity, satellites, and nuclear security.
• Maintains ready forces and continues efforts to rebalance military forces to focus on both today’s wars as well as potential future conflicts.
• Enhances the Administration’s commitment to maintaining a reliable nuclear deterrent by increasing investments in the nuclear weapons complex and in weapon delivery technologies, and to nonproliferation by preventing the spread of nuclear materials around the world.
• Refocuses funding for border surveillance on technologies that have proven to work, allowing for a tailored approach in different border regions instead of the previous one-size-fits-all approach.
• Safeguards the Nation’s transportation systems with an $82 million increase to support deployment of up to 1,275 Advanced Imaging Technology screening machines at airport checkpoints, with robust, built-in privacy safeguards.

Tomorrow’s blogticle will continue with discussion on the national budget. 

We invite your opinions and comments by posting them below, or by calling the Panel of Experts

Why is this Topic Important to Wealth Managers? Presents discussion on a common financial product that investor clients can incorporate into planning strategies, if not already.

Today’s blogticle takes a look at one topic of international intrigue and high finance—debt issued by the United States Federal Government.  Generally United States “securities are debt instruments issued by the U.S. Treasury to raise money needed to operate the federal government and to pay off maturing obligations.” [1] The “paper” is backed by the “full faith and credit of the United States government guarantees that interest and principal payments will be paid on time, and thus, these securities are considered very safe investments.” [2]

Treasury bills, or T-bills, “are short-term government securities with maturities ranging from a few days to 52 weeks.” [3] The Bills are generally sold at a discount from the par value or face amount of the bill.  An example, an investor may pay $990 for a $1,000 bill.  When the bill matures, the investor is paid the full $1,000.  The discount or difference between the purchase price and the redemption price is interest.   T-Bills are sold direct by the Treasury department, or can be purchased through banks and brokers.

Treasury notes, or T-notes, are “issued in terms of 2, 3, 5, 7, and 10 years, and pay interest every six months until they mature.”  [4] Further, the notes may be sold at a discount (for less than face value), at a premium (for more than face value) or for face value.  When the note matures, the investor is paid full face value, in addition to the interest payments received.

A few of the key features of T-notes include:

• The yield on a note is determined at auction.
  • Notes are sold in increments of $100. The minimum purchase is $100.
  • Notes are issued in electronic form.
  • An Investor can hold a note until it matures or sell it before it matures. [5]

Treasury bonds are issued for terms of 30 years and pay interest every six months until maturity. When a Treasury bond matures, the investor is paid its face value.

“The price and yield of a Treasury bond are determined at auction.” [6] Like a T-note, a T-bond, may be issued at a discount, premium or face value.  T-bonds “exist in either of two formats: as paper certificates (these are older bonds) or as electronic entries in accounts.”   Today, Treasury bonds are issued exclusively in electronic form.

Total current outstanding debt issued by the Treasury in bills, notes, bonds and other evidence of indebtedness is approximately 13.8 Trillion dollars, as of the end of November 2010. [7]

For more in-depth discussion on T-bills, notes and bonds, see AdvisorFX: U.S. Treasury and Government Agency Securities.

Clients can purchase T-bills, notes, and bonds from the Treasury Department at the following link: http://www.treasurydirect.gov/indiv/products/products.htm. 

Tomorrow’s blogticle will present some interesting new topics.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] AdvisorFX.  AUS Main Libraries ,  Section 22.2  Investment Vehicles, B—U.S. Treasury and Government Agency Securities. http://www.advisorfx.com/articles/f22-2_1_13_3760.aspx?action=13.  Last Accessed 11/29/2010.

[2] AdvisorFX. U.S. Treasury and Government Agency Securities.

[3] Untied States Department of the Treasury.  Treasury Direct-Treasury Bills.  http://www.treasurydirect.gov/indiv/products/prod_tbills_glance.htm.  Last Accessed 11/29/2010.

[4] Untied States Department of the Treasury.  Treasury Direct-Treasury Notes.  http://www.treasurydirect.gov/indiv/research/indepth/tnotes/res_tnote.htm.  Last Accessed 11/29/2010.

[5] Untied States Department of the Treasury.  Treasury Direct-Treasury Notes.

[6] Untied States Department of the Treasury.  Treasury Direct-Treasury Bonds.  http://www.treasurydirect.gov/indiv/products/prod_tbonds_glance.htm.  Last Accessed 11/29/2010.

[7] Damian Paletta.  The Wall Street Journal.

Debt-Panel Chairmen Work to Gain Support.  November 29, 2010.  http://online.wsj.com/article/SB10001424052748703785704575643111128016590.html.  Last accessed 11/29/2010.; see also Untied States Department of the Treasury.  Treasury Direct.    http://www.treasurydirect.gov/NP/BPDLogin?application=np.  Last Accessed 11/29/2010.

Tectonic forces are pulling the U.S. economy in opposing directions: Republicans, who won the House and a majority of state governor seats in November elections, promise to cut spending and taxes and rein in government excess. But following the Republican victory, the Federal Reserve is launching a fresh round of its own brand of stimulus, announcing a plan to purchase $600 billion in Treasury securities. Will the forces of Congressional fiscal policy and Fed monetary policy remedy the sluggish economy, or will they stress it beyond repair?

The Fed purchase is intended to raise the price of Treasuries, which should lower long-term interest rates and provide banks with cash to lend to their customers. The expectation is that lower long-term rates will encourage home refi’s and boost corporate investments and expansion, which, it is hoped, will created new jobs.  But there is no guarantee that banks will lend from any cash infusion resulting from the Fed purchase. Banks could choose, instead, to increase their cash reserves against expected defaults. And U.S. corporations are not showing any signs of going on a hiring spree—instead, they are sitting on record amounts of cash.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

We invite your questions and comments by posting them below, or by calling the Panel of Experts.