Can The Fed Fund The Treasury With Emergency Capital?

The Fed is not powerless to assist the Treasury in a modestly long-term term fix of the debt ceiling fiasco. In fact, as Stone McCarthy's Raymond Stone observes: "The Fed does not want to be a player in this debt ceiling/potential default debate. It didn't want to be a player in the Bear Stearns debacle, or the Lehman situation. But when push comes to shove the Fed will do what it can to avoid a default." In summary there are three avenues that the Fed can pursue in order to help Tim Geithner prolong the cash illusion modestly longer. The three options for Bernanke are to i) book profits; ii) prepay expenses and, yes, iii) sell gold. Combined, these three approaches could squeeze out well over half a trillion dollars, giving the Treasury breathing room not only past August 2, but potentially into 2012. That said, "The Fed would not want to advertise to Congress the possibility of delaying default. It does not want to take Congress off the hook on increasing the debt ceiling." But it will, if it has to, and the end result will be a delay potentially of up to a month. And if it means selling off the Fed's gold, so be it.....