Source: Liu Jiaolian

Overnight this morning, the Federal Reserve’s December interest rate meeting ended as scheduled. The result was in line with market expectations, and interest rates continued to be cut by 25bp. This result exceeded the expectations of some people who had speculated that interest rates would be stopped. So far, since the second half of 2024, the Federal Reserve has cut interest rates three times, by 100bp, or 1%, reducing the US federal interest rate from 5.5% to 4.5%.

This will bring the interest rate back to the level at the beginning of 2023.

The interest rate cut is implemented. However, the three major U.S. stock indexes and the crypto market all experienced corrections. Why? Because the expected interest rate cut has already been predicted by the market and overdrawn in advance. This has become a situation where the good fortune turns away, the green mountains are still there, and the sunset turns red several times.

Of course, the reason for the correction has something to do with the Fed Chairman’s statement that adjustments may be more cautious next year. After all, there is a gap between this and the radical expectations of some people in the market to continue to cut interest rates rapidly next year.

After all, in this period of Campo depression when radicalism is popular all over the world, if you are not radical, you will be criticized as conservatism. An incomplete rate cut means no rate cut at all.

As a moderate standing in the middle, you will not only be criticized by those standing on your right for being too left-wing, but you will also be criticized by those standing on your left for being too right-wing. . The so-called two sides are not human beings.

Why does philosophy like to talk about the golden mean? This is called making up for what is missing. The sages have long seen through that society evolves into an "M shape" too easily, and those who stand in the middle are the bravest. I don’t have the courage to stand in the middle. If it is not strong enough, it will be torn into pieces if you stand in the middle.

Either black or white, left or right, heaven or hell, one thought becomes a Buddha, one thought becomes a ghost. Today is the blockchain revolution, tomorrow is the tulip scam.

It’s easy to pretend to be a ghost. It is difficult to be a person who floats between heaven and earth and stands upright. It's easy to praise or criticize without thinking to cater to public sentiment. It is difficult to look at new things objectively and without prejudice and seize historical opportunities.

The reason I don’t understand her is because I haven’t been with her yet. Once you have been with her for a long time, you will know how good she is.

At the early morning press conference, Powell’s answer to a reporter’s question went viral.

The reporter asked about the U.S. BTC strategic reserve.

Powell replied: The Federal Reserve is not allowed to own Bitcoin. We are also not seeking relevant legal changes.

What he said is indeed in line with the "current" status quo.

It’s just that this statement is more general, general and vague. Let's break it down carefully.

First of all, what is the nature of BTC in Powell’s mind?

Looking back at the 2024.12.5 article "Bitcoin is on the rise again, breaking $100,000 for the first time" on Jiaolian, Powell said publicly not long ago that inIn his opinion, BTC is more like gold. He said, "It is not a competitor to the US dollar, but a competitor to gold."

In other words, he believes that BTC is a physical asset.

So, can the Federal Reserve directly "own" physical assets? Obviously not.

For example, gold. The U.S. gold reserves are actually owned by the U.S. Treasury. The actual storage and custody are scattered in reserve warehouses across the United States (such as the Federal Reserve Bank of New York). Under the Gold Reserve Act of 1934, the Treasury Department issued gold certificates to record the value of the gold it owned. These gold certificates issued by the U.S. Treasury Department are legal proof of gold reserves.

Can the Federal Reserve own gold as a physical asset? Can't. The Federal Reserve can only own gold certificates as financial assets.

However, even if you want to own a gold coupon, you still need to act in accordance with the law. The key here is to legally include the value of financial assets on the Fed's balance sheet.

According to the Federal Reserve Act of 1913, the Federal Reserve can include gold certificates on its balance sheet as part of its reserve assets. Gold certificates are recorded at a nominal value on the Federal Reserve's balance sheet and represent the value of gold committed by the Treasury.

In accounting terms, the price of gold reserves is set by the International Monetary Fund Agreement Act of 1973, and is priced at a fixed price of $42.22 per ounce of gold, rather than by the market. price. Regarding this valuation, Jiaolian wrote in the 2023.11.14 article "How much gold does the United States hold?" 》discussed in detail and will not be repeated here.

However, this pricing is not a one-and-done rule. Like our central bank, we adjust the pricing according to the market price.

Okay, after understanding this, we need to examine two questions:

First, can the new president of the United States authorize the Treasury Department to reserve BTC (large pie) and issue “big pie coupons”?

Second, can the Federal Reserve act urgently and include "big pie coupons" on its balance sheet without amending the Federal Reserve Act of 1913?

For the first question. John F. Kennedy, the 35th President of the United States, has already set an example.

On June 4, 1963, President Kennedy signed an executive order, Executive Order 11110. The executive order authorizes the U.S. Department of the Treasury to purchase funds under the Silver Purchase Act of 1920.20), based on the silver reserves owned by the Ministry of Finance, the power to issue "Silver Certificates" in the name of the Ministry of Finance.

Essentially, silver certificates are a form of U.S. currency that is exchangeable for an equivalent amount of physical silver.

On November 22, 1963, President Kennedy was assassinated.

The voice of a female singer seemed to come from the radio:

"I want to ask you if you dare to love me like you said you did/

I want to ask you if you dare/to be crazy about love like me

I want to ask you if you dare/to be like you Said you love me like that/

Be crazy about love like me/ What do you think?"

For the second question. The Federal Reserve has demonstrated this personally.

During the 2008 financial crisis, the Federal Reserve adopted a series of unconventional monetary measures, including the purchase of MBS and other financial assets, to provide liquidity and support the U.S. economy. This is called quantitative easing (QE).

Section 14, Section 2, of the Federal Reserve Act of 1913 stipulates that the Federal Reserve can purchase bonds (such as U.S. Treasury bonds) to manage the money supply and stabilize the economy, but the act does not explicitly authorize the Federal Reserve to purchase bonds unrelated to private assets such as mortgage-backed securities (MBS).

The core question is: Does the power of the Federal Reserve belong to public power or private power?

After all, public power cannot act without authorization from the law. If the law does not explicitly stipulate that the Fed can personally purchase MBS, then its direct purchase of MBS is suspected of being illegal.

However, as the central bank of the United States and even the world, the Federal Reserve is a bug-like existence. The Federal Reserve is in fact a private agency rather than a public sector institution. As for private rights, they can be done unless prohibited by law.

So, this can be interpreted flexibly.

The usual explanation is this:

On the one hand, the Federal Reserve Act of 1913 does not explicitly prohibit the Federal Reserve from purchasing specific types of assets.

Secondly, the Federal Reserve found some other laws to endorse its "emergency powers", including the "Emergency Banking Act of 1932" and the "Financial Stability Act of 2008" Act (Financial Stability Act of 2008) and other laws. These laws authorize the Fed to use more unconventional currencies in certain emergencies and are considered to provide the legal basis for the Fed to purchase MBS during crises.

In summary, in summary, the Fed explained that the purchase of MBS was motivated bymonetary and financial stability needs, and are emergency measures taken in response to the special circumstances of a financial crisis. Therefore, although these actions did not comply with the literal provisions of the Federal Reserve Act of 1913, the new authorization provided a legal basis for these measures.

In fact, courts at all levels in the United States have never explicitly ruled that these actions violate the 1913 Federal Reserve Act, but regard them as emergency response measures.

The conclusion, therefore, is that, despite the legal gray area, this move is not considered a direct violation of the Federal Reserve Act of 1913.

Jiaolian has repeatedly mentioned that the Federal Reserve has been quietly replacing its "grey" MBS positions with legal U.S. debt positions.

This shit has been going on since 2008 until today.

So, even if it does not seek legal changes, the Federal Reserve can flexibly explain the nature of its power to find legal basis for what it does or does not do.

Finally, I need to mention that the global central banks also have an international coordination organization called BIS (Bank for International Settlements). This was part of the post-World War II international financial order.

BIS members are mainly composed of central banks around the world, and currently have about 60 members. These members include important central banks in the global economy, such as the Federal Reserve in the United States, the European Central Bank in Europe, and the People's Bank of China. Founded in 1930 and headquartered in Basel, Switzerland, it can be called a central bank's bank.

In 1974, the Bank for International Settlements (BIS) established the Basel Committee on Banking Supervision (BCBS) to formulate regulatory standards and guidelines for the international banking industry.

The main function of the Basel Committee is to formulate international standards related to bank capital adequacy, risk management, bank supervision, etc., especially regulations on capital adequacy, liquidity requirements, risk-weighted assets, etc. It usually issues a series of regulatory standards and recommendations for reference and adoption by financial regulators around the world to ensure the health and stability of the banking system.

In 1988, the Basel Committee launched Basel I, which was the first standardization of capital adequacy requirements for global banks.

In 2004, the Basel Committee released Basel II, which was a further improvement and expansion of Basel I.

In 2010, after the global financial crisis, the Basel Committee launched Basel III to improve the capital quality of banks and enhance the banking system's ability to resist risks in crises.

It can be seen that BIS (Bank for International Settlements) and the Basel Committee play a vital role in global banking supervision. The Basel Committee, established through BIS, is responsible for formulating regulatory standards for the global banking industry, and the Basel Accords (I, II, III) are theseThe concrete embodiment of the standard.

If central banks around the world, including the Federal Reserve, want to add assets to their balance sheets, that is, the so-called risk exposure to a certain asset, they usually need to formulate it in the Basel framework through BIS. standards, and then each member central bank can act accordingly.

The Basel Accord is called an agreement rather than a law because it relies on the self-discipline of each member to comply, rather than being enforced through violence like a law.

Unfortunately, as early as December 2022, BIS released a report. The main meaning was that central banks of various countries will be allowed to allocate no more than 2% of Bitcoin from 2025.