There are 2 purposes of a Central Bank as far as legitimate purposes. Iwon't go into the illegitimate purposes, which there is one, to allowbankers to screw us out of as much property as they can.

Onepurpose is as a reserve vessel and the other is to put out circulatingmedium. Now, one implies the other, that the reserves back thecirculating medium and the Central Bank doesn't give out the mediumwithout getting in return the reserve asset. The reserve asset bearsinterest. The circulating medium doesn't.

Here is the problem.What bank would be in business very long if they traded their interestbearing assets for non-interest bearing assets? This is the first ideayou must get into your head about this game.

The second ideais that the Fed is a bank too and they don't want to go broke. Theyaren't that concerned with the value of what they deal with as they arein the idea that what they have on reserve will buy back what they haveput out. This means that they aren't that interested in buying junkpaper. Now the government bonds might be junk paper as well, but itstheir junk paper.

The third idea here is that if the Fed Reposall the good assets out of the system, the bank are only left withtheir bad assets and non-interest bearing FRN's. The idea isn't goingto occur.

Here is the other twist. The main reason for theentire game is so banks can keep lending money. When banks aren'tlending money, extra Fed funds are not needed and in fact refused. TheFed could force money into the system, but I would venture the bankswould return with the money and and buy the Federal securities. In asense, this is what is known as deficit spending by our government andthe balances would be held as Federal liabilities. This is the morelikely cycle for propping up the economy, creating deposits offgovernment checks and collateralizing those deposits with federalnotes. That is how Bush bailed us out last time, a $700 billion swingin government financing.