I’ve been doing some digging on the Internet b/c I’ve been wondering where all this bailout money has gone. This is a little tricky because the Federal Reserve is a PRIVATE CORPORATION and therefore is NOT required by law to disclose their accounting.
Fortunately, this astute analysis by James Conrad sheds some light on what the Fed is up to:

In this case, the Fed gave banks cash for toxic defaulting mortgage bonds. Then, it took the same cash back by selling the banks new treasury bills just received from the U.S. Treasury. The Fed, in turn, bought these T-bills with the newly printed dollars. The banks, having gotten rid of toxic assets, were allowed to transfer private risk to the taxpayers. This process bolsters bank balance sheets by privatizing bank profits, and socializing bank losses.

Basically, the Fed is trading Treasury Bills for toxic derivatives and forcing banks to hoard cash and re-deposit their bailout money at the Fed. This serves to prop up T-Bill prices and prevent a crash of the US dollar, allowing the US Treasury raise money (by selling Treasury Bills) while paying very low interest rates.
Thankfully, the banks (so far) are NOT lending out the bailout money they’ve received. If they did, we would have hyperinflation since banks can lend out 10 times the cash they have on deposit at the Federal Reserve. This would drive up the overall money supply exponentially and send the US dollar crashing to ALL TIME LOWS.
The Takeaway Message
Foreign cash-rich superpowers like China (which is rumored to be diversifying into gold reserves) are getting sick and tired of financing further increases in America’s debt, so now the USA has to step in and borrow money from the Federal Reserve to finance their own debt. This is a VERY dangerous game (see monetizing the debt).
Treasury bills are being artificially propped up by Paulson and Bernanke’s cartel of bankers, and anyone buying them now is getting ripped off.
The question is, what is the end game plan? I don’t want to go into detail about this (b/c nobody is certain anyway), but my guess is that we will continue to experience deflation in the next few months as bank deleverage and credit dries up. However, the Fed will try to “fix” this deflation by opening the flood gates and allowing banks to start lending freely, sending the money supply skyrocketing and the US dollar to all time lows.
If you’ve read up on Bernanke’s academic history, you will know that he is a big fan of using inflation to fight off recessions / depressions. I forgot where I read this, but Bernanke once quipped that it is much easier to print money these days b/c the printing press has been replaced by the computer.
Profiting From Disaster
The one good thing I can see from this whole mess is that the US dollar will be artificially propped up in the short term due to: credit default swap settlements, investment redemptions, flight to safety, Federal Reserve policies, etc. This is a good opportunity to buy inflationary hedges like precious metals, or go on a shopping spree in Euro denominated countries like France. For example, the Japanese Yen is EXTREMELY strong against the US Dollar right now, and not surprisingly, I spotted dozens of fashionable Japanese tourists shopping on Rodeo Drive in Beverly Hills today.
Act fast, however, because chances are, this rally is only temporary and will likely head lower in the next few months.
END THE FED
Why does the US Treasury need to borrow money from the Federal Reserve? Why doesn’t the US Treasury issue currency themselves?
For instance, look at China. The Chinese government issues their own currency and their national banks are controlled by the government. Their banks act in the interest of the PEOPLE rather than for private profits. China and oil-rich nations in the UAE are now in the position to gobble up American corporations and properties for fire-sale prices.
The root of today’s credit crisis isn’t sub-prime mortgages (which the media has brainwashed the American Sheeple into thinking). It is the fact that America’s credit and currency are issued by a cartel of private, for-profit corporations operating under the guise of the Federal Reserve.
I think it is time for us to END THE FED.

Via: http://www.bankaholic.com/830/where-bailout-money-gone/