The Federal Reserve just eliminated municipal bonds from its list of high-quality liquid collateral assets. Banks are liable to start dumping them in favor of Treasuries and corporate bonds. The cost of credit will increase for municipal governments and decrease for corporate and financial institutions, and power and financial resources will be further shifted from the public sector to the private sector.
The Federal Reserve released some positive news Wednesday about the state of the U.S. economy, pointing to better figures than expected in the second quarter of 2014 while registering ongoing concern about unemployment.
News that China sold $34 billion in U.S. government bonds at the end of last year has raised the fears of analysts, some of whom think that the move—which involved less than 5 percent of the overall amount of bonds held by China—is meant to signal a loss of confidence in U.S. economic policy.