All this money being created and injected into the system will result in a major decline in the value of the US dollar and major inflation in late 2009 and especially 2010-Lou
By the end of last month, Paulson and Fed Chairman Ben Bernanke had engineered loans, pledges and guarantees of more than $7.4 trillion to the financial elite that was responsible for creating the economic crisis in which we find ourselves today:
March 11: $200 billion in loans to financial institutions
March 16: $29 billion in loans to J.P. Morgan Chase
July 30: $300 billion housing bill
Sept. 7: $200 billion for the U.S. Treasury to assume Fannie Mae and Freddie Mac's debt
Sept. 16: $85 billion to AIG and $70 billion injected into the financial system
Sept. 19: $50 billion pledged to support Money Market funds
Sept. 29: $150 billion made available to U.S. banks and $330 billion made available to foreign banks
Oct. 3: $700 billion in Paulson's bailout package
Oct. 7: $1.3 trillion in purchase debt from companies
Oct. 8: $38 billion in additional loans to AIG
Oct. 14: $1.4 trillion in FDIC guarantees of interbank loans
Nov. 24: $20 billion loaned to Citigroup with the Treasury Department assuming responsibility for 90 percent of Citigroup's $306 billion in debt
Nov. 25: $600 billion in loans for mortgage-backed assets and $200 billion in loans for consumer-backed assets
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Hi Lou. Enjoy your site very much. Question: When you say "All this money being created ..." what do you mean? Do you mean real dollar bills?
ReplyDeleteI ask because if you study the FED's balance sheet there has not been an increase in the printing of money (at least yet). The TARP and other programs have been paid for by the FED borrowing already existing money from member banks and/or the Treasury.
Knowing that the printing of dollars would be inflationary the FED has so far gone to great lengths not to do that.
Until recently, the Fed would only temporarily park non-government securities on its balance sheet: a bank would typically receive a temporary, often overnight, loan for depositing top rated securities with the Fed; these “swap agreements” were traditionally intended for very short-term loans, but the crisis has led the Fed and other central banks around the world to engage in 60, 90 day or even longer agreements. Since late September, the idea of swap agreements has been supplemented by outright purchases.
ReplyDeleteWhen the Fed issues cash for debt securities it acquires, we talk about “monetizing the debt”.
This can be taken a step further, although this last phase has not yet been implemented: when the government needs to raise money, the Treasury issues debt in form of Treasury bills and Treasury bonds. To keep the cost of borrowing for the government low, the Fed may step in and buy Treasury bonds. Whereas traditionally, the Fed is actively managing short-term interest rates by buying and selling short-term Treasury bills, the Fed may also buy, say, 10 or 30-year bonds. It's a wonderful funding mechanism: if the Treasury needs to raise cash, the Fed could come and provide it.