The Federal Reserve is going nuclear. The TAF is doubling to $900 billion, interest will be paid on reserves beginning October 9, and the rules prohibiting commercial banks from purchasing assets from affiliated money market mutual funds is being relaxed. This last move puts FDIC insured deposits behind money market mutual funds which is, I believe, a roundabout way to get taxpayers behind the funds. They previously did this for the investment banking affiliates. The interest on reserves is required because the Fed is flooding the system with reserves and if it did not pay interest on reserves its target rate would be meaningless, as overnight lending rates would plummet to near zero. This is amazing – unfortunately - and there is likely more to come. Who thought $700 billion was a lot?
Sphere: Related ContentMonday, October 6, 2008
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Here is a good summary of the triage the government is doing to keep financial markets functioning (or breathing). Historic and frightening.
Ahaha - I think the writing's on the wall, Mr. Keynes.
dd - suggestions please - ones that dot include marshal law:-)
i think doing nothing was/is the best option. But that ship has since sailed.
Let the market prices correct. Let oil drop - as it already is (RBOB Gasoline is now $2.07/gal!!). Let home prices drop - the prices are just too high (I can't afford it even with a good income - people with less income are buying houses I can't afford..???). And they got that way because of excessive credit. Float the interest rate - let the banks set it. Don't buy any mortgage backed securities - the government can further screw things up through a reverse auction - and set the price for securities way too low! If they buy it at a high price, we just gave license to the banking industry to do what they always have done. The solution has to involve pain - we have to experience a recession - no ifs ands or buts - its got to be done. Central banks will try to move the heavens and the earth to avoid it, but you can't - and they always make it worse. Now we're in more debt, and still facing the same consequences.
If the government didn't declare any crisis, I bet ya things wouldn't have been as bad as they are now. This thing is 50% psychological (percent can be debated - ok - partly). But Ben Bernanke, Hank Paulson, etc should just have kept their mouths shut.
For some reason, the government's actions remind me of this classic scene in a classic Disney movie:
LOL! The parallelisms are out of control!
I'm not sure doing nothing meets my criteria of avoiding marshal law. The cascading effect of the de-leveraging that's going on is powerful. Certainly would have shut down credit markets by now if not for the Fed and other government actions. No cash, no food. No food, no law. I just hope the waves can be held back long enough to avoid drowning. BTW - massive Keynesian programs coming up I think. The next administration will need to do something to get people working if things keep going this way. Do I hear public works?
why isn't my link showing?
dd - don't know. Can't see it in comments or on blog.
http://www.youtube.com/watch?v=LD8HDta7Z_4
dd - nice:-)
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