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Buzz: November 25, 2008
Chart of the Week
"Since September 24, 2008, over 550 billion new dollars were printed out of thin air and added to the US money base. That translates to 58% growth of the total US money base in just two months. (Annualized, that would be 350%. Watch out, Zimbabwe.) Usually, base money supply grows at around 1-2% per month, and has only grown faster than 5% per month a few times. But the graph 'went vertical' in September, and got worse in November. The growth in money supply since then is larger than the total money supply that existed in 1999, and is twice as fast as the worst single month during the depths of the Great Depression or the height of World War II."
Fed's Role in Crisis is Giant, if Opaque
The generally accepted figure with respect to the Treasury Department's financial rescue program is $250 billion and counting. The Federal Reserve, however, is lending far more - $893 billion - to help a wide range of institutions weather the economic storm. It is also considering a program that will prop up consumer lending. The Fed is essentially substituting its own unlimited ability to supply cash for that of private markets, and even fulfilling some of the original goals of the Treasury's rescue program by allowing financial institutions to use securities that are difficult to sell as collateral for loans. Unlike the Treasury's package, which has elaborate disclosure requirements and oversight mechanisms, the Fed lending is occurring quietly and at the discretion of its five governors and top officials of the 12 regional Fed banks. The Fed refuses to name the banks and companies accessing the cash, or to specify which assets institutions have pledged as collateral in exchange for loans. To enact the numerous new lending programs, the Fed has increased the size of its balance sheet and replaced ultra-safe US government bonds with loans to banks and others. It can expand its balance sheet at will, reflecting its power to create money. The Fed's lending achieves some of the goals of the Treasury's original financial rescue plan. TARP, which is now focused on investing money in banks, was originally intended to focus on purchasing mortgage-backed securities. The Fed has agreed to take these on as collateral. The Fed's expanded lending is a form of economic stimulus known as quantitative easing, a way for central banks to try to fuel growth even when short-term interest rates are next to zero. Fed leaders are considering other ways they can spur economic growth beyond cutting interest rates, the most promising option being to start buying the debt of Fannie Mae and Freddie Mac.
Nevertheless we have left a season and we have entered into another. The water has gone under the bridge and its a whole new world.
The Fly Says:
Normally, I’d say someone would buy their holdings. However, in this tape, they may need to unwind quickly.
In addition to Lehman’s 400 billion stock portfolio, they have 550 billion in debt.
September 14th, 2008 at 7:18 pm