that's why I told Stacy to hang on to her keys @DeathDollarDeal @stacyherbert
18 minutes ago
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Government deficit set to balloon: Why shouldn’t we worry?
The budget deficit is already estimated to reach $1 trillion (yes, $1,000,000,000,000) in 2009, and that doesn’t include the $300 billion, no $500 billion, no $1 trillion stimulus plan. When is it okay to worry?
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The Fed has been rather sneaky, Part 2
On November 7, 2008, Bloomberg filed a lawsuit against the Fed. It wanted the Fed to disclose the collateral being accepted in exchange for the Fed’s massive liquidity measures. The Fed’s has extended $1.6 trillion in new bank credit since last year, including $1.4 trillion in collateralized loans plus $185 billion under the off balance Term Securities Lending Facility (TSLF). On December 8, the Fed replied with a big fat NO.
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What do Fed policy and the commercial paper market have in common?
Normally nothing. But we are not in normal times – whatever that may mean – and the Fed is propping up the commercial paper market via its new liquidity facilities, the Commercial Paper Funding Facility (CPFF) and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (ABCP MMMF). In just seven short weeks, the Fed has added 69% of the entire third quarter’s loss in net-issuance of commercial paper. Some would say that the Fed IS the commercial paper market right now.
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Why exactly does the Fed pay interest on reserves?
The Fed’s paying interest on reserve balances has been bugging me lately. I simply don’t understand why the Fed would initiate a policy shift desinged to “improve efficiency in the banking sector” when the banking sector is in the middle of a crisis. To me, all the policy shift has done is to pay banks not to lend.
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2 million more jobs lost? Could be
The November employment report was miserable. Monthly job loss, -533,000, was the biggest since 1974 in levels and since 1980 in percentage change. Since December 2007, 1.9 million jobs have been lost, while 1.3 million of those jobs were cut in just September through November – more than were cut in the 1980 recession. Headlines suggest a 1981-1983-style labor contraction is underway. Well, we aren’t even close; such a decline implies at least another 2.1 million jobs lost, and possibly a 500,000-1,000,000 monthly decline in payroll.
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Policymakers got it wrong too
What happened on December 1, 2008? The National Bureau of Economic Research (NBER) announced that the U.S. entered its 22nd recession since the turn of the century in December 2007. Global economies are also in recession – Eurozone, U.K., Japan – driven by the U.S. financial storm and record inflation rates.
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Another record-setting employment report, but what record exactly?
The November employment report was nothing but treacherous. The monthly nonfarm payroll fell 533,000, and the decline was broad-based. The goods-producing industries slashed another 163k jobs, while service industries cut more , 370k, which alone exceeds the market’s expected decline in total nonfarm payroll , 300k.
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Today’s initial unemployment claims report not totally unexpected!
From CNNMoney.com, Jobless claims in surprise decline on December 4:
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The Fed’s balance sheet is changing: reserve balances set to grow
The Fed is unwinding the temporary Treasury Supplemental Financing Program (TSP), while at the same time, planning to purchase direct GSE (government sponsored entity, mainly Fannie Mae and Freddie Mac) obligations. Interestingly, the Fed is sterilizing the TSP flows back to the Treasury – at least on paper and for now – but it will not sterilize the purchase of GSE debt. This illustrates the Fed’s move away from traditional policy – reducing the short term interest rate – and toward new policy: quantitative easing and changing the composition of its balance sheet.
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Deflation for dummies
Well, not really. It’s just that one of my readers asked for a description of the costs of deflation, so this post is a how-to on deflation. But I also take this opportunity to re-state my opinion that deflation poses only a small macro-economic threat if policymakers come through (I think that they will).
