From a Fed press release:
The Federal Reserve on Friday announced two initiatives to address heightened liquidity pressures in term funding markets.
First, the amounts outstanding in the Term Auction Facility (TAF) will be increased to $100 billion. The auctions on March 10 and March 24 each will be increased to $50 billion–an increase of $20 billion from the amounts that were announced for these auctions on February 29. The Federal Reserve will increase these auction sizes further if conditions warrant. To provide increased certainty to market participants, the Federal Reserve will continue to conduct TAF auctions for at least the next six months unless evolving market conditions clearly indicate that such auctions are no longer necessary.
Second, beginning today, the Federal Reserve will initiate a series of term repurchase transactions that are expected to cumulate to $100 billion. These transactions will be conducted as 28-day term repurchase (RP) agreements in which primary dealers may elect to deliver as collateral any of the types of securities–Treasury, agency debt, or agency mortgage-backed securities–that are eligible as collateral in conventional open market operations. As with the TAF auction sizes, the Federal Reserve will increase the sizes of these term repo operations if conditions warrant.
The Federal Reserve is in close consultation with foreign central bank counterparts concerning liquidity conditions in markets.
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To quote economist John Williams over at shadowstats.com:
“[If not] for systemic intervention and manipulations by the Federal Reserve, it appears we might be contemplating a collapsed U.S. banking system and a looming deflationary great depression that could have dwarfed the bad times of the 1930s. Such is the good news. The bad news is that with those same systemic interventions, the Fed is locking in a hyperinflationary great depression in the decade ahead, with the turmoil possibly breaking by 2010 or earlier.”
Hyperinflation in Germany facilitated Hitler’s rise to power. I wonder who we might have waiting in the wings?
The fed is so dangerous right now. Anyone who took away from the Japanese bubble bursting that one must simply print more money is nuts.
The longer it takes to clean out the system, the more Japanese the problems will become. So the BOJ flooded the system with liquidity and ZIRP, but the transmission mechanism was broken!
Now lets see how long it takes for the Fed to institute their “extraordinary measures” and start buying up long bonds and assorted other garbage.
So far the Fed has been pretty restrained, despite their blarney about rate cuts. Look at the adjusted monetary base over the past year.
I wonder if this is a change in direction?
Hmmm, let me think. And then there’s manbearpig.
Hyperinflation in Germany facilitated Hitler’s rise to power. I wonder who we might have waiting in the wings?
Your choice of Nurse Ratchett, Benson, or Uncle Fester.
I cannot understand this, if I lack the credit to purchase a brand new plasma television, I might call that a liquidity problem as well. Yet no one is showering me with bills so that I can go out there and buy the damn apparatus anyways. Well maybe they are, with a $150 billion economic stimulage package, but that is what causing my credit problems in the first place, by taxation or inflation!
Not WHO is waiting in the wings but WHAT:
http://www.youtube.com/watch?v=vuBo4E77ZXo
(And the part about a VChip in new passports is true, as I’ve just found out in having to re-apply for one.)
There’s a good chance the increase in TAF and 28 day repos will not be inflationary, thus the printing press analogy is a stretch.
The FED is offsetting TAF lending by selling long term bonds.
And as announced last Friday, it offset the first of its 28 day repos by selling t-bills.
http://www.newyorkfed.org/markets/operating_policy_030708b.html
Thus the money supply will probably stay constant. No debauching of the currency here. No turning of the presses.
Rather, what seems to be occurring is a change in the backing of federal reserve notes. The Fed is selling long term bonds and accepting questionable TAF assets in their place. As for the Fed’s first 28 day repo, it was composed entirely of MBS. It offset this purchase of MBS by selling t-bills. Out the Fed’s door are going safe government bonds and bills, in are flowing questionable private sector securities.
So it is difficult to say that Fed notes will depreciate since overall money supply is staying the same. Only relative prices will change due to the draining from one sector and flow into another.
Only if you think the Fed’s collateral is important can you make a case for a weaker dollar.
And now, two business days later, they’ve raised the amount of their Treasuries-for-toxic-MBS swap to $200 billion. Wall St. loves it, and shares of financial institutions surge. Go figure.
“overall money supply is staying the same”
Oh, that must be why they stopped posting M3?
Shenanigans!!
HI,
That’s great job.
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