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Mises Economics Blog

Bennie's Rule

February 27, 2008 11:02 AM by Mark Thornton | Other posts by Mark Thornton | Comments (8)

Professor Bernanke is giving his testimony to Congress. Blah...Blah...Blah.

Here are some interesting graphs from the Fed itself. They have to do with Bennie's new monetary "rule" of force feeding "liquidity" into the marketplace. It seems that banks were reluctant to use the Discount Window to borrow reserves because it would be a sign of weakness. So Bennie decided to just auction off reserves to the highest bidder thereby forcing liquidity into the market and providing cover for the banks themselves. We can see below the effect since December of 2007.

Graph: Term Auction Credit

This must be so pleasurable for the old economics professor to see the upward sloping "supply curve" of money. And as we can see below this is a "new rule".

Graph: Total Borrowings of Depository Institutions from the Federal Reserve

Comments (8)

  • Inquisitor

  • Should be 'auction' instead of 'action'.

  • Published: February 27, 2008 11:48 AM

  • jeffrey

  • Holy crimony Mark! I thought I had seen everything.

  • Published: February 27, 2008 12:17 PM

  • Greg Diderich

  • I certainly see something that we in the engineering world would term "out of family". Other than that, I'm not sure what I'm looking at. Would someone mind explaining a little bit what is going on in these graphs? -Thanks

  • Published: February 27, 2008 12:54 PM

  • Mark Thornton

  • Both graphs simple indicate that the Fed has given away about $50 billion at the "discount window". This is where banks put up collateral for the loans and pay the "discount rate" in return for the reserves which can function as "required reserves" or can be used to make new loans.

  • Published: February 27, 2008 12:58 PM

  • Byzantine

  • Makes one wonder what sort of fool would want to be president come January 2009. Sure enough, the race is down to two or three fools (excepting Ron Paul's altruistic bid).

  • Published: February 27, 2008 12:59 PM

  • Jaq Phule

  • Byzantine,

    No fools they. Neither shortages nor price fluctuations affect you personally for the rest of your life, once you've lived in the imperial palace.

    Okay, maybe that doesn't explain Mrs. Former President. But then again, what does?

  • Published: February 27, 2008 2:17 PM

  • Fephisto

  • WHOA!

    Most other graphs on Mises I usually reply something to the lines of, "Oh my, what a nice exponential curve." But this really scares me!

    Things that indirectly affect the money supply should NOT follow a Dirac-delta function!

  • Published: February 27, 2008 4:38 PM

  • Thomas Peters

  • This is a hockey stick graph that should really have people worried.

  • Published: February 28, 2008 4:56 AM

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