As per the 4.1 release, the Treasury Supplementary Financing Account finished Wednesday at $344.5 billion, up $185 billion from last week while Reserve Balances hit $171.5 billion, up $83.5 billion.

I’m not sure about the description “stealthy”! As for the intent, I’d guess at this stage it’s just about preventing the system from seizing up entirely.

Despite the spectacular sums, I don’t think it’s safe to assume all these efforts will be enough to halt debt deflation. After all, there’s almost $50 trillion in debt outstanding in the USA. The more aggressive they get, the more unhappy a lot of debt holders will eventually become (after any first flush of relief peters out). The deflationary effects of higher interest rates (if the market begins to fear the authorities will “go all the way”) could so easily overwhelm their reflationary efforts.

FWIW, my best guess is they’ll remain behind the eight ball for at least a while longer.

You may wanna take a look at this chart and see what the fed has done with its balance sheet.

I can’t confirm it’s right, but if it is the last thing anyone would want to be doing is going into cash if you’re a US resident as the Fed is attempting to stealthily socialize the problem by depreciating the value of the buck through inflation.

It’s pretty frightening if this is true.

http://zentrader.ca/blog/?p=405

Perversely you want to be borrowing dollars at the present time to buy hard assets in US dollars.

http://zentrader.ca/blog/?p=405

Greenspan was adamant that it was vital for global security to flood the world with liquidity post fall of USSR. Is that the function of the Fed?

I have a theory with regards to Greenspans’s easiness, Rog. He copped a lot of shit he went to tight in the late 80’s and early 90’s and copped a ton of shit from almost everyone for being too slow to cut with the onset of the recession of 91/92. He was so gradual, cutting rates .25% 22 times before finally stopping.
After that I always thought he erred on the easy side as that period spooked the hell out of him.

Greenspan was adamant that it was vital for global security to flood the world with liquidity post fall of USSR. Is that the function of the Fed?

Nope, inflation worries wouldn’t seem a priority concern right now. Looks like they’re busy fighting the last war instead of, as some wag said, the one before last.

Never a dull moment.

Trichet is absolutely insane. In fact the whole board of the ECB ought to be placed in strait jackets. The ECB left rates alone.

“We discussed extensively the recent intensification of the financial market turmoil and its possible impact on economic activity and inflation, recognising the extraordinarily high level of uncertainty stemming from latest developments,” he said.

“In this context, we stressed the crucial importance of keeping inflation expectations firmly anchored in line with our objective.”

Did I say “bank of Switzerland”? I am getting older.

I gotta stop reading Roubini as he turns me quasi suicidal as in:

http://www.nbc.com/Saturday_Night_Live/video/clips/reliable-investments/698621/

I had a quick look on the FRB site and couldn’t find the info in any of the releases; hence the question. Oddly enough, the only mention I did find was in the US Reserve Assets report (3.12) where a note said “Excludes outstanding reciprocal currency swaps with the European Central Bank and the Swiss National Bank.” That was at the end of July.

Anyway, no matter. It was just sheer curiosity more than anything.

I presume the Fed swaps/lends the Bank of Switzerland dollars and they (Fed) get a corresponding amount/loan back in swiss francs. So I think the swiss francs go into the same account the Fed used to disburse the the US Dollars.

It is an increase in the global money supply, though i think, however temporary as those dollars are put out in the market.

Do you know where they account for the dollar swap facilities with other central banks?

Still, as far as I can make out, the Fed has monetised about $80 billion in the last three weeks (as reflected in reserve balances) and its balance sheet in the same period expanded by over $300 billion. Thats thirty-five percent in three weeks.

The one I watch like a hawk is the monetary base which went up by $76 billion, so that must be part of the 80 billion washing around through the aggregates you mention.

As I’m sure you know, Treasury has already made a decent start. Under the newly created Supplementary Financing Program it’s sold (as of last Wednesday) $158.9 billion of treasuries above and beyond its normal needs and deposited the proceeds with the Fed. Not a bad start, but as you say, this programme hasn’t yet directly involved monetisation and as I understand things, the intention is to do much the same under an eventual bailout programme. Intentions can of course change pretty quickly in this kind of environment . . . .

Still, as far as I can make out, the Fed has monetised about $80 billion in the last three weeks (as reflected in reserve balances) and its balance sheet in the same period expanded by over $300 billion. That’s thirty-five percent in three weeks.

I have mixed feelings about the dollar (and gold). You could well be right about the dollar in the short term, if nothing else because the realisation is sinking in that the ROW isn’t exactly in great shape either and so there’s room for a realignment of perceptions. Still, it has huge fundamental headwinds to tack into in the medium to long term. Gold? Well, I guess it could take another big hit if the deflationary story gets more legs but it may also be on the cusp of decoupling from commodities more generally and donning its monetary robes.

And yes, absolutely the most interesting markets ever.

I originally thought the funds were going to monetized…. the Treasury printed the cash or in these modern times credited the Fed’s in return for bonds (that’s how monetization takes place these days, I think) However they’re going to borrow the money from the bond markets or as one guy suggests at NC, through the short end of the curve. It’s going to be like a bull elephant in a china shop wherever they go on the duration curve as it’s going to distort the yield curve to no end even if as I’m sure they will do it in tranches. It’s a huge amount of money! You could buy countries with that amount

The nasty effects is going to be experienced across all markets. Perversely it places a giant bid for the US Dollar as you see money going to the US, maybe reluctantly but heading that way all the same. So we now are going to have the spectacle of the dollar strengthening dramatically (possibly) when the US may need a weakish dollar or a dollar that isn’t artificially strengthened by this “ginormous” money flow.

Buy the US dollar and sell gold is my bet.

I think though they may have to monetize at some stage once they see the effect it’s going to have and when that happens the US Dollar and commodities reverse course.

This is the most interesting market of all time.

As you imply, the blame game is only useful in so far as it helps us better understand some aspect of what really happened. In which case, of course, it’s no longer the blame game.

Lovely anecdote, Rafe. Like you, I fear this package may well do more harm than good. There are some interesting discussions on that topic unfolding right now at Naked Capitalism.

I entirely agree with NPOV’s idea of small preventive interventions. How much more can I do to demonstrate flexibility? The point is to intervene in ways that actually produce the desired effects.

Given the haste, size and complexity of the legislative package it is a good bet that it will do more harm than good. Time may tell, but of course the analysis will be totally obfuscated by the process of political point scoring and finger pointing.

I merely insist that the current failure is not the failure of a market that was free of regulations and political intervention and interference. And the fault lies on both sides of the house of course, as JC pointed out. The instinct for big government interference is bipartisan in the US and probably everywhere else as well, given the extent to which the democratic process has been subverted by the vote-buying motive (buying votes with other people’s money, nice work if you can get it!)

Anyway, I think this has been a very worthwhile exchange and it justifies the existence of Troppo as a place where diverse voices can speak.

However after some digging and thinking you come to realize that the entire political establishment was involved going back to Bush 1. Well not the political establishment but the entire government apparatus.

Reality is that they’re all involved but no one is entirely responsible. I liken it to a plane crash where a cascading set of events and pilot actions and omissions caused the crash and not one single thing was responsible.

No political group or regulatory agency has gone out of its way to deliberately undermine the system. However all were inadvertent players.

I think the real issue how we make sure the central banks really do take away the punch bowl.

Still, on the evidence, it seems to me both have been making a real effort to listen and communicate on this thread. In other words, to act more or less in accordance with the ideal we all from time to time nurture for this revolutionary new conversational medium.

We all tend to defend the territory with which we’re most familiar and I don’t think that’s ever likely to change. Surely the best way to reduce the irritation and increase the pleasure of these sorts of debates is to work hard at reducing misunderstanding. So much disagreement flows from not having agreed terms and definitions before lighting into some opponent.

I think some real progress along those lines was being made here. “Natural” regulators and libertarians were talking to each other, rather than past each other. Certainly, I’ve been enjoying the process.

Be a shame to see that go up in smoke because everyone suddenly feels compelled to head back into their respective bunkers.

Do I have an ideology? Of course. Am I rigidly attached to it? Considering I’ve changed my views somewhat over the last few years (generally moving towards the view that economic liberalisation is, on balance, a good thing – but having briefly been attracted to idea that near-complete liberalisation is actually quite justifiable on a number of grounds, wound somewhere around the centre) then I don’t believe such a criticism is justified.

Again, I don’t believe I’ve ever read a post of yours regarding your views on markets and government intervention that I didn’t largely agree with, so I’d like to know which of my points you specifically disagree with.

I hope that you do manage to find some common ground in this discussion, but I won’t be holding my breath. I’m conscious that accusing both of you of ideological rigidity may well raise the temperature of the thread for little or no useful purpose, but OTO I doubt that I’m the only reader who gets seriously exasperated by such predictable tunnel visioned responses.

Quite likely I have not explained it carefully enough but I seem to recall saying something like “here we have common ground to work towards effective regulation”.

The common ground is the understanding that markets are not perfect (who ever said they are?) and at the same time, intervention is fraught with the risk of unintended consequences.

For what it is worth, I suspect that the record of major interventions is worse than the record of free markets, if you just take some examples like (1) Soviet system, (2) the causes of the Great Depression (3) nationalisation of industry in Britain and (4) quite likely the major causes of this current bubble.

The problem is that you can’t say everything about a complex situation at the same time, especially on the run.

It begins:

It’s an ill wind that blows nobody any good. The fall of Bank rate on Thursday by another half per cent is an outward and visible sign that the dramatic and precipitous slump of the last three weeks in Wall Street has definitely relieved the pressure on the world’s money markets which the New York situation has been exerting so continuously for the last two years.

It concludes:

[The return to cheap money conditions] should assist trade recovery throughout the world, which has been handicapped for so many months past by the abnormal financial conditions in New York. If we are justified in assuming that the setback in American industry will only be temporary, we may look forward to steady development in 1930, free from the incubus that has of late been hampering world conditions.

Make of it what you will.

NPOV, you make a good point. On reflection, the blunt phrase “heavily regulated” is a bit of a shocker. What I actually meant to imply with that adjective is that leverage should be tightly constrained. Quite how, given my choice of words, I expected anyone else to understand that distinction, well . . . . .

Ken, great comment, though you’ve clearly put NPOV into a box where he doesn’t feel at all happy. No matter, he defends himself well.

Finally, looking back through the earlier comments, I see I missed the one from SJ. No argument at all. In fact, a very good point and one that has become increasingly relevant in a world of skewed incentive structures. A lot of the hedge fund strategies (and indeed those of all but the most experienced and skillful writers of financial risk insurance) are in fact premised on earning current income by assuming long term, often unquantifiable risks. In any real terms, as you suggest, it’s a scam.