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Monday, September 22, 2008

Now even the Fed borrows from the Treasury

I have been trying to wrap my mind around what happened last week when the Fed actually took money from the Treasury. It took me a few hours to sort through the details and connect the dots (thanks a lot to James Hamilton who helped out). Sure enough, the Fed was running out of bullets and needed to reload. By taking from Treasury auctions, the Fed can keep bailing without inflating. Sure would be nice if housing prices stopped falling so we could know just how much water there is to bail.

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