At one point, cumulatively, between March 2008 and March 2009 the Fed had extended over $9 Trillion in credit. Roll that over in your head one more time and see if you can wrap your mind around that....and then tell me that the Fed has made tremendous errors and needs to be vilified for its actions. Look at the list of the folks it extended credit to: Caterpillar, McDonalds, Harley Davidson and on and on. These weren't bailouts and the Fed has not lost a dollar on these actions as of today. Let's do the counterfactual: Take away $9 Trillion in credit like many of the flaming whack jobs want to do and what would have been the path of output and employment? I'll make book for any of you jackwagons out there who say we would now be better off. And I'll take every dime of that action.
http://online.wsj.com/article/SB10001424052748704594804575648740948074042.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsTop
http://www.nytimes.com/2010/12/02/business/economy/02fed.html?_r=1&ref=economy
6 comments:
agreed
How to justify so much lending to foreign firms and foreign central banks? National socialism is one thing but global socialism is a whole new ballgame. I blame the Ben Bernak.
Hi Art and thanks for the visit. I think I have earned my reputation as a vigilant anti-socialist. No confusion there. But where were European and foreign banks supposed to get dollar balances to settle dollar-denominated accounts back when financial markets went to hell? If you recall, when the TED spread surpassed 5% there was no availability of dollars for foreign central banks or foreign banks. As the world's economic leader we had to fill that role. The Fed is where the world gets dollars. What the Fed did was necessary, appropriate and correct. That is what they do. I should add that these balances to foreign central banks were extinguished around the first of February of this year. Now...if you wanted to get steamed because they bought some Irish government debt or some other such nonsense, you would be right on. But they have not.
Doc, the loans made by the Fed to the foreign firms are undoubtedly global socialism, as the US taxpayers were on the hook in the event of default. Privatize gains and socialize losses.
Not so Art. Those loans were 100% collateralized and were made to respond to the collapse of the commercial paper market. That is very different than taking equity positions with those firms or guaranteeing loans like the Fed did with J.P. Morgan when they took over Bear Stearns.
Certainly $9 trillion of secret money had a significant effect on credit in our economy. But I think there are some things to consider:
1. If the public (and the markets) had known that this amount of money was needed to prop up these banks and other businesses, would these loans have had the same positive effect?
2. If the effect still would have been net positive, why not continue these programs now? We desperately need jobs and the $600 billion QE2 seems lacking in scale compared to this.
3. If these programs would not have been as effective if they were publicly known, then is it appropriate for the Fed to do this in secret? Would it still be appropriate for the Fed to continue secret programs like this to attempt to prop up businesses?
4. What would be the effect of this kind of program if it was a long-term, continuing program? How would our dollar be valued and how would markets react with an additional $3 trillion added at any given time?
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