Looks like the Fed doesn’t much care what Congress does (h/t C&L):
The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
This dovetails with something I’ve been saying for a long time. In essence Bernanke can print as much money as he wants, so the idea that Hank had to have 700 billion NOW always seemed a bit strange to me. If Congress didn’t give Paulson the money, Bernanke could always just make it.
Mind you, apparently Bernanke did this before the final vote. I wonder if he knew at that point that it was going to fail and was trying to get ahead of the curve, or if he really thought the bailout would cause 630 billion worth of turmoil. Not much of a vote of confidence.
Real world effect? The inflation which was beginning to die down will get boosted back up. Gas prices were dropping. Not so much now. This completely blows the Fed’s balance sheet out of the water, they are now past the 800 billion dollars they had (since that already spent over 500 billion). That puts it clearly into the "running the presses hot" stage. And as any conservative Chicago School economist can tell you, when you do that, inflation!
Helicopter Ben Bernanke has proved what he deserves his name. This is indeed the equivalent of dropping money from helicopters. Since the one thing everyone agrees is that this isn’t a liquidity crisis, it won’t solve the problem. But it may soothe the waters for a time. 630 billion is a LOT of money.
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I hope I can photocopy those Bernanke dollars for college.
ok, i do think this is wrong. but so long as he’s going to do it anyway, what’s the chance of him flooding some of that cash in my direction?
They keep it up, you might as well. You’ll have your $100 loaf of bread. But to be honest, I am much more concerned about the price of ethanol, but not to put in a car…
there is no question in my mind this president believes he has the authority to declare a national emergency and martial law from this economic crash
no doubt what so ever
Better buy a new wheelbarrow to haul all that worthless paper in before the inflation hits.
The price of everything is going to go up, except yer house.
And, of course, they will be distributing a big part of that $630 billion (!) to the American taxpayers to help US with the ever-rising cost of gasoline, utilities, credit card interest, mortgage interest, food, insurance, etc., right? Right? Hello? Pelosi? Reid? Obama? Buehler? Buehler? >>
I have agreed with your hypothesis from the outset. And an economic crisis is specifically mentioned as a reason the invocation of Martial Law.
and look at us, I bet most people would not even think it was all gamed.
I am telling you, this is just too coincidental..scary times, scary times
Hi, Pups
Thanks for all the updates on this mess, Ian.
I miss all y’all and hanging out here at the lake, but the doom-y gloom-y reality of the National Disaster the Wrecking Crew has wrought is just too much for my psyche right now.
So…I read the front pages every couple of days and speak well of this site at every opportunity.
Bye for now.
FunnyD
But Bill Clinton stole the W’s off of the keyboards! He trashed the place!
-Village Idiots
The liquidity will not cause inflation in goods & services prices. Demand is too weak for that to happen. Instead it will go into asset price inflation. Just can’t figure out what the next asset price bubble will be.
It could be brush, the kind that is harvested from the Bush Brush Ranch. There’s supposedly a bumper crop this year.
Ya gotta do what ya gotta do.
Hi.
Looks like everyone is going to be needing a wheelbarrow to carry around bread money.
As I said before and I’ll say again, respectfully, this is the worst possible course of action. Bison dollars from Street Fighter would be more convincing than this. We’re screwed faster than you can say “structural immunization”
This is important — Digg please
BINGO!
How’s that legacy looking, Bushie?
I could probably point out how gas is so much higher than when Bush took office, but that seems like shooting at an unarmed man.
or wages. :(
Is there a reason it won’t go back into commodities like oil?
Ummm. I don’t agree with this. Don’t think anything I’ve said indicates I do. I’m willing to spend money, but it would be much more targetted than this.
Normally I would agree. But in this case I don’t see the asset, so I think commodities, esp. oil.
Could be wrong though.
Doesn’t this also cause a devaluation of the dollar worldwide?
Not my area, so deep trouble is possible, but I think Ben views the economy as a set of channels through which policies can work. The ones for fiscal policy and for different kinds of monetary policy are different, so today’s debt facilities and the fiscal channel that Paulson was most gloriously denied are only partly interchangeable, and if there’s a bottleneck in one channel, then trying to blow it out through another is at least inefficient.
Some one somewhere today pointed out that we don’t know what Ben’s opinion of the MOAB was. I’ve noticed that he has spoken at least twice publicly of how nice it would be if bankers would do more loan modifications with troubled borrowers. You hear different things about why there haven’t been more. Waiting around on a bailout could be one reason.
you really think they can inflate this puppy one more time?
Done. Thanks for the link.
Okay, my real question is, are we starting down the road to becoming like Argentina when their inflation rate was in double digits or inching to triple digits in a single year? Hasn’t this happened to a lot of other countries when their economy was mismanaged?
Oik dropped $10 today, and all the commodities except gold are dropping like stones.
You’ll be able to watch that happening by watching the price of oil.
sorry..didn’t mean to imply that you did. But I think this is an absolutely disaster.. if they go ahead with this and the worst case scenario happens, our children’s children might just be able to dig their way out.
Looking more dubious with each passing day. Still think they can make it, but this will be the last time if they do.
Yes, it really increases the pressure downward.
Yeah, I know. Money was drying up. We’ll see. If it doesn’t get to inflation, it means the real economy is really really in the tank.
OK, so the bailout is now complete and congress can just go home?
from what I’ve learned from ian and echanomics, plus all the posters at the lake, money just evaporated with this economic crash
I see nothing wrong with putting it back into play.
as ian pointed out on another thread, just what figure is the right amount to put back into the economy…I don’t know, maybe the number they came up with is well reasoned
I think a helpful term is “stagflation.”
Stagnate growth, accompanied by inflation.
that is my impression – but what do i know?
That was really a fun time in the 70’s. It lead to this Republic era, so if it now puts them back in their coffins, there’s at least some poetic justice.
You keep saying that goods and services prices aren’t inflating. You should come to my grocery store. Every time I go, everything is more expensive. Everything.
my concern is not just that the economy is falling. a potentially even bigger problem, imo, is that we have so little reserves to draw on. what happens if there is a major disruption in oil delivery? or any number of things that could and usually do go wrong? our ability to weather even a little storm is severely diminished.
This is not really printing, I think, because $330BB comes off the Fed books to exchange for foreign currency (since it comes off the books, no net increase in money supply); the other $300BB is nominally collateralatized in the TAF. I think the money supply doesn’t actually increase as a result of all this unless (and, as a practical matter,it’s guaranteed) the TAF collateral turns out to be worthless and the Fed has no additional recourse.
But I’m still reading up on sterilized interventions so maybe I got this wrong.
Nice to see you Funny Hussein Diva!
I think a bold WPA type effort for in frastructure and energy will have a great impact on the economy. It will stimulate construction and new technology, create millions of USA well paying jobs.
Throw a few hundred billion at that and watch the think take off. Keep Wall Street away from the cash.
same here, but i thought that was due to 1) speculation in the grain markets and 2) secondary costs due to increases in oil prices.
are there real shortages that can account for the increasing prices?
dumb question.. if the Chinese aren’t lending to the US and most Euros are sitting on the sidelines, who’s going to buy this trillion dollars in paper?
Loo! I’ve been waiting for you to show up. Did you see your not bff on CNBC? No? Just got home? Good for you.
The recent rise in prices was based on supply shocks with some demand pull. Even so, it was modest compared with the inflation in houses. Looking ahead, the global economy is weakening, so even with supply constraints, additional inflation is not likely to be great. (Inflation lags so there may still be some in the pipeline from past conditions.) So the new liquity is likely to chase after some other asset.
How much do them high qualty color copiers cost? Where can I get a desktop model? Any suggestions?
An economist discusses the TAF as a sterilized intervention.
I absolutely agree. This is the right time for this type of investment. And we need the jobs and the work needs to be done. I’m with you.
SWF?
This may have already been mentioned already, but did anyone watch Ron Paul speak today? He said the bailout (putting money into the market) would cause the dollar to plummet. He basically said we’re screwed if we did bailout Wall Street.
Oh boy.
Soveriegn Wealth Fund, i.e. a hedge fund run by a national government.
My response to your issue with equities held by money market funds got EPU’d. I think those stocks are not held outright by the money market funds, but through repurchase agreements. So problems arise when the company that sold the agreement to the money market does not have money to repurchase the stocks. Anyway, the repurchase agreement is like debt to the money market. I am pretty sure all money market holdings have to have some debt or bond like properties.
Anyone know if I got that wrong?
I love the pictures of Wall Street that go with this Associated Press article:
http://ap.google.com/article/A…..AD93GLR8O0
LOL
Why am I feeling so sinister today? I don’t know!
Yes.
I would add that much of that WPA has to be aimed at reducing oil consumption. I think that’s the best bang for the taxpayer’s buck.
Will not Fed have to go to Congress at some point to expand balance sheet? Won’t that be a big public act with unperdictable consequences on exchange rate and foreign holders of debt?
I don’t think it can be as simple as printing presses, account book entries and renting helicopters all the way to new administration.
No, but that was a terrific comment. I liked the detail.
i don’t think i said anything about equities. i thought money market funds were more into buying commercial paper? and that can be a problem if, for example, it was lehman’s paper.
Thanks. Great, you seem to know these details. I am mere econometrician. Do you know if money market funds can hold preferred or convertable stocks outright? I am curious. I cannot find the detail on the intenet right now.
Just for the heck of it, another weird question that shows my ignorance: What do the Japanese do to limit the vast gap between the CEO pay and that of the lowest paid worker in their company? I understand their ratio of CEO pay::worker pay is much less than ours.
Krugman up on KO.
Paul Krugman is just coming up on Countdown after commercial…that is for those of you on the west coast or pacific time.
ok. 5 minutes of thinking…. and here’s my uninformed take. with all the deleveraging going on, there just won’t be enough $$$ to throw at it to reinflate a bubble. unless the deleveraging can be stopped/prevented.
i don’t see how, but hope to see more from folks here who actually have a clue.
Oh, oh. Keith said, this just in: Obama makes worst persons!
Sorry, I might have misunderstood your comment/objections to my response to you in post bleow.
Yes, if bonds default, that would be a problem.
I read in Naked Capitalsm that the Washington Mutual deal made everything very uncertain, which did not help the situation. The bondholders and other high tier capital was included. The bondholders were wiped out along with some of their buddies right below, when the books said they could have recovered most of the value. Supposedly this was done to make extra double sure no FDIC funds were at risk.
Anyone know wher to get more details on this?
Anyway, if I understand that right, it is astounding. Think of it, the ownership, property rights free market bunch wipes out bondholders. Amazing. No wonder things are turmoil. No safety at all in anything but government securities and cash.
I saw Issa on Hardball. I had a few words for him last night, but surprisingly, I haven’t heard anything back.
He supported every single bill to send this economy into freefall, then votes no on the bailout.
Not that I think the bailout is necessarily good (don’t know jack), but Issa is up to something. I think he wants himself and his billionaire friends to pick up these banks/institutions for nothing.
To Ian:
I recall you and a fellow Agonist guessing that the real depth of the subprime mess was between 1 and 2 trillion dollars before it would all be wrung out of the system in 5 to 7 years. Tell me: if you add $630 billion and $750 billion, aren’t you pretty close to total ballpark?
i think we’re talking about two different things. washington mutual was seized on the 25th. i was referring to the run on money market funds on the 18th.
IMHO, Issa was caught between the filthy rich in his district (who wanted him to vote yes) and all the other Republicans in his district, who were under the mistaken notion that he was a fiscal conservative.
FWIW, CNBC reporting that Bush addressing the nation tomorrow at 7:45AM ET, tomorrow.
That means another plummet on the market. Maybe this is what George Bush wants? Could be.
we’re so fucked.
Issa called Paulson a day-trader today; said we needed to bring in some “real bankers” to solve this crisis. Sounds like Issa knows some “real bankers” he’d like to be in on the deal.
Bush to speak at 7.45am tomorrow
IMHO, the drops in the stock market are the nails in the Bush coffin. These drops hurt the top 5% a lot more than anything else in his administration.
The fact that he failed to get the bailout passed confirms he is irrelevant to the GOP.
Thanks Boo. You’re making little hearts beat out of my chest at the moment! Anything that hurts George Bush and his Have Mores is fine with me. ;-)
Should have put that last bit in a separate comment. The Washington Mutual comment was not related to your money market question. I was just illustrating how crazy tings have become.
Think I’ll be here and skip Shrub. Can’t stand the son of a bitch’s voice anyhoo.
Capitalism as we know it cannot exist without credit. We’re going to have to figure out a better way to operate within that parameter. Putting band-aids on a flawed system isn’t going to work. We’re also going to have to make a significant effort to reestablish a manufacturing sector here vice importing the majority of our commodities from foreign countries working for American corporations.
I think you hit on the big problem with administration and the House GOP. They simply cannot admit to themselves that the unregulated unsupervised financial market system they sponsored will not work. It short circutis their brains. So no real solutions can be found as long as they can block legislation.
The current system has to be radically reformed and re-regualated.
Have to hope we can hold on with short term fixes, and Fed money creation until new administration.
Bah hahahaha! KO just slammed Palin & Rove at the same time. He said if Palin gets in the White House then all 305 million Americans will have to evacuate the country. LOL
You may be on to something…again.
Oh, he probably called that one time you didn’t answer the phone while in the spa with the pool boy.
Today’s play by play has me a little goofy brained tonight. Didn’t think you’d mind my side trip fantasy there. :)
Where did Bush speaking come from? I cannot find any reference to that on the news. Link please.
Nvermind–I see: CNBC
It’s not just this administration and the GOP. Milton Friedman’s free market ideas pushed the greed button on a lot of people. All they saw were dollar signs and never thought about the consequences. Everything is short term. There’s no long term thought process within either the economic or political system. The Cree had it right when they wanted all decisions made based on that decision affecting the seventh generation down the line. Christ, we don’t think 3 months ahead, much less 120 years.
I’m not ready yet to buy your argument, but if it is correct, than the best bet is that we are heading for a Japan style liquidity trap. The asset that will be bid up is money. The only way to get people to unload that money is to reduce its value by printing more of it, something the Japanese Central Bank was unwilling to do, but I think our Central Bank will be willing to do. If zero interest rates won’t get people spending and investing, then we have to go to negative interest rates.
Your humor is uh ah er … disarming.
Heh.
Considering the various ways they’ve learned to leverage money it’s quite possible to take $1 and inflate some paper to $100 at least.
If you’ve got a piece of paper and I can borrow $100 on my $1, then I can pay $100 for your paper.
Somewhere along the way somebody decides to turn off the music in this game of Musical Chairs and when everybody tries to find a chair there are going to be some people holding cash and some holding paper. Cash wins. The paper just drops to $0 (the bubble burst) and the cash is still worth $100.
Then you pay back the loan…oops, all bankrupt. Somebody is out borrowed money and they go bankrupt too.
Of course, borrowed money doesn’t relate to the real world. So, what’s happened is the banking industry which loans lots of dough with little collateral is creating money from thin air and later when it can’t get the loan back somebody named Uncle Sam has to print more cash. This means all the cash in the game is worth less (not worthless, but less) to the degree the entire money supply has been inflated.
How to win this game?
Always have a chair handy with “too big to fail” written on it.
Always have FDIC insurance.
Always have government backing, so you don’t have to worry, but people do.
It also helps if you have crooked politicians helping you — as appears to have happened in this real estate bubble/scam.
Is the banking credit system a bust? Well, without it our capitalistic economic system probably wouldn’t work. So, once again, they have full backing by government.
On Wall Street there is always a shortage of money, so they’re always finding ways to increase prices or to take a bigger cut.
I think I read recently that over the last couple of decades the financial industry (read “New York City”) has grown to something like 20-25% of the entire national economy. But, the economy hasn’t grown much at all. That means they’ve diverted a lot of cash to flow through their part of the world and they all take a cut. The more that goes through the more they make. Also, the more that goes through and gets caught in their nets the more the government needs to make so the rest of the ‘real’ economy continues to have enough.
They’ve gotten so efficient at taking a cut off the entire economy that it’s requiring government to print that much more cash for everybody else. Essentially they’re printing their own cash and occasionally, such as now, pushing us to the edge of extinction.
Is it just a power play? Are they aware of how insane this is? Do they want to destroy the goose that lays their golden eggs? Can they stop themselves if they realized?
The Chinese and Saudis are buying up real stuff too. What would you do if you had tons of cash and the real stuff was cheap?
It’s similar to a problem we’ve had through much of our society’s existence: a handful of people have much more money than everybody else (more than they need to live on) and they use that extra money to control everything.
Now it’s gone international and though Americans have been in the lead in this game there’s no rule which says we don’t, at some later time, get to be ruled by somebody else. And, why? Not because they are smarter or more industrious or anything really important, but because of some freak happenstance of nature.
Shouldn’t we base our system on something more substantial and self-sustaining?
In the game of Musical Chairs it’s essential for our Masters of the Universe to take all the cash and leave worthless paper to everybody else (the masses, represented by mutual funds or other things the common folk are in).
If they own the stock, create a bubble to suck everybody in and inflate the price of the stock and then puncture it by selling out Enron-style. They can get a lot of inflated cash and leave everybody else with paper.
It’s not news to say that. It’s traditional. What we’re seeing now which is a bit embarrassing is that all the plays are out in the open, they’re expected and the politicians who are in on it are obvious frauds. It’s like a whorehouse without the walls to hide it from the public.
Well, some of the public refused to participate in the bailout. But, a lot are in the markets. More were invited to put Soc. Sec. funds, but refused.
What always amazes me is that if the system simply sucks cash out at a slow steady rate it makes some people very wealthy and happy and doesn’t destroy things for everybody else. But, often they lose control (as Bush said, they get drunk) and overdo. Now, perhaps because of the world trade movement, they want to suck it dry NOW, before somebody else takes over as top dog.
Thank you – finally someone has – uh – stated a bit of monetary policy 101 – five years of the Iraq war has been destructive enough on our economy. Now, in one fell swoop, the cost of the Iraq war gets doubled overnight. Yes, if there’s no handout, there will be some folks who will lose their jobs, fortunes, houses, etc. But what if the next government actually undertook policies to strengthen our balance sheet, such as stopping the 20 billion/month in Iraq [or the 6 billion gallons of fuel consumed by it]. The price of gas (the rise of which has merely been a form of tax by Bushco but by a different name) will continue to go down. When it duz, good things will happen. If the price of gas goes up, how long before another inflationary spiral leads to another downward tumble in r/e prices and we get another financial bailout . . . how’s your dollar?
I can’t believe all these people who are so worried now about this 700 billion dollars. Where were you with the other 10 + trillion dollars of national debt. There is lots of blame to go around but remember the people who caused it in Washington and WAll Street people were supported by the people while they did this to us. People put their money in those banks and voted for the people in Washington so who really is to blame. I say they should spend 1400 billion dollars and put equal money into the country to jump start the economy. 700 billion dollars is enough to fix all our infrastructure get us started off foreign oil give us health care and fix social security all which would flow through the economy making it boom. People would have jobs to pay their bills and mortgages money to spend business would boom and taxes would be paid to pay for all of it. But NO, everyone wants to support stupid wars give money away and make every Arab rich while bitching about everything. If you want to know whats wrong read ” why we have so many American Problems and what we can do about them” available at authorhouse.com
No I don’t.
Sorry.
Ian!
Looks like you and Sen. Obama are on the same sheet of music on expanding FDIC Coverage to $250,000!
http://politicalticker.blogs.c…..lout-plan/
If you can riff off of it, I’ll send your next article in to the Obama Campaign’s Economic Advisors through the Ideas portal like last night.
Who knows? Maybe somebody ‘live’ is screening that box?