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Tuesday, November 25, 2008

Balance sheet skid marks

Obama has been left to clean up the mess. Washington Post:

Wall Street analysts, congressional overseers and the media have parsed every detail of the Treasury Department's financial rescue program -- $250 billion and counting. Largely outside public view, however, the Federal Reserve is lending far more than that amount -- $893 billion
As of last week, the Fed's loans included $507 billion to banks, $50 billion to investment firms, $70 billion for money market mutual funds, and $266 billion to companies that use a form of short-term debt called commercial paper. It is considering a new program that would make billions more available to prop up consumer lending: auto loans, credit cards and the like.

In lending these vast sums, the Fed is essentially substituting its own unlimited ability to supply cash for that of private markets, which are not functioning normally. The central bank is even fulfilling some of the original goals of the Treasury Department's $700 billion rescue program by allowing financial institutions to use securities that are difficult to sell as collateral for loans.
A year ago, the central bank had assets of $868 billion, of which about 90 percent was in Treasuries. Last week, it had assets of $2.2 trillion on its books, of which 22 percent was in Treasuries. Much of the remainder represents the new lending to banks and other financial institutions
The Fed can essentially expand its balance sheet at will, reflecting its power to create money. Congress gave it even more leeway to do so in the bill that contained the $700 billion rescue package, by allowing the Fed to pay interest on bank reserves.
"People want to act like the Fed's balance sheet is limited," said Diane Swonk, chief economist at Mesirow Financial. "No, it's not. It's pretty much unlimited."

Infinity money times infinity equals Zimbabwe. The greenback is absurdly over-valued. The US government takes on all the bad debt - one way or the other - because it's in the strongest position to survive the capitalist/speculation/credit implosion and support the very institutions that profited from it and caused it. How far is Wall Street up The Fed's arse exactly - and the Treasury's? There seems to be so many conflicts of interest that it's wrapped around on itself. The corporations, the banks, the Fed, the Treasury - the former undersecretary of the Treasury who is the President of the New York Reserve is going to be Obama's Treasury Secretary - it's all America Inc., and it's all going down the shitter.

Case in point: The big three Detroit motor companies churn out monster SUVs for a decade, without changing, despite the surging price of oil, and then they want a bail-out because people don't want to buy their big, ugly, cars anymore. Ugly. According to the standard Ford models for 2009 only one of them is an economy two door. And they have an awful lot to say about the damn satellite radio system, but nothing on fuel consumption or the engine. GM have a bigger range that does include some smaller type cars, but they are as hideous as their bigger counterparts, and Chrysler don't seem to have bothered to make any.


At 25/11/08 9:21 am, Anonymous Commentator said...

Ah the old way out

If you haven't got any money, and you're the government, just print some! After all, all it costs is inflation , and that's good isn't it? (I don't remember - honest - I was only six last time mortgages were 20%, I'm just a banker, not a bloody historian!)

At 25/11/08 9:50 am, Anonymous bob said...

speaking of big gas guzzling cars - clean green( yeah right) NZ is currently hosting a V8 series ( zzzzzzzz to the 'spectacle' of gaudily painted cars screaming round in circles )
What WOULD be smart would be if NZ promoted Clean Green Motor racing and encouraged all the petrolheads out there to biff out their prehistoric gas guzzlers , go back to their drawing boards , and their sheds , and get to work on eco-friendly vehicles.

At 25/11/08 5:24 pm, Blogger Truth Seeker said...

The money hasn't added up for some time....and it is only getting bigger and worse. The "taxpayer" (the guy already up to his eyeballs in debt) is supposed to pay for it all. LOL!

As for the cars, only two things explain the way the US automakers have behaved:

1. Stupidity

2. A desire to break the unions by running their industry over the cliff, taking the bailouts, sacking the local workers and importing all car small, cheap cars they make overseas (and have done for years). Mazda is owned by Ford, remember?

At 25/11/08 6:25 pm, Anonymous Anonymous said...

Yes 'Truthseeker' Detroit wants to break the unions so bad it will bankrupt itself and have the Japanese take over the industry.

If anything the Unions are the cause of this. Still if they want generous medical benefits and above market wages at the cost of their jobs then so be it.


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