In the wake of yesterday's House failure to pass the bailout (aka recovery) bill, and just as I thought I was beginning to grasp the complexity and insanity of our financial system and its credit default swaps, now comes the announcement that the "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. The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide."
I'm really back in the dark now. Berneke was part of the team asking for the $730 billion bailout, without strings or oversight. Now his organization just ponies up almost that amount with the stroke of a pen and without have to ask anybody, or get any bills passed, or suffer the help of Senator McCain.
Where does the money come from? Are they just printing some more money, which means the value of it goes down? Is this just more hockus-pockus with faux assets? And, if this is a good idea, why didn't they do that before?
I'm lost, again. Anybody got a quick explanation?
Ralph
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2 comments:
This is a guess, based on rudimentary knowledge, and is worth the money you are paying for it.
The Federal Reserve is the government's bank. It's where taxes are deposited and where government checks come from. It also issues treasury bills and bonds.
A lot of people who are getting out of the stock market right now are putting their money in t-bills and bonds. Those securities are safe but don't pay out much. So many people have bought into them that the values have dropped precipitously. Including bonds that will be worth less at maturity than they were purchased for. (That has always seemed weird to me).
It could be the Fed Rev is pretty flush right now, giving Bernacke funds to play with that he didn't have earlier. And he is probably thinking that the risks of dumping these funds into the system are much less than the risk of not keeping the funds in reserve. I'm sure the true picture is much more complicated.
Thanks. That's makes more sense than what I had come up with.
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