Comments on: Why Federal Reserve Policy Is Failing

By: Esteban M.

Esteban M. — Tue, 14 Oct 2008 09:20:29 +0000

Perdón que hablo en castellano pero es muy tarde y no tengo ganas de ponerme a traducir. Ante todo soy de Buenos Aires, Argentina.
Concuerdo con lo que usted dice, del mercado financiero paralelo, por supuesto que hay que trabajar sobre ese mercado, es vital ponerle un piso a los activos, sino se seguiran desplomando los precios. Pero yo tengo una teoría, que la burbuja financiera se pincho porque su crecimiento no estuvo correlacionado con el crecimiento de esta burbuja. Era una cuestión de tiempo que que caiga, no pensaba que iba a ser de manera tan estrepitosa, pero asi lo fue.
La otra cuestión es si el Bailout, servirá de mucho, creo que es necesario Politicas Fiscales expansivas, porque da la impresión que se esta cerca de una trampa de liquidez, es vital que El Gobierno implemente un plan de demanda efectiva importante. Porque si se está en trampa de liquidez, se puede caer en estancamiento económico prolongado (le llamo a estancamiento a crecer 1%), por mas que se restituya el crédito puede ser que la demanda haya caido mucho y no pueda levantarse o tarde mucho tiempo. Aunque la economia de USA es la mas dinámica del mundo.
Por supuesto que un salto adelante que se me ocurre es que China e India incrementen mucho su Consumo.

By: justin

justin — Thu, 09 Oct 2008 03:27:59 +0000

so the establishment of the SPV to buy investment grade commercial paper directly from eligible companies is a step in the right direction. yes? what else would be important links to address?

the amount of money fed/treasury is using for all their “fixes” is staggering. are their any serious implications when these measures are reconciled back?

what is holding the government back from coming to people such as yourself for help? its really disheartening when i learn of the negative/unwanted consequences of recent actions. they obviously need help to construct a better plan. is it denial, corruption, pride?

By: Tim C

Tim C — Thu, 09 Oct 2008 02:20:43 +0000

It has taken them some time but I believe the Fed is trying to address the shadow banking system. They are addressing the shadow banking systems’ liabilities through various programs to buy commercial paper and asset-backed commercial paper (eg, CPFF, AMLF) as well as guaranteeing money market funds. They will attack the assets by buying securitized assets (RMBS, CMBS, and CDOs) with $700B TARP.

By: flow5

flow5 — Wed, 08 Oct 2008 22:49:04 +0000

In the 1966 housing crisis, Congress gave the non-banks permission to borrow via the member banks, funds at the FED’s discount window. This provision was fortunately, never used.

Your speaking of the biggest error in economics. Commercial banks enlarge the money supply when they make loans & buy investments from the non-bank public. Never are they intermediaries in the lending process. However the non-banks lend existing money. The commercial banks could continue to lend even if the public ceased to save altogether.

How does the FED follow a “tight” money policy and still advance economic growth.? What should be done? The commercial banks should get out of the savings business — gradually (REG Q in reverse-but leave the non-banks unrestricted).

What would this do? The commercial banks would be more profitable - if that is desirable. Why? Because the source of all time deposits within the commercial banking system, are demand/transaction deposits - directly or indirectly through currency or their undivided profits accounts. Money flowing “to” the intermediaries (non-banks) actually never leaves the com. banking system as anybody who has applied double-entry bookkeeping on a national scale should know.

The growth of the intermediaries/non-banks cannot be at the expense of the com. banks. And why should the commercial banks pay for something they already have? I.e., interest on time deposits.

There would be an immediate increase in the supply of loan-funds, a decrease in long-term mortgage rates, which would feed back to the short-term rates, and all of which would contribute to much higher employment and production.

By: TheTraderBlog.com » One Record Left To Break ….

TheTraderBlog.com » One Record Left To Break …. — Wed, 08 Oct 2008 14:10:39 +0000

[...] Why Federal Reserve Policy Is Failing ”The Federal Reserve and U.S. Treasury continue to fail in their attempts to stabilize the U.S. financial system. That is due to failure to grasp the nature of the problem, which concerns the parallel banking system. Rescue policy remains stuck in the past, focused on the traditional banking system while ignoring the parallel unregulated system that was permitted to develop over the past twenty-five years…” [...]

By: Jose Tapia

Jose Tapia — Tue, 07 Oct 2008 14:42:41 +0000

How many more billions are needed to fix the chain? Is it worth to throw another pebble into a churning sea? How much taxpayer money will be left for income support for poor people, health care, education, and so on and so forth? Everything indicates the real economy is going down, and money will be needed to help needy people.