They are going to cut another .50 next week. I heard on CNBC today that the treasury markets have already priced in a full 1.25% reduction in the future, so rates should keep coming down regardless..

As for today, I'm not very educated on exactly what happened, but it sounds like the fed is bailing out the banks by getting into the business of buying mortgages that nobody else wants. This goes way beyond the usual money printing scheme they are known for. It might be good for the stock market but I think it sets a bad precedent for what role the fed should be playing in our economy. What bad debt are they going to take off bank's hands next?...past-due car loans...delinquent credit card debt? Are we going to keep turning to big gubmint to prevent financial pain and solve all of our problems?

quote:

Originally posted by Capitalizt They are going to cut another .50 next week. I heard on CNBC today that the treasury markets have already priced in a full 1.25% reduction in the future, so rates should keep coming down regardless.. As for today, I'm not very educated on exactly what happened, but it sounds like the fed is bailing out the banks by getting into the business of buying mortgages that nobody else wants. This goes way beyond the usual money printing scheme they are known for. It might be good for the stock market but I think it sets a bad precedent for what the feds role should be in our economy. What bad debt are they going to take off bank's hands next?...past-due car loans...delinquent credit card debt? Are we going to keep turning to big gubmint to prevent financial pain and solve all of our problems?

The first thing you should know is that the feds primary roles are to:
(1) regulate and supervise the banking industry,
(2) provide financial assistance to banking institutions,
(3) maintain a stable financial system, and
(4) influence monetary and credit conditions to ensure full employment, stable prices, and moderate long term interest rates.

This move easily falls with all four roles.

for some background on the fed, check out:

http://www.federalreserve.gov/pf/pdf/pf_1.pdf

that's not even close to what's happening. the fed will lend securities to the banks, in exchange the banks will give the fed debt or the highest rated securities (AAA) (this will reverse at the end of the period - and probably happen again, but when all is said and done, the banks need to take back their debts). They are not buying anything from banks. What the move allows is for banks to secure their balance sheets (increase the asset values) by exchanging securities that have lost value in the past few month (because of the economy and not fundamentals) and replace it with government securities. This will create room on the balance sheet so the bank can make loans with money they may have but that is restricted because of lending rules (must have certain asset values).

You need to understand that the writedowns that are occurring are mostly paper losses at the moment. Most of these losses haven't happened yet, and may not even happen. Under accounting rules enacted after the enron fiasco, a bank's securities need to be valued at its current fair market value. This includes the home mortgages that are packaged into securities. that's not a problem when the loans are expected to be paid off. but when there is a risk that they won't be paid off the value reduces. the reduction in value is causing the banks to adjust their income and assets. when the value of the banks assets fall, the banks can't lend as much money. however, it does not mean that the banks have less cash on hand. this exchange program should increase the value of the banks assets allowing the banks to lend the money they have and can't currently lend because of their current asset values.

Last edited by jerZ07002 on Mar-12-2008 at 07:11

quote:

Originally posted by jerZ07002 What do you guys think about the Fed's move with the new term security lending facility? i think it's a great move and it's about time the fed decided to become innovative. They have been using one tool to guide the economy for so long. It's about time they did more than play with interest rates. Does anyone have an opinion on the chances of reducing interest rates at the next meeting considering the entire goal of this new facility was so the fed didn't increase the money supply? In my opinion, this move shows that the fed is definitely concerned with inflation, more so than they lead on, and they really want to avoid decreasing interest rates again.

I think the Fed is doing a horrible job at monetary policy. They are a major part of the government spending problem in Washington. Though, it's thought they have good intentions, our economy is basically centrally planned. Centrally planned economies have historically been socialist, communist, fascist, etc. I am very worried about the future of America as we head down the road of a centrally controlled economy.

They say they are worried about inflation, but then they allow the politicians to spend money without restraint. Activities such as social services, wars, and foreign assistance all cost money. Right now, our national debt if over $9 billion and rising. It's obvious we cannot afford it all. Do the politicians care? HELLNO. THey just want to be reelected. How do they pay for all of this? They inflate the currency. The only people who benefit from inflated currency are those who get the inflated money first, banks and government. The rest of us have to watch our savings decrease in value; I call it inflation tax.

Now if the Fed is so concerned with inflation, why don't they address the debt crisis of the nation, which is a leading cause of inflation? All they talk about is inflation, but inflation is not the problem. Excessive spending leading to debt is the problem. In my opinion, the less the Fed does, the better. The free markets should decide what interest rates are going to be.

This is one of the main reasons I collect silver and gold. Throughout history, silver and gold has always risen in value, while fiat currencies have always fallen in value. Eventually, the fiat currency will be worthless.

quote:

Originally posted by Capitalizt They are going to cut another .50 next week. I heard on CNBC today that the treasury markets have already priced in a full 1.25% reduction in the future, so rates should keep coming down regardless.. As for today, I'm not very educated on exactly what happened, but it sounds like the fed is bailing out the banks by getting into the business of buying mortgages that nobody else wants. This goes way beyond the usual money printing scheme they are known for. It might be good for the stock market but I think it sets a bad precedent for what role the fed should be playing in our economy. What bad debt are they going to take off bank's hands next?...past-due car loans...delinquent credit card debt? Are we going to keep turning to big gubmint to prevent financial pain and solve all of our problems?

The problem today is excessive debt. Credit is so easy to get, it's unethical. I am maxed out two credit cards, yet, I continue to receive credit card offers in the mail. The banks are profiting from the people's debt, more so than the exchange of assets. The Fed most of all profits from the governments enormous debts. If I were the president, I would do a lot to reign in the credit card companies and lenders who give away credit so easily as the subprime lenders did.

quote:

Originally posted by Krypton I think the Fed is doing a horrible job at monetary policy. They are a major part of the government spending problem in Washington. Though, it's thought they have good intentions, our economy is basically centrally planned. Centrally planned economies have historically been socialist, communist, fascist, etc. I am very worried about the future of America as we head down the road of a centrally controlled economy. They say they are worried about inflation, but then they allow the politicians to spend money without restraint. Activities such as social services, wars, and foreign assistance all cost money. Right now, our national debt if over $9 billion and rising. It's obvious we cannot afford it all. Do the politicians care? HELLNO. THey just want to be reelected. How do they pay for all of this? They inflate the currency. The only people who benefit from inflated currency are those who get the inflated money first, banks and government. The rest of us have to watch our savings decrease in value; I call it inflation tax. Now if the Fed is so concerned with inflation, why don't they address the debt crisis of the nation, which is a leading cause of inflation? All they talk about is inflation, but inflation is not the problem. Excessive spending leading to debt is the problem. In my opinion, the less the Fed does, the better. The free markets should decide what interest rates are going to be. This is one of the main reasons I collect silver and gold. Throughout history, silver and gold has always risen in value, while fiat currencies have always fallen in value. Eventually, the fiat currency will be worthless.

while you usually have smart posts about the economy, you are misguided on this issue. The fed has nothing to do with increasing national debt. While the fed is a government appointed agency (but it is only quasi governmental, meaning that it is privately funded), its operation is actually independent of the government, and the funds necessary for its operations come from interest earned on treasuries and fees paid by member banks. The federal reserve is actually a large purchaser of US treasuries and it does not issue treasuries, let alone make decisions on how much debt the government should issue.

The feds role is to ensure long term stability in the financial markets. Now-a-days, it does so by injecting money into the economy (or reducing money in the economy) mainly by changing the federal funds rate (the rate at which banks borrow amongst each other). The fed also has other ways to control monetary policy by controlling reserve and margin requirements, purchasing treauries on the market, etc... This measure is just a new tool that to accomplish its goals.

The fed serves a hugely important role in the economy, and we need the fed. To suggest that it intervene's too much is misguided. For the most part, the fed stands back and doesn't act unless necessary.

quote:

Originally posted by jerZ07002 while you usually have smart posts about the economy, you are misguided on this issue. The fed has nothing to do with increasing national debt. While the fed is a government appointed agency, its operation is actually independent of the government, and the funds necessary for its operations come from interest earned on treasuries and fees paid by member banks. The federal reserve is actually a large purchaser of US treasuries and it does not issue treasuries, let alone make decisions on how much debt the government should issue. The fed serves a hugely important role in the economy, and we need the fed. To suggest that it intervene's too much is misguided. For the most part, the fed stands back and doesn't act unless necessary.

The Fed may not make the decisions to use debt as policy, but they issue the debt used by government for policy. In turn, the Fed collects interest payments on the debt issued. Debt obviously affects the entire money system, and the marraige between the government and Fed exacerbates the problem. I have looked over several banks balance sheets, and I'm amazed at how their total assets number in the trillions of dollars. And to think, they need liquidity bailout for debt they decided to lend or buy just pisses me off.

quote:

Originally posted by Krypton The Fed may not make the decisions to use debt as policy, but they issue the debt used by government for policy. In turn, the Fed collects interest payments on the debt issued. Debt obviously affects the entire money system, and the marraige between the government and Fed exacerbates the problem. I have looked over several banks balance sheets, and I'm amazed at how their total assets number in the trillions of dollars. And to think, they need liquidity bailout for debt they decided to lend or buy just pisses me off.

Take a closer look at the quality of some of those assets and you'll start to understand why. They can't sell a piece of shit, let alone a few billion of them.

quote:

Originally posted by Shakka Take a closer look at the quality of some of those assets and you'll start to understand why. They can't sell a piece of shit, let alone a few billion of them.

to add to that, the banks have tons of good assets on their balance sheets, including AAA state and local bonds, AAA corporate debt, and other high quality debt that is being rocked by the market not because they won't get paid, but because investors are leary of all debt. That is the kind of debt the fed is going to take on for a short period of time to allow the banks to strengthen their balance sheets.

quote:

Originally posted by Krypton The Fed may not make the decisions to use debt as policy, but they issue the debt used by government for policy. In turn, the Fed collects interest payments on the debt issued. Debt obviously affects the entire money system, and the marraige between the government and Fed exacerbates the problem. I have looked over several banks balance sheets, and I'm amazed at how their total assets number in the trillions of dollars. And to think, they need liquidity bailout for debt they decided to lend or buy just pisses me off.

i don't think you understand how monetary policy and national debt works. the US department of treasury issues all US treasuries. The fed purchases treasuries from the US treasury as well as on the open market along with other commercial players, and if the fed doesn't buy the treasuries, someone else would and the cost of borrowing would probably increase because the fed is a pretty big player in the market. The fed does not issue treasuries. The way the fed uses treasuries to control montary policy is to purchase or sell outstanding treasuries in the market. The feds sale of treasuries contracts the money supply and its purchase expands money supply. Remember though, these treasuries are already outstanding and no new debt is created. The greatest effect is on inflation and yields.

EDIT: In fact, evidence that the fed has no role in national debt is the fact that the fed calls for reducing national debt. if it had any direct influence on the national debt the fed wouldn't be making those statements, but would instead act upon those statements and actually reduce the debt.

read the headline in the link.
http://economistsview.typepad.com/e...nke_budget.html

http://online.wsj.com/article/SB114...e_whats_news_us

quote:

Excerpt from WSJ article Bernanke Wants Lower Deficits, Doesn't Rule Out Tax Increases By Greg Ip WASHINGTON -- Federal Reserve Chairman Ben Bernanke told Congress he was "quite concerned" about federal budget deficits and urged lawmakers to act soon to bring them down.

That's not what someone says if he has control over the national debt.

Last edited by jerZ07002 on Mar-12-2008 at 20:41

I'm going to buy some nvidia shares I've never bought stock before

darn NVDA has been killed lately...I'm wondering why it is so cheap. Looks like it's trading at 10X next year's earnings. WTF?

Any thoughts krypt or shakka?

quote:

Originally posted by jerZ07002 i don't think you understand how monetary policy and national debt works. the US department of treasury issues all US treasuries. The fed purchases treasuries from the US treasury as well as on the open market along with other commercial players, and if the fed doesn't buy the treasuries, someone else would and the cost of borrowing would probably increase because the fed is a pretty big player in the market. The fed does not issue treasuries. The way the fed uses treasuries to control montary policy is to purchase or sell outstanding treasuries in the market. The feds sale of treasuries contracts the money supply and its purchase expands money supply. Remember though, these treasuries are already outstanding and no new debt is created. The greatest effect is on inflation and yields. EDIT: In fact, evidence that the fed has no role in national debt is the fact that the fed calls for reducing national debt. if it had any direct influence on the national debt the fed wouldn't be making those statements, but would instead act upon those statements and actually reduce the debt.

You guys are both partly right.

jer has a good understading of the mechanisim by which the fed operates but Krypton is correct in saying that the fed is being far to interventionist right now.

The understanding of how the fed influences debt is also a bit prickly. Bernake is influencing debt through his over interventionalist policies. The release of money is causeing existing debt to get smaller as inflation sets in due to the increased supply of money. He's also encouraging people to hold debt by lowering the intrest rates so much.

This is just plain dumb. The open market opperations of the fed are hitting people who saved thier money instead of investing stupidly in things like realestate.

If I'd borrowed to buy a house I could never afford and just started to realize it now, my mis-calculation of risk would be softened by the lower intrest rates and the fact that my real debt is being eroded by inflation.

If I'd worked hard and saved my money to put a bigger down payment on the house I could afford I'd be screwed. My wages would be getting hit as they don't rise as fast as inflation, the money that I'd saved in the bank wouldn't be worth as much thanks to inflation, and it wouldn't be making as much thanks to dropping intrest rates.

This type of federal reserve reactionary policy is encouraging exactly the wrong type of behavior. It is keeping people who don't know how to calculate risk afloat while punishing those who erred on the side of caution.

Almost everything the fed has done in the past 4 months has been politically motivated imo. The republicans know that the only way they stand a chance is to make sure the economy is looking good come November. That's why Bernake has been tasked with the short term goal of bringing the books in order.