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Will the bailout work?
Will the bailout work?
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flower
post Posted: Dec 17 2008, 10:27 PM
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Dec. 17 (Bloomberg) -- For all their efforts to liquefy credit markets, the Federal Reserve and the Treasury show no signs of ending the 18-month freeze, as evidenced by the unprecedented gap between what banks and the U.S. government pay to borrow money.

The difference between the London interbank offered rate, or Libor, that banks charge each other for three-month loans and Treasury bill rates is six times wider than before markets began to seize up in June 2007. Even though the so-called TED spread narrowed to 1.82 percentage points yesterday from 4.64 percentage points in October, prices of contracts to borrow money months from now show investors don’t expect lending to recover until at least the second half of 2009. etc etc.





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flower
post Posted: Dec 16 2008, 08:57 PM
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Next step: Hyperinflation (my bolds)
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Fed Readies for Balance Sheet Tool as Rate Nears Zero (Update1)
By Craig Torres and Steve Matthews

Dec. 16 (Bloomberg) -- The Federal Reserve may today reduce its main interest rate to the lowest level on record and prepare for one of the boldest experiments in its 94-year history: using its balance sheet as the key tool for monetary policy.

The Fed’s Open Market Committee will probably cut the benchmark rate in half, to 0.5 percent, according to the median of 84 forecasts in a Bloomberg News survey. The central bank may also signal plans to channel credit to businesses and consumers by further enlarging its $2.26 trillion of assets.

Chairman Ben S. Bernanke plans new steps to combat the credit crunch and prevent the worst recession in a quarter century from turning into a depression. The danger is the Fed’s credibility could be hurt if policy makers don’t clearly communicate a new strategy of manipulating the supply of money, at a time when FOMC members have diverging views on the subject.

“We expect the FOMC to leave the policy outlook open- ended,” said Louis Crandall, chief economist at Wrightson ICAP LLC, the world’s largest broker of trades between banks, in Jersey City, New Jersey. “The FOMC may have no choice but to muddle along for a while longer” because “there is no sign that a consensus on a new approach has begun to emerge,” he said.

Investor speculation that the Fed will ease monetary policy today pushed yields on 10-year Treasury notes to the lowest since 1954. The dollar traded near a two-month low against the euro and was close to its weakest level in 13 years versus the yen.

‘Saturday Night Massacre’

The last time the Fed detached money creation from setting interest rates was in 1979, when former Chairman Paul Volcker oversaw a violent upward move in borrowing costs. Dubbed the “Saturday Night Massacre,” the effort was aimed at reining in inflation, which exceeded 13 percent that year.

Bernanke, a scholar of the Great Depression, indicated in a Dec. 1 speech that policy makers will need to focus on “the second arrow in the Federal Reserve’s quiver -- the provision of liquidity,” including options such as purchasing Treasuries to inject more cash into the economy.

A formal commitment to expand the balance sheet would constitute “the most extraordinary policy approach we have seen” so far, said Brian Sack, a former economist at the Fed’s Monetary Affairs Division, who is now senior economist at Macroeconomic Advisers LLC in Washington.

The FOMC, which began meeting in Washington yesterday, is expected to release its statement around 2:15 p.m. Originally scheduled as a one-day meeting, the Fed extended its gathering to two days to discuss options that go beyond lowering rates.

Communication ‘Challenge’

“This is really a great communications challenge,” said William Ford, a former Atlanta Fed chief who’s now at Middle Tennessee State University in Murfreesboro. “It is going to take some educational effort to elaborate on how these policy options would work” because “people don’t know how to interpret what they are talking about.”

The FOMC, which first started targeting the federal funds rate in the late 1980s, has lowered its benchmark by 4.25 percentage points since September last year. The last time it cut the rate to 1 percent, in 2003, the U.S. had already pulled out of a recession. This time, the central bank sees at least another half-year of economic contraction.

It’s unclear how specific the Fed will be in today’s statement in outlining options after exhausting rate cuts.

Bernanke has repeatedly invoked emergency powers not used to since the 1930s and expanded the Fed’s credit to the economy by $1.4 trillion.

Reducing Spreads

“The main focus of the Fed’s effort will shift to credit policies aimed at reducing credit spreads and improving the flow of funds in financial markets,” said Mark Gertler, a New York University economics professor who has collaborated with Bernanke on research.

Fed policy makers disagree over the primary cause of the credit freeze. Central bank plans to buy $200 billion in consumer and small business loans and $600 billion in mortgage-backed securities suggest they consider rates remain high on home loans and credit cards because banks are unwilling to lend.

Yet banks may instead be reacting to a decline in the credit quality of borrowers, Richmond Fed President Jeffrey Lacker said in a Nov. 19 speech.

Tumbling property values and stock prices have hammered consumers’ finances. The net worth of U.S. households fell by $2.81 trillion to $56.5 trillion in the third quarter, the biggest decline since records began in 1952, according to the Fed’s Flow of Funds report.

Bank Constraints

“My reading of current conditions is that bank lending is constrained more now by the supply of creditworthy borrowers than by the supply of bank capital,” Lacker said in his speech at the Cato Institute in Washington.

Yield premiums on asset-backed securities surged as forecasters predicted a worsening recession and the unemployment rate increased to the highest level since 1993.

Yields on AAA credit-card bonds maturing in three years rose to a record 5.75 percentage points more than the one-month London interbank offered rate this month, JPMorgan Chase & Co. data show.

“The little bit of stability we have had is because there is an impression the Fed has almost unlimited resources and has adopted a tactic of intervention,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York.



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flower
post Posted: Oct 4 2008, 01:08 PM
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In reply to: we3za on Saturday 04/10/08 01:23am

WE: Will the bailout work?

On the face of it, and judging by the markets immediate reaction, the answer appears to be NO.

How do we judge if in fact the bailout can work, only way I can see is to look at the SP500, and the intraday chart is hardly reassuring.

So, why no positive immediate reaction?

IMHO any result from Congress hardly mattered since such a B..... Up has been made of the whole thing by EVERYBODY concerned, but rattling around not far under the surface major events were occuring that nobody even noticed that should have a profound influence next week.

1. The countries comprising the EU and the UK are meeting right now to plan their own immediate plans to rescue Europe from the engulfing morass which I witnessed over the last 5 weeks first hand, and believe you me things in UK are vastly worse than here, eg retail shops are closing in droves, many towns now have 10% of recently closed businesses.

2. The US employment stats were AWFULL

3. California wants an immediate injection of USD7 billion

4. Then came the results of Congress, the allover market reaction was downright awfull, whereas the expectation was that a healthy bounce, which was apparant prior to Congress result, would result. Market took the direct opposite view.

SO: WHAT NOW?

Do not be surprised if a massive DROP in ALL Prime Rates occurs next week, theyve tried printing money, NOW the ONLY alternative is to make money CHEAPER.

BUT: What are the consequences? A recovering SP500, or ROARING INFLATION.

We are about to find out----IMHO.
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rmryan
post Posted: Oct 4 2008, 05:35 AM
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In reply to: healyn on Saturday 04/10/08 12:39am

life isn't as dark as you see it heals ...take a pill and cheer up

 
we3za
post Posted: Oct 4 2008, 01:23 AM
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In reply to: healyn on Friday 03/10/08 08:57pm

yes, that is true, they give lot of concessions for the bail out to passed (sum kind of bribery smile.gif

they need to do it though, france just slip to recession as their economy contract in 2 quarters as expected the other members of EU will follow suits.

French govt also act in similar way with washington as they will buy some bad mortgage up to 20 billion euros .

without this step, the liquidity will dries up as it happened in UK (high LIBOR rate), the bank wont lend money even to other banks. and lots of investment banking and hedge fund dumping the quality stocks to the market as they need to preserve the cash as much as they can.

the number of employment rising in US (the source of the problem), however unfortunately it wont stop there, it will have strong domino effects on the rest of the world.

though i dont really think the bailout will be able to help the global economy,

i reckon it will reduce the severity of the cold, however we still need quite some time before business as usual.


what the market can hope now is the government spending, that's why Kevin Rudd stating to accelerate the infrastructure developments at the moment.

lets hope China, India and middle east will spend heavily on their infrastructure.

cheers


please let me know what do you think



 
healyn
post Posted: Oct 4 2008, 12:39 AM
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In reply to: healyn on Friday 03/10/08 06:57pm

They are scraping the grease from the bottom of the pork barrel. California is in deep s**t.

http://money.cnn.com/2008/10/03/news/econo...risis/index.htm



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healyn
post Posted: Oct 3 2008, 08:57 PM
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In reply to: we3za on Thursday 02/10/08 10:36pm

Is it any wonder America stuffed the global economy. They called their garbage subprime and sold it to a gullible world.
Now have a look at what is in their "rescue package" or the so called bail out.
PORK is on the American menu. Talk about incentivising their politicians to vote yes.

http://edition.cnn.com/2008/POLITICS/10/02...ml#cnnSTCOther2



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"Good judgment comes from experience, and a lotta that comes from bad judgment.
 
we3za
post Posted: Oct 3 2008, 12:36 AM
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i reckon it will be passed this time

as we all need this bail out to save the global economy

as the weak datas just been released from US

if they dont passed this bill this time, it will create much more volatility in the market and dragged the economy to the lowest since the Great depression.

as much as i hate the Bailout itself (as a free market capitalist) as much as i hope they pass it

 
chiller
post Posted: Oct 2 2008, 10:55 PM
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QUOTE
THE US Senate has passed a historic bill to approve the revised $US700 billion ($875 billion) rescue package for US and world financial markets.

The vote was easily won 74 to 25 and the bill will now head to the House of Representatives, which spectacularly voted down an earlier version of the bill on Monday, sending global stockmarkets plunging and freezing credit markets.


http://www.theaustralian.news.com.au/story...44-2703,00.html

Now we wait to see if House of Reps passes the bill, perhaps not a done deal.

Cheers Charles




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arty
post Posted: Sep 30 2008, 09:31 PM
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QUOTE (Avenger @ Tuesday 30/09/08 07:06pm)

yup, Avenger, I like your way of thinking tongue.gif
Question is: Does the Government's Administration have the brains to spare? Aren't they suffering from the same kind of "delusion of adequacy" that those Wall Street "eggspurts" still seem to have? Politicians and Public Servants ... better change the subject thumbdown.gif

Anyway - I think your proposal to nationalise, while it probably has a fair prospect of success, still doesn't go far enough: My sense of justice says those responsible (see my earlier post) ought to be held accountable and made to pay. The Enron prosecution comes to mind. Or closer to home, the Bell Group and HIH cases - they didn't nearly go far enough either. devilsmiley.gif



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I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 
 


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