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The Fed - along with the European Central Bank, Bank of England and the Swiss National Bank -...

The Fed - along with the European Central Bank, Bank of England and the Swiss National Bank - announces that swap lines established in the crisis to ensure dollar liquidity will be allowed to expire on Feb. 1 as they're "no longer needed."
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  • JasonC
    , contributor
    Comments (4377) | Send Message
     
    Since the end of last March (chosen as near the market bottoms and when emergency forms of support to the banking system were still elevated), the total Fed sheet has grown 6%, by $128 billion.

     

    Swap lines were $328 billion then, $1 billion on the most recent statement. Rest repaid.
    Term auction credit to banks was $469 billion then, $38 billion on the most recent statement. Rest repaid.
    Commercial paper lending was $241 billion then, $14 billion on the most recent statement. Rest repaid.
    Discount window and primary dealer loans were $90 billion then, $16 billion on the most recent statement. Rest repaid.

     

    Overall, $1.1 trillion in emergency support loans to the banking system have been repaid to the Fed over the last 10 months. That is half the sheet, then and now. And the entire increase in the sheet size during the crisis.

     

    As these loans were repaid, if the Fed had merely extinguished the high power money flowing back to it, the US money supply would have contracted at the fastest rate in history, four times the average rate in the great depression and twice the peak rate in the greatest wave of bank failures during it. Instead the Fed redeployed the money to long term securities, first a mix of treasuries and mortgages until its 2007 end treasury position was rebuilt (that had been sold into the market in the first half of 2008 to fund loans to the banks), since October just in mortgages.

     

    In doing so, the Fed has maintained a modest positive growth rate of high powered money that has proven consistent with price stability. It avoided thereby the mistakes of the great depression it was rightly castigated for, by Friedman for example. It lent freely in the crisis, it made the banks liquid, the banks were able to repay it when panic subsided - and they have already done so.

     

    There are enourmous numbers of professional pessimists in the financial pundit crowd who intensely dislike this set of facts and studiously avoid noticing them. But facts they are.
    27 Jan 2010, 03:13 PM Reply Like
  • nightfly
    , contributor
    Comments (1017) | Send Message
     
    Yeah, they are no longer needed until.....they are again. Big deal. More talking up "all's clear, please give us your money" and "hire an American" please.
    27 Jan 2010, 03:22 PM Reply Like
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