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Old 12-25-2011, 03:46 PM
Parallax Parallax is offline
 
Join Date: May 2011
Posts: 219
Default Re: Katherine's pants are on fire

Quote:
Originally Posted by badhatharry View Post
Thanks for bearing with me. So you don't agree with the CNN characterization. A couple of questions: Why would financial industry bailouts be considered monetary stimulus? same with the other two...housing and credit.

Here's what I found about monetary stimulus:

it involves the manipulation of the available money supply

1) Alter the reserve Ratio: Reserve ratio is the percentage of assets that commercial banks have to keep on deposit with a Central Bank (Fed in US, RBI in India). Lower the Reserve ratio, more money the institutions can flow out in market

2) Lowering Discount Rates: These are the rates at which financial institutions loan money from Central Banks (Fed in US). Lowering discount rates will encourage borrowing and more flow of money in market
There are several issues with CNN's info graphic:

1. The word stealth; as far as I see all of things they call stealth stimulus were known publicly. So why not use another less negative and more descriptive word for it?

2. A good chunk of the stealth stimulus is Fed buying securities, Now Fed used to do that all the time! How else do you think Fed sets interest rates?? The new thing is that now Fed is buying longer term treasuries, MBS and agency debt something it did not do back then.

3. When was this graphic created? The cost of TARP is said to be $205 billion, when you Read More it says $58.6 billion and the final cost of banking side of TARP was actually $25 billion in the end. Same goes for the cost of bailing out Bear Stearns, the $29 billion was a non-recourse loan from Fed to JP Morgan Chase so they would take over Bear Stearns. If all the collateral has no value then the Fed will lose the amount it loaned. But those assets have a value and the actual loss is much smaller.
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