Wednesday, September 17, 2008

How long before the Fed runs out of money?

Certainly a question that has been on my mind, realizing that the Fed has a finite balance sheet. Well, today we have the answer. The Fed is out of money. With the $1.43T in commitments CNBC previously reported and I recapped here, plus this past week's $285b (Fannie/Freddie/AIG), the Fed has asked Treasury to sell treasury bills so that the Fed can raise money to finance the Feds nationalization plans. So, more debt to finance more debt ... Kinda deja vu all over again.

Paul

6 comments:

sacramentia said...

What is your source that the fed is out of money? That is a really big deal

Jacob said...

See here: http://tinyurl.com/5aubur

anon1137 said...

Good timing. Treasury debt is about the only thing in demand on Wall St lately.

sacramentia said...

Thanks for the link.

Husmanen said...

I don't think the Fed will ever run out of money, just that each denomination will be progresssively worth less.

Jacob said...

Well we still have to sell the bonds to someone. Other countries have slowly been financing less and less of our debt.

And we don't have a liquidity problem, there has always been plenty of money. It is just that a lot of companies have too much debt tied to assets with not enough value. Nothing will change that.

These companies that made serious miscalculations and are now insolvent just need to go BK and make room for companies that aren't run by a bunch of monkeys.

All anyone at these banks had to do was chart wage growth vs home price growth and see something was out of whack. Or if they really thought prices would go up forever by 20% a year, just make a chart and see what prices would be in 10 year.

Now Morgan Stanley is on the ropes and begging for a merger.

So much for keeping this mess bottle up until after the elections...