Wednesday, July 22, 2009

Here's what Congressman Alan Grayson should ask...

It's good that someone in Congress finally is asking Bernanke about the swap lines. (See prior post and video.)

However, Congressman Grayson should ask if any of the money went to foreign automakers. While we were forcing our guys into bankruptcy here, it is quite possible that Toyota, Honda, Citroen-Peugeot, Renault, Fiat, Daimler, Volkswagon and others were getting "loans" from the Fed.

I wrote about it on this blog many times last year.

Read here, here and here.


Matt Franko said...

You were way ahead on this one too. And you never know who is reading your blog that may have some influence in Govt...I cant prove it but I think you, Warren, Scott and certain other midwestern Profs. are getting thru at some level, just a hunch.

It seems that somehow the Fed has prodded/pushed the ECB/other central banks to get these swaplines now down to just over 100B. This has "made room" on the Feds balance sheet for the MBS and Treasury purchases, etc, and allowed the Fed to keep the total balance sheet at about $2T as of last week, while even lately getting some slack from the Monetary types. I think the monetarists may be mis-reading Bernanke's recent WSJ article as that he is saying "this is about as big as the balance sheet is going to get and we will start winding it down from here over time". See this video from Kudlow here as sort of an example (please ignore his analysis!).
I think the monetarists may have this $2T round number as sort of a "line in the sand", and will be in for a rude awakening when the Fed proceeds with the $1.25T purchases of MBS and the rest of the $300B of Treasuries by this fall. The balance sheet looks like its going to at least $2.5T-$3T unless all of the temporary liquidity programs (swaplines/TAF/CPFF, etc.) are completely abandoned over the same timeframe (doubtful).
It will be interesting at that point to see how prices react for MBS and Treasuries as the monetarist crowd will be selling and the Fed will be/will have been buying with new reserves...we'll see.
Resp, Matt

Mike Norman said...

Yes, it is clear Bernanke is no Greenspan at least when it comes to deflecting Congressional lawmakers and talking around them. They have him squarely in their sights and have been giving him a good beating and he has become highly sensitive to these attacks, thus, the statements about "exit strategies" and promises not to grow the balance sheet, however arbitrary the current level may be. We need someone forceful now, like Volker (but not his policies), who could educate lawmakers on what they don't understand and tell them what they need to know and then run the Fed with leadership, authority and strength...without apologies and without timidity. (Not that Bernanke has necessarily been timid when it comes to policy.)

On another note, our call on the lower mortgage rates was right (so far) and if the Fed sticks to its goal of adding another $800 billion of MBS, I don't see how rates are not going to come down further. I know that Warren says this buying is already "priced in," but I have my doubts. That's still two-thirds of the Fed's promised purchases yet to be completed and there's only five months left in the year to do it if they plan on meeting their goal.

googleheim said...

Bernanke is a faker-baker.
He loves the attention, and is like Fozzy Bear meets the Professor with a side order of Beaker. He will do whatever his training directs him to do..