Posts Tagged ‘Bailout’
Over the last few months we’ve seen a drastic increase in bank reserves. As I’ve pointed out on previous occasions, banks are soaking up the liquidity provided by the Fed’s various programs and the credit crunch continues. But what’s the reason? Is it that banks are unwilling to lend in the current environment, trying to cap their losses? JPMorgan recently argued that it’s not the supply of credit that has collapsed, but the demand for it – consumers are hunkering down and have lost their appetite for spending; businesses that suffer from weak demand don’t require as much credit as they do in prosperous times; and hedge funds have grown weary of leverage. It’s a bit of a chicken and egg problem, but what do you think: is the credit crunch driven by the lack of supply or the lack of demand?
The money multiplier is money stock M2 (money & close substitutes for money) over monetary base M0.
The government is adding to the bailout tab almost daily, and no slowdown is in sight. The total cost of equity infusions for financial institutions, guarantees and lending facilities to date is estimated anywhere between $4 and $8 trillion, depending on which programs are included in the count. The following chart shows some of the biggest ticket items in the US budget over the last 200 years, adjusted for inflation (i.e. in today’s dollars).
Below is the same chart, this time including the 2008 / 2009 bailout package (using the most conservative end of the range with an estimated total cost to date of $4.3 trillion). For reference, the total cost of World War II to the US was roughly $3.6 trillion.
Remind me why people are still talking about “deleveraging”?