Fed buying commercial paper

[we_are_toast]

The Gov buying commercial paper seems like a really big deal to my inexperienced mind. It seems like the worlds immediate crises is due to the reluctance of banks to get involved in the commercial paper market. Won't this move by the government go a long way in breaking the credit jam, or at least easing it by bypassing the banks?

Also, wouldn't it be easier and more effective for the government to insure commercial paper loans that meet a certain criteria and are below a certain interest rate?

Won't this stop the deflationary (disinflationary) death spiral so we can get on with POOM?



http://www.bloomberg.com/apps/news?p...vL4&refer=home

[dbarberic]

Re: Fed buying commercial paper

Yes, it is a big deal. What this means is that traditional methods of managing the economy are not working and the Fed is starting to use its "playbook" of other strategies to prevent deflation. (Search for the pdf file "Monitary Policy in a Zero Interest Rate Economy".)

Will it work, I don't know. They may have to throw other tools in the kitchen sink to turn this thing around. Don't worry about the "POOM", it will get here. From my experience, it takes roughly six-months before monitary changes work their way through the system. I suspect that we will not see poom-like material changes in asset behavor until the end of Q1 2009.

[Slimprofits]

Re: Fed buying commercial paper

Commercial paper market shrinks for 5th straight week

Short-term credit in the commercial paper market declined in the past week by $40.3 billion, or 2.6%, to $1.55 trillion, the fifth straight decline, the Federal Reserve said Thursday. The rate of decline has slowed from a 5.6% drop two weeks ago. Interest rates for commercial paper remained very elevated, with unsecured, lower-rated 30-day paper fetching 6.05% compared with 1.65% for the best-rated paper. Financial firms issued $36.4 billion less paper in the week ending Wednesday, a 5.6% decline.

[jtabeb]

Re: Fed buying commercial paper

Commercial paper market shrinks for 5th straight week

The will also very soon need to provide backstop funding to States and Municipalities, that should come very very fast otherwise, local governements will be forced to cut expenditures. (I think this will happen in short order).

[phirang]

Re: Fed buying commercial paper

O/N LIBOR is waaay down... it IS working.

That said, the US consumer is still wiped out. Short accordingly.

[grapejelly]

Re: Fed buying commercial paper

they can control the short end of the supply but not the long end...even the short end they can't control...the market reacts to what they do. But they don't have a prayer, IMHO, of keeping a lid on long rates with the huge supply of bonds that is hitting the marketplace.

[phirang]

Re: Fed buying commercial paper

I'd suggest reading up on "operation twist"