Wednesday, March 12, 2008

The $436 Billion Dollar Solution

Here’s a table showing exactly what the Fed did yesterday, and how much they have already done.

Yesterday was the central bank's $200 billion dollar announcement. This is the Term Security Lending Facility (TSLF). Prior to this move, we had the $100 billion dollar, so-called Term Auction Facility (TAF). There's also the $100 billion dollar term RPs (roughly one-month, but it can be rolled over.) And finally, the Fed announced $36 billion in currency swaps with foreign central banks. (They may save the U.S. dollar, before we save it ourselves).

The grand total is $436 billion dollars. That’s a nice chunk of change.

Here’s the key in all this: So far as I can determine, none of this liquidity is expanding the Fed’s balance sheet. They’re actually doing this quite cleverly. They are not expanding reserve back credit. They’re not expanding the monetary base. They’ve “sterilized” part of this, and the rest of this is just a bunch of swap agreements.