Friday, December 5, 2008

Who says we do not have quantitative easing?

This is the current list of lending programs from the Fed and Treasury from Fox Business News. It is clear that the new monetary regime is quantitative easing. This is the correct policy when faced with liquidity trap, yet it is unclear whether the current size of the program is scaled appropriately.

  • TARP: Troubled Asset Relief Program. This is the Treasury's big $700 billion ($850B including pork) program that has been used to prop up financial institutions.
  • TAF: Term Auction Facility (or TAFfy). Program by which the Fed auctions funds to financial institutions — allowing them to use their toxic assets for collateral.
  • TALF: Term Asset-Backed Lending Facility (or "son of Taffy"). Recently announced Fed program designed to help the market for student, auto and other consumer loans.
  • CPFF: Commercial Paper Funding Facility. Buys commercial paper directly from corporations.
  • AMLF: Asset-Backed Money Fund Lending Facility. Fed program designed to buy short-term paper (including commercial paper) to prevent money market funds from "breaking the buck."
  • TSLF: Term Securities Lending Facility. Fed program that lets banks swap bad mortgage and other debt from their books in exchange for Treasuries.
  • SLF: Special Lending Facilities. Originally designed to loan money to fund JPMorgan's purchase of Bear Stearns in March. Also used to back AIG's balance sheet to avoid total collapse.
  • PDCF: Primary Dealer Credit Facility. This is the Fed program that allowed broker/dealers and other non-banks to tap the Fed's discount window (back when there were independent broker/dealers).

2 comments:

Anonymous said...

very informative blog. Do you think the US has enough ink in the public printer for all of this paper?

Mark Rzepczynski said...

A central bank always has enough ink. The issue is what is the price of the ink. If quantitative easing lasts too long there ill be higher inflation. The value of financial assets will fall. We will be able to see this through the price of the dollar.

The second issue is whether there will be crowding out of other debt instruments if the government continues to issue debt. The crowding out impact is not clear but given the size of the debt the impact is real. Finally, there is the old Ricardian equivalency proposition that debt financing will have to be offset with higher taxes. Because taxpayers know that they will have to pay higher future taxes they will save more today. The impact of the debt financing will be reduced because of this offset.