International Trade Global Economics ECON 15576125 Dr. Andrew L. H. Parkes “An Economic Understanding for use in Business” Day 14 卜安吉

From Paul Krugman’s Blog October 25, 2008,  2:52 pm Big rescue money http://krugman.blogs.nytimes.com/ Via Yves Smith, an important article in FT Alphaville about the inadequacy of the bailout so far: despite the big-sounding numbers, financial institutions are losing capital faster than governments are putting it in. International Trade, Day 14

Paul with Oliver Blanchard Head of the IMF International Trade, Day 14

International Trade, Day 14 Paul’s comments I’d add a couple more data points: Japan’s bank bailout in 1998 was more than $500 billion, in an economy whose dollar GDP was only about 1/4 that of the United States today. Do the math. And the just-announced IMF loan to Iceland is $2.1 billion — that’s for a country with only 300,000 people. Both of these numbers seem to suggest that an eventual outlay of $2 trillion is in the realm of possibility. Just saying. International Trade, Day 14

Asset losses vs. Bank Capital The following graph is Bloomberg’s chart of the day and has been reproduced by Paul Kedrosky on his blog, Infectious Greed. Kedrosky writes: The following more or less supports what some have been saying for a while — that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over — but it’s still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks’ prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won’t take much to tip banks over into insolvency again. International Trade, Day 14

Losing control The following is a singularly arresting chart: International Trade, Day 14

FT or http://ftalphaville.ft.com/ This is frightening stuff. Not least because the Fed’s own balance sheet is not looking healthy. Via Brad Setser at the CFR, here’s Paul Swartz’s latest graph: International Trade, Day 14

International Trade, Day 14 The Dow 30 – The Past year International Trade, Day 14

Comparison to Japan’s crisis The balance sheet is likely to grow further too. Jan Hatzius, Goldman’s chief economist has pointed out that during the Japanese credit crisis of the 1990s, the Bank of Japan ended up with a balance sheet equivalent to 30 per cent of GDP. The Fed’s is currently 12 per cent. International Trade, Day 14

Excess Reserves Calculation And on Wednesday the Fed made this announcement: The Federal Reserve Board on Wednesday announced that it will alter the formula used to determine the interest rate paid to depository institutions on excess balances. Previously, the rate on excess balances had been set as the lowest federal funds rate target established by the Federal Open Market Committee (FOMC) in effect during the reserve maintenance period minus 75 basis points.  Under the new formula, the rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period less 35 basis points.  This change will become effective for the maintenance periods beginning Thursday, October 23. International Trade, Day 14

International Trade, Day 14 Which is an admission, basically, that the Fed lost control of the Federal Funds Rate. And if that needed proving, take a look at the graph from the New York Fed: International Trade, Day 14

Markets Plunge Despite Hint of Rate Cut This is the definition of a BEAR market! International Trade, Day 14