by Calculated Risk on 12/11/2011 02:39:00 PM

From Professor Hamilton: More on those secret Federal Reserve loans to banks

The claim that the Federal Reserve extended trillions of dollars in secret loans to banks continues to be spread. Here at Econbrowser we will continue to try to correct some of the misunderstanding that is out there.
...
If you take the position that each new loan should be added as a running contribution to some total, then you are led to maintain that when the Fed loans $1 B to Bank A in the form of a 30-day loan, and loans $1 B to Bank B in the form of an overnight loan that is repaid and renewed each day, then the Fed has 30 times the exposure to Bank B as it does to Bank A. You are further led to infer that the Fed could have lost $1 B in lending to Bank A but somehow could have lost $30 B lending to Bank B. And you are led to infer that it is 30 times safer to make a 1-month loan than it is to make a series of overnight loans in the same amount. Good luck managing your or anybody else's finances, if that's your way of thinking.

But Professor Wray goes on to speak admirably about an analysis by his student James Felkerson that does exactly that, and concludes that the Fed lent not $7.77 trillion but instead $29 trillion. For example, Felkerson takes the gross new lending under the Term Auction Facility each week from 2007 to 2010 and adds these numbers together to arrive at a cumulative total that comes to $3.8 trillion. To make the number sound big, of course you want to count only the money going out and pay no attention to the rate at which it is coming back in. If instead you were to take the net new lending under the TAF each week over this period-- that is, subtract each week's loan repayment from that week's new loan issue-- and add those net loan amounts together across all weeks, you would arrive at a cumulative total that equals exactly zero. The number is zero because every loan was repaid, and there are no loans currently outstanding under this program.

But zero isn't quite as fun a number with which to try to rouse the rabble.

There is much more in Hamilton's piece.

CR Note: There is much more to this story - the need for transparency, the lawsuit to have the information released - but I'm glad that Professor Hamilton is trying to correct some of the faulty analysis of the actual numbers. We have to remember that banks (and other institutions) borrow short and lend long. During a panic (a liquidity crisis), banks are stuck with solid assets that are illiquid, but they have a need for short term cash. The Fed steps in as the lender of last resort, and the banks use the long term assets as collateral to obtain cash. This is a key role for the Fed.

During the crisis, the peak liquidity lending was about $1.5 trillion. A large number, but we need to compare that to the total amount of household and corporate debt outstanding (about $24 trillion in 2009). So, at the peak of the crisis, the Fed was providing liquidity for about 6% of the outstanding corporate and household debt.

Yesterday:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

by Calculated Risk on 12/11/2011 09:36:00 AM

There will be a one day meeting of the Federal Open Market Committee (FOMC) on Tuesday, December 13th. The FOMC statement will be released around 2:15 PM ET on Tuesday.

Although there are several topics currently being discussed - such as adding a probable path for the Fed funds rate to the quarterly forecasts, and another round of QE ("QE3") by buying additional Mortgage Backed Securities (MBS) - those possible changes are more likely to be announced early next year.

So I expect no changes to interest rates, or to the program to extend the average maturity of its holdings of securities, or to the policy of reinvesting principal payments.

The FOMC statement might be changed to reflect the slight improvement to incoming data - but the wording changes will probably be minor. The trends the FOMC mentioned in November have continued: "economic growth strengthened somewhat", "unemployment rate remains elevated" and "Inflation appears to have moderated". And the downside risks remain: "there are significant downside risks to the economic outlook, including strains in global financial markets".

So I expect few changes to the FOMC statement, and the key sentence will remain unchanged: "The Committee ... currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

Charles Evans will probably argue for additional policy accommodation and he is likely to dissent again.

Yesterday:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

by Calculated Risk on 12/10/2011 11:24:00 PM

Earlier:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

A versusplus.com holiday econoparody sampler, including "In excess, and way so!" and "It's beginning to look a lot more riskless"

by Calculated Risk on 12/10/2011 07:17:00 PM

Earlier:
• Summary for Week ending Dec 9th

Retail sales for November is the key report this week. For manufacturing, the December NY Fed (Empire state) and Philly Fed surveys, and the November Industrial Production and Capacity Utilization report will be released on Thursday.

On prices, the November Producer Price index (PPI) will be released Thursday, and CPI will be released on Friday. Also - there is an FOMC meeting on Tuesday.

----- Monday, Dec 12th -----
No releases scheduled.

----- Tuesday, Dec 13th -----
7:30 AM: NFIB Small Business Optimism Index for November.

Click on graph for larger image in graph gallery.

This graph shows the small business optimism index since 1986. The index increased to 90.2 in October from 88.9 in September. The index has increased for two consecutive months and is expected to increase further in November.

8:30 AM: Retail Sales for November.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 19.5% from the bottom, and now 5.1% above the pre-recession peak (not inflation adjusted).

The consensus is for retail sales to increase 0.5% in November, and for retail sales ex-autos to increase 0.4% .

9:00 AM: Ceridian-UCLA Pulse of Commerce Index™ This is the diesel fuel index for November (a measure of transportation).

10:00 AM: Manufacturing and Trade: Inventories and Sales for October. The consensus is for a 0.6% increase in inventories.

10:00 AM: Job Openings and Labor Turnover Survey for October from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

In general, the number of job openings (yellow) has been trending up, and are up about 22% year-over-year compared to September 2010.

2:15 PM: FOMC Meeting Announcement. No changes are expected to interest rates.

----- Wednesday, Dec 14th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been especially weak since early August, although this doesn't include cash buyers.

----- Thursday, Dec 15th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 390,000 from 381,000 last week. The 4-week average has recently declined to slightly below 400,000.

8:30 AM: Producer Price Index for November. The consensus is for a 0.2% increase in producer prices (0.2% increase in core).

8:30 AM ET: NY Fed Empire Manufacturing Survey for December. The consensus is for a reading of +3.0, up from +0.61 in November (above zero is expansion).

9:15 AM ET: The Fed will release Industrial Production and Capacity Utilization for November.

The second graph shows industrial production since 1967. Industrial production increased in October to 94.7 The consensus is for a 0.2% increase in Industrial Production in November, and for no change at 77.8% for Capacity Utilization.

10:00 AM: Philly Fed Survey for December. The consensus is for a reading of 5.0 (above zero indicates expansion, up slightly from 3.6 last month.

----- Friday, Dec 16th -----
8:30 AM: Consumer Price Index for November. The consensus is a 0.1% increase in prices. The consensus for core CPI is also an increase of 0.1%.

by Calculated Risk on 12/10/2011 01:35:00 PM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Dec 9, 2011. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Perhaps the FDIC is giving its closing teams the balance of the year off as there is only one weekend left before Christmas and New Year's weekend. This week there were three removals to the Unofficial Problem Bank List. After the removals, the list has 977 institutions with assets of $399.5 billion. A year ago, the list held 919 institutions with assets of $411.4 billion.

Removals include two unassisted mergers -- Fullerton Community Bank, FSB, Fullerton, CA ($636 million); and Santa Lucia Bank, Atascadero, CA ($232 million Ticker: SLBA). The other removal was the voluntary liquidation of Greystone Bank, Raleigh, NC ($90 million). Props go out to bank management and the North Carolina State Banking Department for winding down a problem bank at no cost to the deposit insurance fund.

Click on graph for larger image.

Here is a repeat of the graph of bank failures by week (cumulative) for the last several years.

In 2008, 25 banks failed, 140 banks failed in 2009, 157 in 2010, and only 90 so far in 2011.

If there are any more bank failures this year, they will probably be closed next Friday.

Earlier:
• Summary for Week ending Dec 9th