Busted: Bankers and The Global Economy

October 9, 2008

IMF Global Outlook Darkens; Stabilization Dims

The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” the IMF said Wednesday in its World Economic Outlook. Several prime economies are on the edge of economic recession simultaneously. Even so world banking leaders insist on the idea of a recovery sometime in 2009. The IMF warns of “considerable downside risks” to that scenario, which assumes U.S. and European governments will succeed in their efforts to stabilize markets.

The problem behind the U.S. recovery is that the latest economic bailout assumes stability in overseas markets and the ability of foreign investors to lavish funding on the U.S. economy. With a global recession looming, this potential is quickly dimming as the U.S. economy faces still more rescue measures in the effort to stabilize the national economy. A global recession puts the entire premise of a quick U.S. success in dire straits. ~ E. Manning

July 30, 2008

Federal Reserve Installs More Confidence

Rhetoric aside, tough times are clearly ahead in the eyes of the U.S. Federal Reserve system. Not one to be outdone, the Fed has moved to expand and strengthen confidence in the U.S. financial system.

The Fed is adopting longer terms for banking institution loans through its lending provisions. Since other central banks are involved in the economic bailout, the European Central Bank and the Swiss National Bank are “adapting the maturity of their operations” as well.

In the words of the Federal Reserve, “continued fragile circumstances in financial markets” continue to exist. Federal Reserve provisions would be withdrawn should the FOMC Board decide that “conditions in financial markets are no longer unusual and exigent.”

Provisions include:
1. Extension of the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF) through January 30, 2009.
2. The introduction of auctions of options on $50 billion of draws on the TSLF.
3. The introduction of 84-day Term Auction Facility (TAF) loans as a complement to 28-day TAF loans.
4. An increase in the Federal Reserve’s swap line with the European Central Bank to $55 billion from $50 billion.

~ E. Manning

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