Thursday, April 02, 2009

Quick posts

Excellent, illustrated explanation of the put options embedded in the Obama Administration stealth bank recapitalization program (PPIP). BofA and Citi are the primary beneficiaries, but the way PPIP is structured, it's a big hand out to the whole industry.

The big G20 news is the $1T funding of the IMF. The key element there is "$", as this facility essentially means that the US Gov is making unsecured dollar loans to other countries. (Well, the loans might be secured with pesos and stuff, but who cares). I cannot tell the difference between this and the swap lines the Fed opened up last year, except the swap lines were transparent and this facility is patently not.

I don't know how the US Gov is setting up this $1T facility. If it deficit spends to fund it now, that will be OK, but to the extent it increases demand for US$, it will undo the stimulative effect that high unemployment is having domestically. Aggregate demand is falling because the US is not creating money (deficit spending) fast enough to supply the demand for private dollar savings. To the extent that the IMF increases or supports demand for private dollar savings, it sterilizes the effect of the deficits the US decided to grow through unemployment. Michigan -- we need another 10% in the bread line!

Maybe the bankruptcy of Chrysler and GM will finally create enough unemployment, and deficits, to stimulate the economy and put a floor under aggregate demand. Obama decided to go ugly, and he's getting there!

In other news, Obama's shadow Treasury Secretary seems to have nigh bankrupted Harvard. They had too much money anyway.

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