Seriously, you people deserve whats coming to you when the one world governemnt eventually forms!

Before we press all the panic buttons, let us set some criteria for a “deflationary” or “credit” crisis. Here are some ideas: 1. House prices return to 2000 levels in real (inflation adjusted) terms. 2. Oil prices return to their levels of two years ago (about $60/barrel). 3. You cannot get a loan to buy a house, when you have a twenty percent down payment and the income to support the payments (house payments about 1/3 of gross income). 4. If you do not like my criteria, please set you own criteria, but nothing like TED spreads.

Otherwise, this looks like another scare to keep the gravy train going for very few but very influential people at the expense of the gullible hoi polloi. On a lighter side, but very relevant, do not miss Jon Stewart’s Daily Show of September 25.

Thanks for your response. You met my expectations (which I expected ). I agree with your explanation.

In thinking it through quickly the other day, I skipped the first step you pointed out – dollars deposited in foreign CB accounts with the Fed. I saw the final step only, with the distribution of dollars to foreign commercial banks, and the dollar balances of those banks clearing through to their dollar accounts with their own New York clearers.

So these dollars should show up in the excess reserve setting of the Fed, other things equal. The Fed desk would act accordingly. These reserves in their final form would be indistinguishable from those supplied directly through domestic operations.

In an effort to live up to your expectations of me as a central bank balance sheet wonk, I have thought about the effect of the Fed’s reciprocal arrangements with the other central banks. I consider that you are right; the dollars lent to those central banks (against collateral of their own currency) may come back to the US moneymarket. In fact, I guess they never really leave, since they will be credited to each central bank’s account at the NY Fed.

It seems to me that the extra dollar balances credited to the foreign central banks’ Fed accounts under the reciprocal arrangement are like an additional source of potential dollar liquidity, granted to the foreign central banks to use at their discretion to help their own banks. Presumably, if used, they fit into Fed operations like a customer repo; the NY Fed Trading Desk allows for them when deciding what their own operations should be.

The foreign central banks could have achieved the same result by repoing some of their reserves securities with the Fed and holding the proceeds in their Fed accounts. Indeed, one wonders why the Fed did not expect the central banks involved to this instead; perhaps not all the central banks concerned have enough treasuries in custody with the Fed.

In practice I would not expect that the foreign central banks’ dollar lending needs to be offset by the NY Fed Trading Desk. I would imagine that that dollar assistance by the foreign central banks coincides with tight dollar money market conditions anyway, when the NY Fed trading desk are not unhappy for their colleagues to be lending as well.

there have even been official pronouncements that short sellers will be hunted down, at least by the brits, wonder if man is quaking…

Depends on the type of bank. Very broadly speaking, most people in investment banks tend toward being Democrat, while most people in hedge funds tend toward being Republican. Wall Street *isn’t* a core supporter of the Republican party, and the core Republicans come from states without large finance industries. That’s why McCain is bashing Wall Street, he knows he is going to lose NY.

Personally, speaking I’m partial toward Obama, because he seems to have a better handle on what solutions are actually needed. I don’t think that the deregulation/anti-government stance by McCain is really going to fix the problem. I don’t think the problem is fixable via an American-only approach, and not offering any useful solutions and then going ahead and bashing Wall Street, just makes things worse.

Blissex: You mean: losers. It is un-american to care about losers, hey in America even many losers don’t care about losers and vote for the Republicans regardless.

That’s probably why people in the sausage factory (i.e. Wall Street investment banks) tend Democrat. If you are a very, very, very good trader, then on average you will lose in 40% of the trades that you make. The trick is to not throw bad money after good, and not to lose so much that you are out of the game. If you are winning 95% of the time, then there is something very wrong. You probably are in a bubble.