Hello:

Yesterday, to calm the market, The Federal Reserve Bank "injected" $40 billion of "liquidity" into the market.

Uhhhh, what does that mean??

Does it mean that they printed up the money? Oh, I know that's not how they literally do it. They print bonds instead, and sell them to the Chinese. Or, do you know of a different way?

Where did the Fed get that money?? Did the Fed actually sell something to generate the money?? What do they have to sell? Is what the Fed did inflationary?

Magdude?

excon

Someone who actually knows will probably be along shortly. In the meantime, I'll dust off my economics knowledge as best I can.

I think I remember that when they do that they either increase the amount of money that the banks can loan or have on hand. Either that, or they lower their interest rate so that banks will loan more money, in which case the $40 bil is speculation.

The more I think about it, the more I'm unsure. Been too long since economics class.

The Treasury Dept prints money . The Fed adjusts the rate that the money can be loaned to it's primary customers (banks ) by buying and selling government securities. The amt of securities (bonds ) in the system is a Treasury function . But yes ,they do print what the Fed tells them to print.

I'm sure Mag will argue that the fiat currency we have is the root of all evil. But as Elliot pointed out in another posting ;which country still bases it's currency on a fixed commodity like gold ?

If the Fed's move was inflationary then why did currencies drop against the value of the dollar after the move? Why did metals like copper and gold fall in value ?

Our currency is on a fixed commodity, oil. Oil shot up. The fed injected liquidity into the market. More money. As if they haven't printed enough lately. Inflation bubble will get bigger and with the interest rate cut our savings get smaller. It is an attempt to get the banks to start lending more money so people will buy homes, build homes etc. Money to lend and make interest. I really doubt it will make much difference. Inflation really is too high. More and more countries are pegging to Euro because they think the fed is reckless. I agree.
Here are a couple of articles from a very respected fund manager. He really knows how money and the fed works.

Safe Haven | They Have Got to be Kidding
Safe Haven | The Mother of all Bad Ideas

The TBills and bonds are our governments debt, what they borrow from the fed. The fed orders the dollars from the treasury and gives it to the gov. The gov gives the fed the Bonds and Tbills for their borrowing. Other countries buy our debt, Tbills and such and they make billions in interest, about 4.25 % now I believe. Saudi's buy boat loads of them and trade for oil. That is the money they are now investing in our stock market. Stocks are a great buy right now and getting better for shorts and bargin hunters, because as we know, all the fed has to do is print more money and all will be great again. There really is nothing to worry about. If the dollar does fall completely, we still have the all new AMERO coming to a bank near you soon!

The fed sells nothing but debt. The IMF prices oil which in turn prices the dollar but since Helicopter Ben has been throwing dollars from helicopters...

Treasury bonds lower as stocks recover gains at the close - MarketWatch

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Our currency is on a fixed commodity, oil. Oil shot up

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Our currency is based on" full faith and credit " and no matter how many dollars the Persian Gulf or the Chinese accumulate selling oil and crappy toys ;the United States is still their safest investment. Despite the idiot Iranian move to move oil sales to other currencies OPEC will not follow suit. They voted on it and the proposal was defeated 10-2 (Iran and the Mahdi hatter stooge Hugo Chavez in the minority ).

I agree that the added liquidity is an attempt to get banks to loan more . But the interest rates are already low enough for that stimulous .It's just that the banks shot themselves in the foot with the sub-prime fiasco and they are spooked about lending right now.

When oil falls as it inevidibly will ;will you credit it on the basis of a strong sound dollar ? I don't think you will .

Hello again:

I don't know. I think we're getting diddled. I pulled this off the NY Stock Exchange website:

"Through coordinated action with a handful of other central banks, the Federal Reserve will employ at least $64 billion in auctions and foreign exchange swaps to grease the wheels of the global financial system."

Can anybody tell me what the hell THAT means??

excon

excon,

What the Fed has done is a two-part fix.

1) They set up a method that makes it easier for banks to borrow money at a discount from the Federal Reserve. This will inject additional money that used to be held in reserve by the government back into the economy. To do this, they have set up what they are calling the "temporary Term Auction Facility" (TAF). TAF will auction discounted money to banks that are not usually direct borrowers of the Fed, and the discounted loans will be fully collateralized. By improving the ease with which banks can borrow directly from the Fed, the Fed is able to inject liquidity into the economy.

2) They are lending $20 billion to the European Central Bank and $4 billion to the Swiss National Bank for use in their jurisdictions. This is the swaps program they mentioned. This action injects liquidity into the international markets, and helps the EU and the Swiss with their inflation/liquidity problems. And because there are more dollars in the international market, there is more liquidity for the US to work with in the worldwide economy.

Does that explain it?

Elliot

Gold is always a good investment. The historical price trend has been upward over the past several years. It's always a good natural hedge against inflation. No reason NOT to buy it.

But if you are asking whether you should buy gold because of the actions of the Fed... no. There's no reason to do ANYTHING because of what the Fed has done.

Remember the first words of The Hitchhiker's Guide to the Galaxy.

DON'T PANIC.

Good words to live by and invest by.

Elliot

And also remember that ET works in a bank so when a banker tells you don't panic, PANIC! ;)

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Originally Posted by tomder55

Our currency is based on" full faith and credit " and no matter how many dollars the Persian Gulf or the Chinese accumulate selling oil and crappy toys ;the United States is still their safest investment. Despite the idiot Iranian move to move oil sales to other currencies OPEC will not follow suit. They voted on it and the proposal was defeated 10-2 (Iran and the Mahdi hatter stooge Hugo Chavez in the minority ).

I agree that the added liquidity is an attempt to get banks to loan more . But the interest rates are already low enough for that stimulous .It's just that the banks shot themselves in the foot with the sub-prime fiasco and they are spooked about lending right now.

When oil falls as it inevidibly will ;will you credit it on the basis of a strong sound dollar ? I don't think you will .

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When the price of oil falls I will base it on a dollar that has reevaluated to a higher worth by the reduction of inflation. That is why the oil is so high, inflation of the dollar. Prices are higher for everything because of inflation. If you haven't noticed that then you have more money that you need. I'm happy for you.

You say our dollar is based on faith and credit(debt). We must remember, as your friend ET can tell you, business is business. If the world can get a better rate, they will and they are.

Oh, and by the way tom, Iranians are not idiots. They are really intelligent people that have been manipulated by oil hungry fascist for many, many years and now they are tired of it.

That's why I am keeping all the backups.
Work for a European Company, stay in the US, have family in both China and Japan.
Just in case things happen, I will move. Lol

I lived in Iran and am well aware of the people . My remarks were directed at the idiot mullahs and their pit bull Ahmamadjihad.

Quote:

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Originally Posted by excon

Hello again:

I dunno. I think we're getting diddled. I pulled this off the NY Stock Exchange website:

"Through coordinated action with a handful of other central banks, the Federal Reserve will employ at least $64 billion in auctions and foreign exchange swaps to grease the wheels of the global financial system."

Can anybody tell me what the hell THAT means????

excon

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It means they are trying to put out the fire with oil. Flooding an already dollar saturated economy with more useless dollars.

Quote:

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Originally Posted by tomder55

I lived in Iran and am well aware of the people . My remarks were directed at the idiot mullahs and their pit bull Ahmamadjihad.

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Yes, someone must be demomized in our crusade to rule the world... oil.

You're a Sly One, Mr. Greenspan | Market Watch | Elliott Wave International

The Grinchspan Song (with apologies to Dr. Seuss)

You're a sly one, Mr. G.
You really are a heel
You told us all to get a great mortgage deal
And then laughed as we slipped on that banana peel.
You're really quite a meanie, Mr. Greenie.

You're a rotter, Mr. G.
Without a spotter of kindness.
First you say you couldn't have guessed
That freer credit would create such a mess.
Now today you say
It was an "accident waiting to happen."
You can't have it both ways, Mr. 'Span.

You're as charming as an attack dog, Mr. G.
You're full of rotten egg nog
That you are.
Do you see a long hard slog
For the economy to get back in shape
Now that you've lost the Superman cape?
You're really quite a Grinch, Mr. G.