We've been watching the slow-motion payback of TARP funds for some time now, and finally, last week, some of the TARP money was repaid to the U.S. Treasury in significant amounts. Goldman Sachs, Morgan Stanley, Bank of New York, and six other instituions have now paid back a total of more than $66 billion.
The landscape looks so much brighter on this front that the Congressonal Budget Office now estimates that cost of the TARP program, after the banks are done paying back what they got from the Treasury, will amount to $159 billion. That's still an awful lot of money, but it doesn't look so bad considering that the initial TARP program involved a payout of $700 billion, and as recently as March, the CBO estimated that the program would result in an overall cost of $356 billion to the American taxpayer.
And a big chunk of the money that the CBO figures is lost for good is the money that didn't go to banks. The TARP program gave $55 billion to the American car industry, and the CBO expects the government to recoup only $15 billion of that. So all in all, this is good news for the banking sector, and good news for the American economy.
Tuesday, June 30, 2009
Monday, June 29, 2009
The Strength of America
As we reach the midpoint of 2009 and come upon our nation’s 233rd birthday, it’s easy to understand why some people’s faith in America’s strength has been a little shaken by recent events. We’ve been suffering through a recession for a year and a half now, and our markets are so beat down that many of us have nothing to show for the past ten years of investing.
But there are also plenty of reasons to reflect upon America’s greatness at this time in our history. This has been a global recession, and if anything, our nation has survived it much better than some other areas of the world.
To take one example, our stock markets have taken a beating in recent years, but despite the recent downturns, they still dwarf those of any other nation. America’s leading stock market, the New York Stock Exchange, boasts a market value of $9.5 trillion, more than triple the value of the next largest exchange, the Tokyo Stock Market. Our second-largest stock market, the Nasdaq, is nearly as big as the largest market in the rest of the world.
The markets are only one illustration of the core strength of the American economy. It's those core strengths that will help us emerge from this downturn, and confirm our place as the leading financial engine of the world.
But there are also plenty of reasons to reflect upon America’s greatness at this time in our history. This has been a global recession, and if anything, our nation has survived it much better than some other areas of the world.
To take one example, our stock markets have taken a beating in recent years, but despite the recent downturns, they still dwarf those of any other nation. America’s leading stock market, the New York Stock Exchange, boasts a market value of $9.5 trillion, more than triple the value of the next largest exchange, the Tokyo Stock Market. Our second-largest stock market, the Nasdaq, is nearly as big as the largest market in the rest of the world.
The markets are only one illustration of the core strength of the American economy. It's those core strengths that will help us emerge from this downturn, and confirm our place as the leading financial engine of the world.
Friday, June 26, 2009
Further on the Fed
To follow up on yesterday's discussion of the Fed meeting, there are of course other functions of the Federal Reserve in addition to the Federal funds rate. It also sets the discount rate, which is the interest rate that banks pay the Fed to borrow directly from it, commonly called the discount window. (The Fed funds rate, remember, is the rate at which banks borrow, short-term, from each other.) The discount rate is usually about 1 percent above the Federal funds rate; right now it's at 0.5 percent.
The Fed can also raise or lower requirements for the reserves that member banks have to keep on deposit. The more money a bank needs to keep in reserve, the less it has to lend out. One reason banks take advantage of these short-term lending policies is to meet their reserve requirements.
Those are the basic tools the Fed uses to manage the country's monetary policy, to spur on the business cycle, tamp down inflation, or whatever else it sees as necessary to our economy. In the past, it was also responsible for dealing with panics and runs on banks, which thankfully we haven't had to worry about lately.
The fact that they didn't deem it necessary to tinker with any of these policies at this point, as we said, is heartening.
The Fed can also raise or lower requirements for the reserves that member banks have to keep on deposit. The more money a bank needs to keep in reserve, the less it has to lend out. One reason banks take advantage of these short-term lending policies is to meet their reserve requirements.
Those are the basic tools the Fed uses to manage the country's monetary policy, to spur on the business cycle, tamp down inflation, or whatever else it sees as necessary to our economy. In the past, it was also responsible for dealing with panics and runs on banks, which thankfully we haven't had to worry about lately.
The fact that they didn't deem it necessary to tinker with any of these policies at this point, as we said, is heartening.
Thursday, June 25, 2009
Back to Zero
As we surmised the other day, the Fed has decided to take a hands-off policy to further tinkering with interest rates, at least for the moment. After its two-day meeting, the Fed board announced that "the pace of economic contraction is slowing," and left the Fed Funds rate at zero.
What exactly is the Fed funds rate? One of the key ways the Federal Reserve System manages our monetary policy, the federal funds rate is the rate that banks are charged for overnight loans of federal funds, which are the reserves held by the Fed. With the Fed funds rate at zero, banks can borrow short-term money from the Federal Reserve at 0 percent interest. A rate that low makes it as easy as possible for banks to lend money and pump more funds into the economy. Loans for businesses to establish themselves or expand - if shellshocked banks are willing to offer them - should be available at very low rates.
The Fed dropped the rate to zero back in December 2008, and it's stayed there ever since. It's the first time in history that the rate has ever been at zero. The fact that the zero rate hasn't brought the economy roaring back to life shouldn't be taken as evidence that this policy was a failure; there's no telling how much worse things would be with a higher Fed funds rate.
What exactly is the Fed funds rate? One of the key ways the Federal Reserve System manages our monetary policy, the federal funds rate is the rate that banks are charged for overnight loans of federal funds, which are the reserves held by the Fed. With the Fed funds rate at zero, banks can borrow short-term money from the Federal Reserve at 0 percent interest. A rate that low makes it as easy as possible for banks to lend money and pump more funds into the economy. Loans for businesses to establish themselves or expand - if shellshocked banks are willing to offer them - should be available at very low rates.
The Fed dropped the rate to zero back in December 2008, and it's stayed there ever since. It's the first time in history that the rate has ever been at zero. The fact that the zero rate hasn't brought the economy roaring back to life shouldn't be taken as evidence that this policy was a failure; there's no telling how much worse things would be with a higher Fed funds rate.
Wednesday, June 24, 2009
Getting Your Goat
The long-suffering U.S. automotive industry has been searching for any possible way to get people buying American cars again. Car dealers in New Zealand have hit upon a novel way to get buyers into the dealership - but it might not work here.
Mitsubishi dealers down in New Zealand are offering, along with every Triton SUV they sell, a free goat. The marketing manager behind this brainstorm said goats and SUVs have a lot in common: they're both "hardy, versatile units which will integrate directly into existing farm operations."
That might make sense in New Zealand, but here in New Jersey, our economy isn't quite as goat-intensive as theirs. We sure like the out-of-the-box thinking, though. Or maybe that's out-of-the-barnyard thinking.
Mitsubishi dealers down in New Zealand are offering, along with every Triton SUV they sell, a free goat. The marketing manager behind this brainstorm said goats and SUVs have a lot in common: they're both "hardy, versatile units which will integrate directly into existing farm operations."
That might make sense in New Zealand, but here in New Jersey, our economy isn't quite as goat-intensive as theirs. We sure like the out-of-the-box thinking, though. Or maybe that's out-of-the-barnyard thinking.
Tuesday, June 23, 2009
One Step Up, One Step Back
Just when we had started to see some positive signs of recovery around us, we had another difficult day on Monday. As the Federal Reserve board convened to hash out its strategy toward the U.S. economy, the World Bank released its own report, anticipating a worldwide economic contraction of 2.9 percent this year, more than 50 percent worse than its earlier prediction of a worldwide contraction of 1.7 percent.
The World Bank increased its forecast for the shrinking of the U.S. economy from a March estimate of 2.4 percent to its current estimate of 3 percent. News like this was part of what drove all the major indexes down on Monday, with the S&P 500 and Dow Jones erasing all the gains they had made so far on the year.
On the other hand, the International Monetary Fund also released a projection for the U.S. economy on Monday, and upgraded its outlook for the U.S. After earlier forecasting that our economy would shrink by 2.8 percent in 2009, the IMF now predicts a contraction of just 2.5 percent. We'd sure like the IMF forecast to be the true one, but after the sell-off on Monday, there's no doubt about whom the markets are listening to.
The World Bank increased its forecast for the shrinking of the U.S. economy from a March estimate of 2.4 percent to its current estimate of 3 percent. News like this was part of what drove all the major indexes down on Monday, with the S&P 500 and Dow Jones erasing all the gains they had made so far on the year.
On the other hand, the International Monetary Fund also released a projection for the U.S. economy on Monday, and upgraded its outlook for the U.S. After earlier forecasting that our economy would shrink by 2.8 percent in 2009, the IMF now predicts a contraction of just 2.5 percent. We'd sure like the IMF forecast to be the true one, but after the sell-off on Monday, there's no doubt about whom the markets are listening to.
Monday, June 22, 2009
Waiting for Nothing?
The prime event to keep our eyes on this week is the two-day meeting of the Federal Reserve Board, which takes place Tuesday and Wednesday. And maybe the best thing that could emerge from that meeting is if Fed chairman Ben Bernanke comes out on Wednesday and says the Fed is not doing anything new.
There has been some speculation that the Fed will act to tamp down mortgage rates. A brief bit of optimism in the housing market has been dampened lately by rising interest rates, cutting off the growth in home sales. Concurrently, long-term interest rates have been rising, and some feel that the Fed would do well to take actions to reduce those interest rates, which may hinder the economic recovery down the road.
The Fed will review its options to do something about interest rates, but in the end, it is likely to keep things right where they are. The Fed Funds rate, the rate at which banks lend each other short-term money, is already at zero, and the Fed could think that keeping that rate right there is all the interest-rate fighting it needs to do.
That will mean that some of the smartest, most knowledgeable people in the nation spent two days looking at the economy and came out with the conclusion that we're on the right track. There's something to be said for that.
There has been some speculation that the Fed will act to tamp down mortgage rates. A brief bit of optimism in the housing market has been dampened lately by rising interest rates, cutting off the growth in home sales. Concurrently, long-term interest rates have been rising, and some feel that the Fed would do well to take actions to reduce those interest rates, which may hinder the economic recovery down the road.
The Fed will review its options to do something about interest rates, but in the end, it is likely to keep things right where they are. The Fed Funds rate, the rate at which banks lend each other short-term money, is already at zero, and the Fed could think that keeping that rate right there is all the interest-rate fighting it needs to do.
That will mean that some of the smartest, most knowledgeable people in the nation spent two days looking at the economy and came out with the conclusion that we're on the right track. There's something to be said for that.
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