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Fed promises as much money as the banks want

Fed promises as much money as the banks want
Fed Has Auctioned Another $20B in Funds to Commercial Banks to Combat Credit Crunch

AP
December 21, 2007

The Federal Reserve, working to combat the effects of a severe credit crunch, announced Friday it had auctioned another $20 billion in funds to commercial banks at an interest rate of 4.67 percent. Fed officials pledged to continue with the auctions “for as long as necessary.”

The central bank said it had received bids for $57.7 billion worth of loans, nearly three times the amount being offered, indicating continued strong interest in the Fed’s new approach to providing money to cash-strapped banks.

It was the second of four scheduled auctions. The first auction, on Monday, of $20 billion resulted in loans being awarded at an interest rate of 4.65 percent. There were 93 bidders seeking $63.6 billion at the first auction and 73 at the second.

Two more auctions will occur in early January. In a statement Friday, the central bank said it would continue with further auctions “for as long as necessary to address elevated pressures in short-term funding markets.”

The new auction process was announced by the Fed last week in a coordinated action with central banks around the world trying to address a global credit crunch.

Federal Reserve Chairman Ben Bernanke and his colleagues decided to try the new process because their efforts to inject funds into the banking system through the Fed’s discount window, which makes direct loans to banks, had proven less successful than Fed officials had hoped.

Many banks had avoided using the Fed’s discount window out of concern that investors would see the move as an indication of underlying problems at their financial institutions.

The auction process was developed as a second way to get money into the banking system with the hopes that it would not carry the stigma of the discount window.

The Fed said Friday that it would announce on Jan. 4 the sizes of the next two auctions which will be held Jan. 14 and Jan. 28. Officials have said the Fed will evaluate the interest in the auctions after the initial four and determine whether more auctions will be scheduled.

The new auction results cover short-term loans for 35 days.

The global credit crisis has made banks reluctant to lend to each other even as the Fed has been lowering its federal funds rate, the interest that banks charge each other for overnight loans.

The rate currently stands at 4.25 percent, a full percentage point lower than it was in September when the Fed began slashing rates in the wake of a severe credit squeeze that had roiled global markets in August.

The 4.67 percent rate for the second $20 billion in funds and the 4.65 percent rate for the first auction means that banks who are using the auction process to get needed reserves are getting them at a rate slightly below the 4.75 percent rate they could get in direct loans through the discount window.

The Fed cut the federal funds rate and the discount rate by a quarter-point at its last meeting on Dec. 11, disappointing investors who had hoped for a bigger half-point reduction in the funds rate.

Many economists believe the Fed will keep cutting rates with three more quarter-point reductions expected in the funds rate at the Fed’s first three meetings of the new year.

Analysts believe that a serious slowdown in overall economic growth will force the Fed to continue cutting rates even though some Fed officials have expressed worries that the rate cuts could exacerbate inflation pressures, which have flared up again, reflecting a renewed surge in oil prices.

 

People & Power – Death of the dollar

http://www.youtube.com/watch?v=54MUm2P1jOU

http://www.youtube.com/watch?v=HdrNbhdl7uU

Growing number of Americans expect recession: poll
http://www.reuters.com/article/ousiv/idUSN1821436620071219

Gold climbs above $800 in London as dollar drops; silver gains
http://www.tehrantimes.com/index_View.asp?code=159758

Northern Rock Rescue Cost $100B
http://www.fmnn.com/WorldNews.asp?nid=52822

US Inflation Soars – Largest Rise in Producer Prices Since 1973!
http://www.marketoracle.co.uk/Article3128.html

US foreclosure filings up 68 pct in Nov.
http://news.yahoo.com/s/ap/20071219/ap_on_bi_ge/foreclosure_rates

U.S. Dollar’s Credibility Being `Stretched,’ UBS Economist Says
http://www.bloomberg.com/apps/news?pid=20601…o4&refer=home

US Federal Reserve’s subprime regulations shield Wall Street banks
http://www.wsws.org/articles/2007/dec2007/mort-d21.shtml

Economy teeters on brink, says Resler
http://www.marketwatch.com/news/mailto.a…&siteid=mktw

GAO Says Government Failed Yet Another Financial Audit
http://www.govexec.com/story_page.cf…2&dcn=todaysnews

One in Five Americans Must Borrow to Heat Homes This Winter
http://www.alternet.org/blogs/peek/71071/

Morgan Stanley secures $5bn from China
http://www.telegraph.co.uk/money/main.j….9/bcnmorgan119.xml

CNN: Ron Paul Says U.S. Going Broke
http://www.youtube.com/watch?v=lP6MtMq5cBw

ECB Offers Banks Unlimited Funds
http://news.bbc.co.uk/2/hi/business/7149329.stm

Overstock.com CEO warns of depression
http://www.youtube.com/watch?v=m-TLfmLTiqA

U.S. Economic Collapse News Archive

 


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