Is the United States actually trying to print money to bail out financial institutions?

[xiphias]

On YouTube, a market analyst has put up a video in which he claims that the Fed found themselves lacking the liquidity to bail out AIG -- and has chosen to simply print a bunch of money to cover it.

If that's the case . . . that's bad.

The video's here:

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

Can anyone confirm or deny that they are actually taking this step?

Comments

[brooksmoses]

I didn't watch the video, but from your description I'd presume he's talking about this Marketwatch news story that a commenter in wcg's journal linked to.

[yehoshua.livejournal.com]

I'm sorry, but this man is a flaming loon who doesn't seem to know what he's talking about. The $40bn is a short-term issue of T-bills. Now, our currency may come from the Treasury and we may call the individual notes "bills," but they're not the same thing as T-bills.

I have my issues with this short-term financing plan, but it's a far cry from printing $40bn in new currency.

[xiphias.livejournal.com]

Oh, okay.

I can't say that I like the idea of the government borrowing money at pretty unfavorable terms in order to bail out a corporation who fucked up THEIR credit, but it's not the same as printing money.

[yehoshua.livejournal.com]

Yeah, there's a lot to dislike about this plan, but it's not complete insanity. I'm not even sure the interest rates are the deal-breaker to me, given that the issues will have a term of only 35 days. My real biggest concern is that nobody, even the AIG bean-counters, seems to know what the actual size of their liability is (hence the bailout... a lot of the unknown liability is held by foreign state banks). I get that default would have been a terrible option and probably put us into a situation comparable to the 1930s, but I find taking this much on blind faith profoundly distasteful.

[sethg]

The loan to AIG is at LIBOR + 8.5% and AIG had to give up 80% of its stock in order to get it. Nobody can say if that's a fair interest rate in a financial sense (if we knew that, then a consortium of private banks would have offered the loan on the same terms), but at least it's not the kind of deal that every other company would want a piece of.

[sethg]

But doesn't the Treasury always issue T-bills when it wants to manipulate the money supply?

Treasury loans out more money to banks → interest rates go down → more money gets borrowed → thanks to the magic of fractional-reserve banking, there is more cash sloshing around the economy.

O_O

[ysabetwordsmith.livejournal.com]

Folks, it's time to put one hand on your denarii and the other hand on your salt.