Tuesday, November 25, 2008

Thoughts on recent economic affairs

-The Fed paying interest on reserves has the same effect as the Fed selling securities through open market operations. Selling securities through OMO parks the cash at the Fed, out of the money supply. The Fed pays interest on those securities. With the new system, the Fed just pays interest on the cash directly, and since the FFR is so low institutions park their cash at the Fed instead at other institutions.

-Paulson and Bernanke are like the people in Jurassic Park who thought things would be fine once they got power back to the fences; but forgot that the velociraptors and T-Rexes were loose, shredding anything that moved.

1 comment:

andy said...

LOL i like the Jurassic park reference.