29 Trillion Dollars, One Page

Michael Stephens | December 16, 2011

Randall Wray has a new one-pager following up on the release of a report detailing and tallying up the Federal Reserve’s extraordinary efforts to prop up the banking system—a report with the rather eye-catching headline number of $29.6 trillion.  The Levy Institute working paper, the first in a series, is part of a Ford Foundation-supported project undertaken by James Felkerson and Nicola Matthews under Wray’s direction.

In the one-pager, Wray explains the methodology and justification behind the report’s presentation of the raw data that was released (after some persuasion) by the Fed.  As an example, he runs through the numbers for just one facility, the Primary Dealer Credit Facility (PDCF) created in March 2008, and explains the three different measures compiled by the report.  First, they present the peak outstanding commitment (loans and asset purchases) at a point in time ($150 billion); then the peak flow of commitments over a week ($700 billion); and finally, the cumulative total over the life of the facility ($9 trillion).  Again, this is all for one facility (PDCF).

What’s the point of all these numbers?  Wray explains:

Take your pick: the appropriate number chosen depends on the question asked. The smallest number answers the question, What was the Fed’s peak exposure to losses (assuming the Fed would let the institutions fail without extending even more credit to them)? The middle number indicates how much it took to meet liquidity demands during the worst week of the crisis, from the point of view of the dealers. And the biggest number tells us how much the Fed had to intervene over the life of the facility in order to settle markets.

Read Wray’s one-pager here.

Reading through the report, one can’t help but be struck by the contrast between the Fed’s fierce and, let’s say, imaginative approach to the banking crisis and the institution’s comparatively tame, chin-stroking acceptance of the needless waste of human potential represented by near-9 percent unemployment.


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