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Discount Window Borrowing

Terrific chart via Bill King shows the extent of the borrowing by financial institutions at the Fed Discount Window.

Note the 4 spikes: Continental Illinois bailout (1960s), S&L Crisis  (1980s), 9/11 (2001), Credit Crisis (today)
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Chart courtesy of Bloomberg, Bill King

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I'd call that provocative!

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Wednesday, March 26, 2008 | 06:59 AM | Permalink | Comments (61) | TrackBack (1)
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Comments

"I'd call that provocative!"

I'd call that BLOODY MOTHER F---ING INSANE...!

Best Regards,

Econolicious

Posted by: ECONOMISTA NON GRATA | Mar 26, 2008 7:29:00 AM

Have I mentioned this quote from Ludwig von Mises: "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED." (capitals mine)

Posted by: JustinTheSkeptic | Mar 26, 2008 7:36:57 AM

I predict that this will be called "demonstrative of an accounting shift, nothing more", as was the negative non-borrowed reserve for depository banks was a few weeks ago.

A mere flesh wound.

Posted by: Neal | Mar 26, 2008 7:57:13 AM

C'mon Barry, you know this is all your and the media's fault. All this negativity man!

The spin on CNBC yesterday with after the terrible consumer confidence number,..good grief! I forget who Erin tried to get to say it was just negative headlines bringing everyone down. That was met with a resounding no and that the negativity was because the food and gas consumers were buying was twice as much now! Still that twit tried to spin it?

Erin, Do you realize you make yourself look like an idiot? No credibility. Even Steve L. refused to spin that horrible number. Good for you Steve.

Sorry Bsrry, you can post this objective data about fundamentals but you will still get some baseless argument on here about why everything is okay. Still appreciate your blog. Housing was the same way. everything was fine,..until it wasn't!

Posted by: Ken H. | Mar 26, 2008 8:13:53 AM

Which is more significant - the height of the line or the area under the curve? This crisis certainly came on quickly, in comparison, but hasn't shown legs yet.

Posted by: wally | Mar 26, 2008 8:20:13 AM

Karl K, why don't we just keep on flooding the system with money so that we all can use it to wall-paper our homes, not just here in this country, but everywhere around the world. As all the FED Governors know, (but somehow seem not to want to admit too), once you let the inflationary genie out of her bottle it is near impossible to get her back in. In fact, the only time I can remember is when Paul Volcker, raised rates back in "81., which crushed the economy. Which means that the best thing to do is to suffer through a very fast deep recession/depression, feed the people, make sure no one goes hungry, etc. With our knowledge today, we could pick up the pieces very quickly, and more than likely, the rich that are fearing the loss of their wealth, would in the end get back their principle and more. If they know where to reinvest into the "new economy." If they do not then they didn't deserve their wealth in the first place. All the FED injections, whether through lower rates, open window policy, etc.,are doing is extending the agony. We have only just begun this process and it will take years, like Japan, to fix the problem. Unlike Japan once the system gets wrung-out we then should flood the system with money, not do it like they are now - prematurely. Yes, a financial Armageddon (Schumpeter called it creative destruction) is the best road to take. Some times problems don't go away by just being able to "crying uncle!"

Posted by: JustinTheSkeptic | Mar 26, 2008 8:39:18 AM

That's the same thing I was thinking, the area under the curve should eventually give the total dollars borrowed and better describe the "size" of the problem. Wouldn't an inflation adjustment be warranted as well?

Posted by: bdphil | Mar 26, 2008 8:48:13 AM

Everyone is missing the obvious cure for our current economic woes.

George Bush needs to talk to God.

Now that we have our fine Faith-based-Initiative infrastructure in place, all Bush needs to do is to ask The Almighty what he wants us to do with it. C'mon, folks - we're talking the Creator of the Universe, here - and our President has a direct prayer line to him. Think of it as "the White Phone".

I can't understand why Bush won't do it. After all, that's why God gave him the direct line in the first place. It's not like we didn't listen to God's prophet. We elected Bush twice, just like God told us to. Why would he abandon us now?

I'm beginning to doubt that Bush was being honest and forthright about his relationship with God. If that's the case, I don't think electing him was such a good idea.

Live and learn.

Posted by: Marcus Aurelius | Mar 26, 2008 8:50:29 AM

But Justin, it is an election year...

Posted by: lurker | Mar 26, 2008 8:51:47 AM

But we cannot have the economic engine seize up -- even for an instant. The unintended consequences of such an event would be too horrifying to contemplate.

Posted by: Karl K | Mar 26, 2008 8:50:21 AM

______

There have been many things too horrible to contemplate taking place over the past 8 years. Why is the one that roosts on your doorstep the only one "to horrible to contemplate"?

Never thought you'd be next, did you?

Posted by: Marcus Aurelius | Mar 26, 2008 8:57:11 AM

Let's not forget the Fed has already loaned out half it's balance sheet. There's not much more room for Fed lending until it can't lend anymore.

What happens when the lender of last resort can't lend?????????

Posted by: John Borchers | Mar 26, 2008 9:04:07 AM

Carl K, we have no choice - pay me now, or pay me later... What, would you rather go through Weimer Republic style agony, or meet the problem head-on? The U.S. goes bankrupt, we find the true value of things by having a fire-sale, and letting the market work... I'll admit there are no easy answers.

Posted by: JustinTheSkeptic | Mar 26, 2008 9:06:22 AM

Durables down, GS estimates plus $1trillion in losses, consumer confidence non-existant, etc.. Whadyasay up 300 today? I think its a lock.

Posted by: Rich Shinnick | Mar 26, 2008 9:11:50 AM

At what point does Ben Bernanke get vertigo?

Posted by: Chief Tomahawk | Mar 26, 2008 9:14:38 AM

Let's not forget the Fed has already loaned out half it's balance sheet. There's not much more room for Fed lending until it can't lend anymore.

What happens when the lender of last resort can't lend?????????

The Fed's credit line is limitless; if they burn through the $800 billion and the crisis is still with us, Congress will increase the Fed's reserves. The Fed will not run out of money to lend.

That's largely immaterial, though. As much as anything, the credit crisis is a crisis of confidence -- as in, "I don't believe, Mr. iBanker, that that crappy paper you're trying to sell me is worth what you say it is. Take a hike."

Until that crappy paper is marked down to what it's worth -- nothing? -- injections of liquidity by Fed will be of limited value.

Posted by: MitchN | Mar 26, 2008 9:22:39 AM

Here's a challenge to the phonies who claim we just need to hit bottom before all can be made right again.

Please define 'Bottom' in numerical and narrative terms so that there is no disagreement as to exactly where 'the bottom' is. The lunatics who think a good credit market seizure is all that is required must have some idea where the end of the road lies. So, give me a number and describe the scenery at that location.

I don't mean the local S&P bottom that is defined as the local low some expect in a few months. I mean describe the number and consequences they expect to see when we are purged of all economic ills. How will the average day of the average person be affected in your description?

Please don't coward out of my challenge and whimper that nobody could possibly have the answer. You idiots are asking for a total economic collapse as a cure all. You must have an idea of how to recognize when that has happened. Let's hear it.

You ignorant phonies must also know what the natural state of the economy is for the country and the world. So, spill it. Define 'perfect' and explain how to get there. Hint: Herbert Hoover tried this in the Great Depression. He felt that aiding the economy was encouraging weakness and not enabling the bad stuff to work its way out naturally. How well did he do, in your exalted opinions?

Let's see if you clowns are just a chorus of tagalong wannabee doomsters or if you have the actual chops to describe the apocalypse you want so badly.

Posted by: cinefoz | Mar 26, 2008 9:29:17 AM

I'll tell you one thing, if our government doesn't start getting ready for a seize up, and people don't start preparing for it, then it will be horrifying.

So far I have yet to read anyone that has a compelling answer about how to get out of the problem without massive hyperinflation that is guaranteed to ruin us. They all just say that we can't go the other route because it is too bad to think about.

Well I've never heard of a country that disappeared because of deflation (I could be wrong, please correct me) but there sure are a hell of a lot of countries that have fallen apart completely from hyperinflation.

It's not about fundamentalism, it's about looking at history and concluding that at this point everyone is captive. If something fundamentally changes and negates the historical comparisons then I am willing to change my view.

Posted by: mikkel | Mar 26, 2008 9:34:30 AM

Come on, mikkel. Spill out some details. Tell us all what the end game will look like after the purge. All I read is general hand wringing blabber.

Posted by: cinefoz | Mar 26, 2008 9:40:13 AM

That chart on the discount window looks like an inverted sonar pic of an iceberg.

Posted by: Ross | Mar 26, 2008 9:42:46 AM

cinefoz I have a very succinct answer to what the bottom will look like.

It will be when the only thing to fear is fear itself.

Or in more numerical terms, it'll be when minor changes in stimulus/productivity cause massive increases in GDP rather than visa versa.

With our technology and egregious excess in resources, it would be unconscionable if there was widespread famine, disease or homelessness, but I fear that's exactly what will happen if either a) there is a depression and there is no back up plan or b) they try to stave off one at all costs and it debases the currency so much that we have no buying power.

Posted by: mikkel | Mar 26, 2008 9:45:13 AM

The Continental Illinois bailout was in 1984, not the 1960's.

Posted by: C. Maoxian | Mar 26, 2008 9:48:10 AM

I should have said when it'll occur. What it'll look like will hopefully be the "best" parts of the Great Depression, i.e. without the tent cities and massive famine. Maybe like Russia after the fall of the Soviet Union.

So yes, it'll be horrible.

Posted by: mikkel | Mar 26, 2008 9:48:44 AM

so mikkel,

You agree with the Herbert Hoover method of fighting bad paper in the markets? It sounds like it. Sorry, but history disagrees. You should read it sometime.

Posted by: cinefoz | Mar 26, 2008 9:51:28 AM

Then at that point I'm all behind tons of Keynesian stimulus, which is what it was originally meant for.

Massive infrastructure work. Tons of money to basic and applicative science. Huge expenditures into alternative forms of energy. The bottom isn't going to magically go away, it needs to have a fundamental driver that will set up recovery.

And people that read Minyanville should know that the idea that Hoover stood aside and did nothing is completely false. Minyanville has constantly pointed out that what we are doing now is almost exactly like Hoover's admin and the Fed did then. Tax cuts for economic stimulus, creative borrowing, huge and fast interest rate cuts.

It didn't matter because they were doing it on the wrong side of the problem.

Posted by: mikkel | Mar 26, 2008 9:54:40 AM

everything is spin--just look how Obama and Hilary are spining things.

I think its a baby boomer thing--in general we get more and more shallow each year.

the CNBC thing--it plays to shallow minds not deep thinkers.

the dumbing of America.

Posted by: hal | Mar 26, 2008 9:57:02 AM

December 2008

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