Comments on: US economy flirting with the repo men http://www.crikey.com.au/2009/10/27/us-economy-flirting-with-the-repo-men/ now with extra source Sat, 11 Feb 2012 22:41:28 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Wayne http://www.crikey.com.au/2009/10/27/us-economy-flirting-with-the-repo-men/#comment-43041 Wayne Tue, 27 Oct 2009 03:47:41 +0000 http://www.crikey.com.au/2009/10/27/us-economy-flirting-with-the-repo-men/#comment-43041 Good article, nothing wrong with a bit of conspiracy theory every once in a while. If it’s largely true I guess the main motivator for the US moving in such a fashion would probably be extracted from a utilitarian ethics construct; something along the lines of protecting as much as possible of the economic gains realised over the past few hundred years. Consequentialism theory, particularly utilitarianism (greatest good for the greatest number) is a useful tool in charting the best course of action in something like group economic market activities. But it will always be found wanting somehow when you start drilling down to the level of individual players, be they organisations or people. Of course the logical closer extension of this ethical theory, from the group perspective, is to cauterise the group wound as quickly and effectively as possible. But I can’t yet see the US Government serving up the death penalty or similar to those players who caused the mess. I wonder how future generations will feel about that? Good article, nothing wrong with a bit of conspiracy theory every once in a while. If it’s largely true I guess the main motivator for the US moving in such a fashion would probably be extracted from a utilitarian ethics construct; something along the lines of protecting as much as possible of the economic gains realised over the past few hundred years.

Consequentialism theory, particularly utilitarianism (greatest good for the greatest number) is a useful tool in charting the best course of action in something like group economic market activities. But it will always be found wanting somehow when you start drilling down to the level of individual players, be they organisations or people. Of course the logical closer extension of this ethical theory, from the group perspective, is to cauterise the group wound as quickly and effectively as possible. But I can’t yet see the US Government serving up the death penalty or similar to those players who caused the mess.

I wonder how future generations will feel about that?

]]> By: Scott http://www.crikey.com.au/2009/10/27/us-economy-flirting-with-the-repo-men/#comment-43001 Scott Tue, 27 Oct 2009 03:08:59 +0000 http://www.crikey.com.au/2009/10/27/us-economy-flirting-with-the-repo-men/#comment-43001 Bit of a conspiracy theory here. Repurchase agreements in the US conducted by the Federal Reserve are very much like the selling and buying of Government bonds conducted by the Australian Reserve Bank. They are done to increase or decrease the money supply. Why would the US government want to increase the money supply in 2008? Liquity is a factor of course, but the main reason was due to the large expansionary fiscal policy being conducted by the US Government in 2008 potentially causing inflation. All this can be explained by the IS-LM model. The Federal Reserve bank knew that the increase in Government spending would cause the IS curve (goods market equilibrium model) to move outward and so, if conditions were left as is, cause inflation. Hence they increase the money supply (by buying these securities), causing the LM curve (the money market equilibrium model) to move outwards as well, hence putting downward pressure on inflation...keeping prices under control. If you look at the Australian Reserve banks open market operations around the same time, you will see a similar pattern (I think it was posted on crikey a few weeks back). Pure Fiscal and Monetary policy working hand in hand....nothing wrong here. Bit of a conspiracy theory here.
Repurchase agreements in the US conducted by the Federal Reserve are very much like the selling and buying of Government bonds conducted by the Australian Reserve Bank. They are done to increase or decrease the money supply.
Why would the US government want to increase the money supply in 2008? Liquity is a factor of course, but the main reason was due to the large expansionary fiscal policy being conducted by the US Government in 2008 potentially causing inflation. All this can be explained by the IS-LM model. The Federal Reserve bank knew that the increase in Government spending would cause the IS curve (goods market equilibrium model) to move outward and so, if conditions were left as is, cause inflation. Hence they increase the money supply (by buying these securities), causing the LM curve (the money market equilibrium model) to move outwards as well, hence putting downward pressure on inflation…keeping prices under control.
If you look at the Australian Reserve banks open market operations around the same time, you will see a similar pattern (I think it was posted on crikey a few weeks back).
Pure Fiscal and Monetary policy working hand in hand….nothing wrong here.

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