Wednesday, December 19, 2007

Fed Loans at Discount to Discount Rate

The results of the Federal Reserve's Term Auction Facility are in. The Fed loaned $20 billion to banks at 4.65%. That's less than the Discount rate of 4.75% but not dramatically so. Banks bid for about $60 billion so there was strong demand for the loans. Interestingly though, it is a fraction of what the ECB loaned out to European banks earlier in the week ($500 billion). Are European banks in more trouble than their US counterparts?

Here's an interesting paragraph in the AP story:

The smooth flow of credit is the econony's life blood. It permits people to finance big-ticket purchases, such as homes and cars, and helps businesses to expand their operations and hire workers.

Credit is the life blood of the economy? That is certainly true in our over indebted economy, but the lifeblood of any economy is saving and investment - of which we have way too little.

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