Raw Finance

This week I will not belabor the point that the evidence shows that the U.S. economy is sinking into a recession much deeper than most of us have ever experienced.  Below I have summarized the most important of last week’s bad news.  But after that I am also including a recap of the government programs and facilities designed to put a floor on the economic decline.  These programs and the announcement this weekend by President-elect Obama that he plans public works programs, such as rebuilding roads and bridges, expanding broadband Internet access, and producing alternative fuel and energy sources, will help to create jobs and stimulate the economy, with the hope of instilling confidence in the financial system and spurring consumer spending.  Occasionally, I see references in the media made to stemming the decline in housing prices, but we must remember that housing is in the midst of a correction, not a collapse (please see this prior post for an explanation.)

Economic Data

• The National Bureau of Economic Research confirmed that the U.S. is in a recession that began in December 2007
• The Bank of England lowered its interest rate by one hundred basis points (1 percent) to 2 percent
• The European Central Bank lowered its interest rate by 75 basis points (.75 percent) to 2.5 percent
• The Institute for Supply Management’s Manufacturing Index drops to 36.2, showing significant contraction
• The Federal Reserve announced that consumer borrowing decreased at a seasonally-adjusted rate of 1.6 percent in October, the second such decline in the past three months
• Retail sales were down 1.9 percent in November
• 533,000 jobs lost in November

Government Program Scorecard

There have been so many federal government programs instituted since the beginning of the credit crisis, I thought it would be helpful to compile a scorecard (SOURCE: RGE Monitor):

• TARP: Troubled Asset Relief Program. This is the Treasury’s big $700 billion ($850B including pork) program that has been used to prop up financial institutions.
• TAF: Term Auction Facility (or TAFfy). Program by which the Fed auctions funds to financial institutions — allowing them to use their toxic assets for collateral.
• TALF: Term Asset-Backed Lending Facility (or “son of Taffy”). Recently announced Fed program designed to help the market for student, auto and other consumer loans.
• CPFF: Commercial Paper Funding Facility. Buys commercial paper directly from corporations.
• AMLF: Asset-Backed Money Fund Lending Facility. Fed program designed to buy short-term paper (including commercial paper) to prevent money market funds from “breaking the buck.”
• TSLF: Term Securities Lending Facility. Fed program that lets banks swap bad mortgage and other debt from their books in exchange for Treasuries.
• SLF: Special Lending Facilities. Originally designed to loan money to fund JPMorgan’s purchase of Bear Stearns in March. Also used to back AIG’s balance sheet to avoid total collapse.
• PDCF: Primary Dealer Credit Facility. This is the Fed program that allowed broker/dealers and other non-banks to tap the Fed’s discount window (back when there were independent broker/dealers).

The size of the bailout, or whatever one would like to call it, is more than $7 trillion, and that does not include the government’s pledge to back the more than $5 trillion of mortgages held by Fannie Mae and Freddie Mac.  Here are some interesting comparisons to put this amount in perspective:

Bailout Pie Chart

chart courtesy of voltagecreative

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Prior Bailouts as a % of US GDP

via mindtangle (note that this data is already old!)

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Global Bailouts per National GDP

chart courtesy of Portfolio

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via Agora Financial

[SOURCE: The Big Picture Blog]

One interesting point to note from the charts above is that the expenditure on World War II exceeded the total gross domestic product for the U.S.