just back from northern capital, and all indicators in china, at this instant, appear to indicate all recovering
in the mean time, just in in-tray
Bridgewater is estimating cumulative net losses for the US gov't of US$1.4tn, between what it classifies as asset purchases, hard guarantees, implicit guarantees and soft guarantees. The lion's share of the projected losses stem from US gov't agencies like Fannie and Freddie (implicit guarantees).
Bridgewater also expects the ECB to lower rates to 1% shortly, global policy rates to be kept near 0% well past mid-2010, and bank spreads to be kept under control by gov't intervention.
The Size of Government Purchases and Guarantees
From doing too little too late, the governments around the world, especially the U.S. government, have done a mind-boggling amount of buying and guaranteeing financial assets which has, at least temporarily, stabilized the economy and markets. If these purchases and guarantees were not made, the prices of these assets would be much lower and the amount of money available for just about everything else (goods and services) would also be much lower. In the case of the U.S. and to a lesser extent other governments, the ability to do this buying and guaranteeing without any limitations, which is due to the ability to fund and back-stop all of these via the printing press, has been key. In this way, these actions have negated the credit contraction. This has big implications. When credit is contracting, these moves don’t have inflationary effects because they negate the deflationary effects. But the ripple effects down the road will be huge.
The table below shows our tally of the purchases and guarantees of the government. Taken together, government entities (primarily the Fed, FDIC, and Treasury) now have gross exposures to banks, mortgages, and other related credit assets of about $22.5T or about 170% of GDP. If we add softer guarantees, but still significant parts of the financial marketplace, this number grows to $29T or 200% of GDP. (Note that this represents actual, current exposures, not announced or “allocated” figures. As an example, the Fed has announced an intention to buy $1.25T of Agency MBS, but we are using only $301B, which is what they have purchased to date.)
The table below shows the gross exposures of the US government broken up by category. The categories are the following (in decreasing order of certainty that the government will foot the bill on losses): direct asset purchases or exposures by the government (e.g., the Treasury’s holdings of bank preferred equity); explicit, hard guarantees that the government has made (e.g., the FDIC’s guarantee of bank deposits); implicit guarantees that the government has made (e.g., the Treasury’s implicit backing of Fannie and Freddie); and soft guarantees on financial exposures the government has not guaranteed but may still be considered systematically important (e.g., senior bank debt, insurance policies and underfunded pension funds).
recommendation: continue to aggregate au and pt at 1:1 mix |
