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TARP funds being considered to pay down deficit
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Author:  Ladas [ Thu Nov 12, 2009 9:57 am ]
Post subject:  TARP funds being considered to pay down deficit
Wall Street Journal regarding considerations by the White House to use the "left over" TARP funds to pay against the Federal Deficit. Can someone please explain to me how this makes any sense at all, aside from a display of the King's new clothes?
Author:  Uncle Fester [ Thu Nov 12, 2009 11:05 am ]
Post subject:  Re: TARP funds being considered to pay down deficit
So using the money they printed up, and borrowed to pay the debt on the money they printed up and borrowed. I think the next step is to invest in Franklin Mint Collectible plates...they always go up in value!
Author:  Rafael [ Thu Nov 12, 2009 11:13 am ]
Post subject: 
I hope the White House's security staff and other secondary staff begin eating Kashi Go Lean. This type of punishment is the only thing suitable for such idiocy.
Author:  Lonedar [ Thu Nov 12, 2009 12:14 pm ]
Post subject:  Re:
Rafael wrote:
I hope the White House's security staff and other secondary staff begin eating Kashi Go Lean. This type of punishment is the only thing suitable for such idiocy.


Too funny!
Author:  Diamondeye [ Thu Nov 12, 2009 12:22 pm ]
Post subject:  Re: TARP funds being considered to pay down deficit
Ok.. Is it just me or is this so overtly obviously stupid that I'm missing something?

Just to be absolutely clear... wouldn't it be smarter to not create/spend those TARP funds at all and thereby not incur that portion of the deficit, than spend them to pay their own debt?

I have this distinct feeling there's some additional nuance I'm missing here.
Author:  Rafael [ Thu Nov 12, 2009 12:28 pm ]
Post subject:  Re: TARP funds being considered to pay down deficit
Diamondeye wrote:
Ok.. Is it just me or is this so overtly obviously stupid that I'm missing something?

Just to be absolutely clear... wouldn't it be smarter to not create/spend those TARP funds at all and thereby not incur that portion of the deficit, than spend them to pay their own debt?

I have this distinct feeling there's some additional nuance I'm missing here.


Nope, that's exactly what they are doing. They aren't using a surplus to pay down the deficit; they literally had to find the funds for TARP that didn't actually exist. Now they are using the TARP funds to pay back the debt incurred to borrow that money.

The only thing that happens is some accounts get paid to do something that never had to be done. It is literally paying people to dig up holes then fill them again.
Author:  Uncle Fester [ Thu Nov 12, 2009 12:43 pm ]
Post subject: 
I wonder if they have paid interest on the money they borrowed to now pay the money they borrowed in the first place....It's a financial boondoggle!
Author:  Hannibal [ Thu Nov 12, 2009 3:41 pm ]
Post subject: 
Proof positive that they know what they are doing..
Author:  Aizle [ Thu Nov 12, 2009 4:00 pm ]
Post subject: 
Ok, I'm confused.

So as I understand the article, there are left over TARP funds, and instead of just have all of that sitting around, they are looking to take some and pay down the deficit, in effect reducing the overall cost of the program.

How is that not a good thing? Sure you can argue that they shouldn't have taken as much in the first place, but given that you can't undo that, isn't this a fairly fiscally prudent thing to do?
Author:  Hannibal [ Thu Nov 12, 2009 4:16 pm ]
Post subject: 
Isn't it like using part of your credit cards cash advance to pay your minimum balance?
Author:  Rafael [ Thu Nov 12, 2009 4:46 pm ]
Post subject:  Re:
Aizle wrote:
Ok, I'm confused.

So as I understand the article, there are left over TARP funds, and instead of just have all of that sitting around, they are looking to take some and pay down the deficit, in effect reducing the overall cost of the program.

How is that not a good thing? Sure you can argue that they shouldn't have taken as much in the first place, but given that you can't undo that, isn't this a fairly fiscally prudent thing to do?


No surprise there.

That's like asking someone who borrowed equity against their house how it's not a good thing that they are taking the money and using it to pay back the mortgage.
Author:  Aizle [ Thu Nov 12, 2009 4:47 pm ]
Post subject:  Re:
Hannibal wrote:
Isn't it like using part of your credit cards cash advance to pay your minimum balance?


Sure. But again, how is that bad (assuming you needed to advance cash for some other emergency).

Using the credit card example, here is how I see it.

Something bad happens where you need ready cash right now. The lesser evil of the choices you have is to do a cash advance on one of your credit cards. You guess that you'll need $5,000.00 to cover your problem. After you get into it, you end up only needing $3,000.00 to deal with the issue, leaving you with $2,000.00 left over. At this point, wouldn't the smartest thing be to pay that $2,000.00 back to the credit card to reduce your balance?

That's what I see the administration looking at doing, which to me seems amazingly refreshing, instead of the usual which has been to spend it on some other pet pork project somewhere.
Author:  Aizle [ Thu Nov 12, 2009 4:49 pm ]
Post subject:  Re: Re:
Rafael wrote:
Aizle wrote:
Ok, I'm confused.

So as I understand the article, there are left over TARP funds, and instead of just have all of that sitting around, they are looking to take some and pay down the deficit, in effect reducing the overall cost of the program.

How is that not a good thing? Sure you can argue that they shouldn't have taken as much in the first place, but given that you can't undo that, isn't this a fairly fiscally prudent thing to do?


No surprise there.

That's like asking someone who borrowed equity against their house how it's not a good thing that they are taking the money and using it to pay back the mortgage.


Ignoring the personal attack, I'd agree with you if the ONLY reason they borrowed equity was to pay down the mortgage. However, that is NOT what actually happened. See my reply to Hannibal.
Author:  Rafael [ Thu Nov 12, 2009 4:55 pm ]
Post subject:  Re: Re:
Aizle wrote:
Rafael wrote:
Aizle wrote:
Ok, I'm confused.

So as I understand the article, there are left over TARP funds, and instead of just have all of that sitting around, they are looking to take some and pay down the deficit, in effect reducing the overall cost of the program.

How is that not a good thing? Sure you can argue that they shouldn't have taken as much in the first place, but given that you can't undo that, isn't this a fairly fiscally prudent thing to do?


No surprise there.

That's like asking someone who borrowed equity against their house how it's not a good thing that they are taking the money and using it to pay back the mortgage.


Ignoring the personal attack, I'd agree with you if the ONLY reason they borrowed equity was to pay down the mortgage. However, that is NOT what actually happened. See my reply to Hannibal.


Um, no it's not. First of all, I'd like to ask how you interpreted that as a personal attack?

It's bad because you are likening an individual consumer to a FEDERAL GOVERNMENT. While Congress has the power to "borrow money on the credit of the United States",with the advent of the Federal Reserve Act, we know how that plays out.
Author:  Ladas [ Thu Nov 12, 2009 4:59 pm ]
Post subject: 
If you couple your "No surprise there" comment with his "I'm confused" comment, depending on the bias of the reader, it could be construed as a comment against his character. On the other hand, if your bias to not find a person attack, you could read that comment as "not surprised that this action by the government is confusing".
Author:  Rafael [ Thu Nov 12, 2009 5:04 pm ]
Post subject: 
Hmm, I see in retrospect how that could mean that; what I meant was no surprise that he found it not to be an petty and unscrupulous course of action. I guess that could be considered a personal attack, but I'm basing it off of several years of character observation with regard to his typical opinion about government (typically Democrat) policy.
Author:  Aizle [ Thu Nov 12, 2009 5:41 pm ]
Post subject: 
Combine both your guesses, and that's what I assumed. If it wasn't meant as an attack, then I apologize for jumping to conclusions. No harm, no foul.

Rafael, you're judging the actions based on the fact that money was borred in the first place. You see that as bad, so then apparently anything you do with it is bad.

My argument is that ship has already sailed, for better or worse, and it's not relevant to the actions being taken now. Or at a minimum the prior actions are impossible to "undo" so it's pointless crying over spilled milk.

But since you think that paying that money back is a bad idea, what do you think they should do with it?
Author:  Diamondeye [ Thu Nov 12, 2009 7:37 pm ]
Post subject:  Re:
Aizle wrote:
Combine both your guesses, and that's what I assumed. If it wasn't meant as an attack, then I apologize for jumping to conclusions. No harm, no foul.

Rafael, you're judging the actions based on the fact that money was borred in the first place. You see that as bad, so then apparently anything you do with it is bad.

My argument is that ship has already sailed, for better or worse, and it's not relevant to the actions being taken now. Or at a minimum the prior actions are impossible to "undo" so it's pointless crying over spilled milk.

But since you think that paying that money back is a bad idea, what do you think they should do with it?


The problem with your house analogy is that the homeowner doesn't mint money.

The federal government does; eventually it has to either pay the debt with tax money or monetize it. Chances are, it'll be monetized, so rather than use the TARP money to pay the deficit it would be better just to annhilate the TARP funds and not further inject pointless dollars into the economy.

Your homeowner can't do that. The analogy is fine within itself but it's not a good comparison to the situation. Of course, it is better than just finding some half-ass project to spend it on but...
Author:  Hannibal [ Thu Nov 12, 2009 7:43 pm ]
Post subject:  Re: Re:
Aizle wrote:
Hannibal wrote:
Isn't it like using part of your credit cards cash advance to pay your minimum balance?


Sure. But again, how is that bad (assuming you needed to advance cash for some other emergency).

Using the credit card example, here is how I see it.

Something bad happens where you need ready cash right now. The lesser evil of the choices you have is to do a cash advance on one of your credit cards. You guess that you'll need $5,000.00 to cover your problem. After you get into it, you end up only needing $3,000.00 to deal with the issue, leaving you with $2,000.00 left over. At this point, wouldn't the smartest thing be to pay that $2,000.00 back to the credit card to reduce your balance?

That's what I see the administration looking at doing, which to me seems amazingly refreshing, instead of the usual which has been to spend it on some other pet pork project somewhere.


The rub is that many people don't feel they needed the cash *right now* and it was a mad dash by the administration to gather up as much money as fast as they could and flush it right down a sewer drain. Really, what hasn't been a mad dash by this administration? I feel it was dredful fiscal mismanagement by the same useful idiots that got the country in that position in the first place. It transcends party lines because they all have had their sticky fingers in the pot over the many years.

So I feel a better example is:

Say you notice your cars tires are showing some wear. When you take it in to be inspected, your mechanic says that they pass inspection as per the rules, but they are in need to being repaired or replaced. Months go by and you pass up sale after sale at the tire store, and then one day- BANG all four tires explode at the same time. Now you've pissed away your chance to do it at your leisure, so you have to go to a 3rd party atm (china) to get that cash advance. You take out a worse case scenerio amount and pay an exorbent fee to do so. That fee is now gone. You don't get it back even if you hand every dime back right now. Well you buy your tires, and while you are at it decide do do some other projects you were putting off. Your mechanic tells you that those modifications are unnecessary, costly, and will prob do more harm then good. You do them anyway because you've got the money in your hand, the mechanic already working and your buddy who used to sweep up at his cousins auto body shop said that it was the best way to do things.
Author:  DFK! [ Thu Nov 12, 2009 10:59 pm ]
Post subject:  Re: Re:
Aizle wrote:
Hannibal wrote:
Isn't it like using part of your credit cards cash advance to pay your minimum balance?


Sure. But again, how is that bad (assuming you needed to advance cash for some other emergency).

Using the credit card example, here is how I see it.

Something bad happens where you need ready cash right now. The lesser evil of the choices you have is to do a cash advance on one of your credit cards. You guess that you'll need $5,000.00 to cover your problem. After you get into it, you end up only needing $3,000.00 to deal with the issue, leaving you with $2,000.00 left over. At this point, wouldn't the smartest thing be to pay that $2,000.00 back to the credit card to reduce your balance?

That's what I see the administration looking at doing, which to me seems amazingly refreshing, instead of the usual which has been to spend it on some other pet pork project somewhere.


First of all, if you pulled 5k to pay for something that costs 3k, then yes using the 2k to pay down the original 5k is the "best thing you could do, given that you've already borrowed 5k," which costs money. The better thing to do would be to have not borrowed more than you needed. The best thing would have been to not gotten yourself into a situation where you don't have liquid reserves to cover emergencies.

Second, false analogy, at based on how I'm reading the article. Let me 'splain:

You borrow five thousand thousands of dollars ($5m) for an imaginary need. This borrowing incurs interest. You spend 3.7m dollars of your borrowed five, and a year later you owe interest on the 5m.

You use some of the remaining 5m (1.3m) to pay the interest on your mortgage, and don't pay down the 5m at all.



For an additional fun note, let's add this part of the story:
You lent out some of the 3.7m, say 3.0m to other people. They want to pay back 2.2m of the 3m. You say no, and have the ability to force them not to repay. You accrue interest on the 3.7m at a lesser rate than they do on the 3m. You earn money by forcing them not to repay, in violation of the original arrangement. Fun earning money, isn't it?
Author:  Ladas [ Fri Nov 13, 2009 12:30 pm ]
Post subject:  Re:
Aizle wrote:
So as I understand the article, there are left over TARP funds, and instead of just have all of that sitting around, they are looking to take some and pay down the deficit, in effect reducing the overall cost of the program.

How is that not a good thing? Sure you can argue that they shouldn't have taken as much in the first place, but given that you can't undo that, isn't this a fairly fiscally prudent thing to do?


A few things that should be pointed as completely absurd about this move..

1) TARP funding wasn't made "available" on the basis that it might be needed in the future to prop up the economy, it was forced through the system on the claims of their White House and their legion of "economic experts" with statements that if it isn't spent, we are all doomed. Since that point in time, not only hasn't the money been "spent", but conditions have no turned around as claimed, one of the move vocal supporters has claimed it might not be enough, and as recently as 1 month ago, the White House/Democrats were letting slip through "unofficial channels" that another round of stimulus might be needed. WTF!

2) TARP funds were secured by issuing bonds, or other public debt, but by the Fed given the go ahead to fire up the printing press. It is nothing but a dilution of the money supply. All this talk about using the funds to "pay down the deficit" is essentially monetizing the existing debt without calling it as such, and putting our debtors into the position they can't raise hell about it, or uncover the their own "stimulus" fraud.

3) It is purely a political move to fool the stupid and present the illusion that this administration cares about the deficit, after having completely blown the budget.

edit= made "was" into "wasn't" in item 1.
Author:  Rafael [ Fri Nov 13, 2009 12:39 pm ]
Post subject:  Re:
Aizle wrote:
Combine both your guesses, and that's what I assumed. If it wasn't meant as an attack, then I apologize for jumping to conclusions. No harm, no foul.

Rafael, you're judging the actions based on the fact that money was borred in the first place. You see that as bad, so then apparently anything you do with it is bad.

My argument is that ship has already sailed, for better or worse, and it's not relevant to the actions being taken now. Or at a minimum the prior actions are impossible to "undo" so it's pointless crying over spilled milk.

But since you think that paying that money back is a bad idea, what do you think they should do with it?


My apologies if you took it that way, but I meant it in the sense it was predicable based on past viewpoints and stances, not that it was confusing.

Anyway, I suppose if you want to look at it that way, it's valid. However, I view that more as "Hey, she may have stabbed me in the legs, tied me up, sodomized, but at least when he did it he used lube. Oh wait, that was spit? Not lube? Oh well, at least he spit."
Author:  Hopwin [ Fri Nov 13, 2009 1:10 pm ]
Post subject:  Re: Re:
Ladas wrote:
Aizle wrote:
2) TARP funds were secured by issuing bonds, or other public debt, but by the Fed given the go ahead to fire up the printing press. It is nothing but a dilution of the money supply.


I would be curious to see someone tie exactly what proportion of the devaluation of the dollar can be tied to this policy. You would think someone would have tried this already.
Author:  DFK! [ Fri Nov 13, 2009 1:15 pm ]
Post subject:  Re: Re:
Hopwin wrote:
Ladas wrote:
Aizle wrote:
2) TARP funds were secured by issuing bonds, or other public debt, but by the Fed given the go ahead to fire up the printing press. It is nothing but a dilution of the money supply.


I would be curious to see someone tie exactly what proportion of the devaluation of the dollar can be tied to this policy. You would think someone would have tried this already.



The amount of money the Fed pumps into circulation is unknown. It's therefore unclear what the answer to that would be.
Author:  Rafael [ Fri Nov 13, 2009 1:23 pm ]
Post subject:  Re: Re:
Hopwin wrote:
Ladas wrote:
Aizle wrote:
2) TARP funds were secured by issuing bonds, or other public debt, but by the Fed given the go ahead to fire up the printing press. It is nothing but a dilution of the money supply.


I would be curious to see someone tie exactly what proportion of the devaluation of the dollar can be tied to this policy. You would think someone would have tried this already.


As DFK! pointed out, M3 is no longer published. It is the sum of physical currency and all cash-on-demand accounts (i.e. deposit accounts that are immediately liquid) + interest bearing savings accounts + long term maturation securities.

MZM is available, which doesn't include time-deposits such as CD's or other low-liquid deposits, but does include investments in cash-type items such as money markets (i.e. currency trading investment vehicles).

Here are some estimates from: http://www.shadowstats.com/alternate_data/money-supply

Take the estimations with a grain of salt.

Image
Image

As you can see, M1 actually contracted, yet they estimated M3 (which M1 is a composite of) grew despite this.
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