Graham S1

One for the bankers on here maybe?

With the little dip in the stock market last week, and the dollar going to shit, there has been a lot of talk of banks pumping money into the economy. Where does it get pumped to and from where? Who are the beneficiaries of this? (Apart from Elvis, Diana, JFK, and Al-Qeada, just thought I'd get that out of the way now )

Or is it too complicated for us laymen to understand?

Porkie

iTrader: (1)

I started to explain it and then realised that there would be an easier way.... so here it is. Also explains the problems of last two weeks....

Pumping Money: Financial Market Liquidity Explained
by Adam Davidson and Debbie Elliott

All Things Considered, August 11, 2007 · This week's frantic news from Wall Street sent central banks around the world pumping money into the financial system, providing liquidity, or ready cash. Adam Davidson talks to Debbie Elliott about what exactly this means.

Let's say you own a big, beautiful $1-million house. The pizza delivery guy arrives with your dinner but you don't have any cash. He doesn't care how valuable your house is; he wants you to give him some money right now.

Banks basically work the same way. Every afternoon, they add up all the money they owe and all the money they have. The banks figure out whether they need money to meet their obligations. The banks that have extra money lend it to the banks that need money in the form of very short-term, overnight loans.

That constant process of lending extra cash provides the liquidity that funds the global economy.

This normally works very easily, but this past week there was a liquidity crisis. A few key banks around the world announced to everyone's surprise that they had a lot of sub-prime mortgages and that their assets were worth much less than anyone thought.

Banks began to worry: What if there are other banks that aren't disclosing how much their assets have shrunk. It caused a panic among banks, and they reduced lending to each other.

Suddenly, other banks that needed the money didn't have the ready cash to pay off the people who needed it.

The Federal Reserve, the European Central Bank and other central banks around the world stepped in, pumping extra liquidity — billions of dollars — into the system. The central banks provide extra cash all the time, but this week the amounts were much larger than normal.

But there's a potential downside to the central banks' action. Eventually, the fear is that they would pump so much money into economy that it would cause inflation. So the Fed will be keeping its eye out against that possibility and is likely to stop long before inflation sets in.

Turbosystems

iTrader: (5)

thanks for that porkie i feel so much better now

Adrian

Cheers Porkie

Found that interesting.

James

you saw the thread title you didn't need to read it!

very interesting porkie! [p.s. why was the 3 door as the side of the m4? on the way back from silverstone?]

Chip

iTrader: (3)

Interesting read porkie.

Bomber

What's everyones opinion on the 1.9% CPI figure released today? Surely there is some cooking of the figures here!?

Move along ... no inflation here! Keep borrowing and MEWing your asses off.

Graham S1

So the government banks (Fed Reserve, Bank of England, Bank of Japan etc), give money to the likes of JP Morgan, Goldman Sachs etc. and other financial institutions, so they can bail out the High Street banks?

Is that close or am I still way off the mark?

Rhys

Nah your an the mark as i take it, the banks put in their resverse to help prop the market up and from having a total collapse. The only thing i get stuck on is how the money gets paid back.. But suppose the Central Banks set up generous terms to facilitate it?

Porkie

iTrader: (1)

Not a fooking clue....

Ask Tony C, I was asleep whilst being chauffered home in the Skyline by my Uncle...

Tiring work that arriving and driving you know

Porkie

iTrader: (1)

I posted this before.... but its still very funny.

Bernanke is Ben Bernanke, current Chairmen of the US Federal Reserve by the way.

http://www.youtube.com/watch?v=rOVXh4xM-Ww

James

talking of skylines, is your ment to make that rattling noise as it was on track?

Graham S1

"Helicopter" Ben?

Saw that the other day. Not a clue what he's on about most of the time, but his world does seem to collapse about 2 mins in.