Monday, October 13, 2008

$3.3 Trillion in New Treasury Issues

If that doesn’t get your attention, what does it take? This is the forecast for the coming fiscal year by analysts for Deutsche Bank, cited by Menzie Chinn. OK, most of this will take the form of asset swaps, with the Fed/Treasuring absorbing gunky paper in return for its treasuries, but still. The analysts note that the bulk will be in short maturities, since this is what the market will swallow. Surely I must not be the only observer who thinks this means of financing the bailout and counteracting the incipient recession is extraordinarily fragile. It depends on a level of confidence that must remain high each hour, each day, each month. One reversal and we are all in big trouble.

I don’t think we should adopt policies that generate catastrophic risks when there are alternatives.

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