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The Fed Buys Up Short Term Debt? What it Means, Maybe.

The Federal Reserve Bank has announced that it will be funding short term debt for businesses – commonly referred to as “commercial paper” – in order to free up capital.  What does this all mean?  Another sop for the rich?

Well, yes.  But they’re all sops to the rich, so get used to seeing that.  But the point in this case is that businesses often use short two- or three-day loans to pay their employees while they await the week’s returns on sales or whatever.  This market, like all lending markets, has begun to get a bit frozen over, and that means the potential of companies not being able to pay their employees and inevitably having to let some go.

The Fed is stepping in and – with a loan from the Treasury of some estimated 99 billion dollars – providing that short term lending vehicle to keep capital flowing to the people who are going to ultimately be the saviours of this crisis: American workers and consumers.

So, I grant that I don’t know all that much about economics.  But it seems like this is the sort of thing we want the government doing, at least temporarily.  I find it odd that companies need to use two-day loans to pay their bills, but I’m sure it’s all very technical.  And this doesn’t seem like the type of lending that’s going to lead to the government losing it’s shirt, since we’re talking about two-day loans of relatively small amounts.

But we’ll keep an eye on it.