Fed creates commercial paper-buying facility – Commercial Paper Funding Facility (CPFF)

October 7, 2008 by · Leave a Comment
Filed under: Economic News 

Well you can’t say that I did not state this would happen after the precedent that was set first with investment banks, insurance companies, commercial banks and auto companies.  California is up and I would figure Alabama might not be far behind.  I will say that this move is one that I can live with because it keeps people employed by providing the short-term funding.  The real risk I see is if our economy gets worse as predicted and these companies can’t not pay back the Federal Reserve and then this goes from a somewhat inflation neutral operation to a inflationary operation because much of this money is going to payroll and inventory expenses and that money will be deployed and as we know, the more our economy sinks then people will panic and the “velocity of money” will increase and that will really make prices on essential goods start to take off.

Release:

The Federal Reserve on Tuesday announced it would create a special-purpose facility, with the Treasury Department’s blessing, to begin buying commercial paper in yet another emergency move aimed at calming chaotic financial markets.  The central bank said it was acting because money market mutual funds and other investors have become increasingly reluctant to buy commercial paper, which is widely issued to provide vital funds for day-to-day business operations at many companies.

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