There's been some chatter on the right about the release on Friday of the GAO preliminary report on the audit of the Fed. The one thing that seems to be getting some attention is what appears to be $16 trillion in loans to foreign banks. You can only imagine how that will play out on the anti-Fed, nativist right.
Unfortunately, for the purveyors of this story, they didn't read the fine print very well. The GAO calculated that number by the raw addition of loans, not taking into account whether they were cases of renewing a loan for an additional time period. The same loan renewed over multiple periods is counted as a loan of the principal x the number of times renewed. So some of that $16t reflects the same loan being renewed multiple times. As the GAO report states (p. 130), my emphasis:
"Table 8 aggregates total dollar transaction amounts by adding the total dollar amount of all loans but does not adjust these amounts to reflect differences across programs in the term over which loans were outstanding. For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30 days. In contrast, a TAF loan of $10 billion extended over a 1-month period would appear as $10 billion. As a result, the total transaction amounts shown in table 8 for PDCF are not directly comparable to the total transaction amounts shown for TAF and other programs that made loans for periods longer than overnight."
No doubt there are lots of problems with what the Fed was doing here, but calling this "$16 trillion of loans," complete with the fact that it's more than the US GDP, is unnecessary hype as well as highly misleading. Once again, critics of the Fed do their cause no favors when they are sloppy. Let's find out what's in that report and use it fairly and accurately. We don't need to exaggerate things: what the Fed's been up to is bad enough. Exaggerating only hurts our credibility.