Stephen Roach doesn’t mince words. He calls monetary policy during the bubble years “reckless and irresponsible” and he thinks politics is thwarting any meaningful regulatory reform, a view I also hold. I think the point of Roach’s attack is that a lot of finger-pointing has been directed at Wall Street and even Main Street. But, policy makers share much of the blame. This is a point I tried to make in a post “Forget about Goldman” from this past summer.
Moreover, as Roach indicates, the concept that a central planner (which a central bank most certainly is) can allow bubbles to form and then clean up after the mess- is on it’s face absurd. But, clearly the Federal Reserve and other central banks are doing their level best to re-create the conditions which led to a near-financial collapse.
The money quote comes just about 4:45 through the eleven minute clip below:
Central bankers say trust us. We know what we’re doing. I don’t trust them one bit. They got us into this mess in the first place.
As for Asia, Roach sees a bright future. However, he warns that it has risen on the back of an unsustainable export-led macro-policy by selling things to people in the West who can’t afford them. With continued private-sector deleveraging in the west likely, this dynamic has ended.
(video embedded below)
As an aside, Roach also correctly adds that the recent protectionist tariff administered by President Obama was not the result of tire manufacturers’ lobbying. Four of five of the Chinese importers are subsidiaries of U.S. firms. Obama did this to gain credibility and support from unions, a key Democratic constituency in the health care debate and in the run-up to the mid-term elections.
I should also point out that much of the U.S. trade deficit comes from such arrangements, where a U.S. company imports goods from its own foreign subsidiary.
Yesterday I mentioned the announcement by the FDIC to end its debt guarantee program and opined that this was the first sign of tightening/liquidity withdrawal by the U.S. government. Today the evidence is mounting that this is indeed an orchestrated move toward policy normalization.
A senior Treasury official said “we are pivoting and starting to pull back on certain programmes.” The administration will allow the money market mutual fund guarantee programme to expire as scheduled on September 18, and is backing a review by the Federal Deposit Insurance Corporation that is likely to see funding guarantees for bank debt either ended or restricted to emergency cases on penal terms.
How the Federal Reserve acts is the key missing component here, both in terms of returning repoed assets to the banks which own them and in terms of eventual interest rate decisions. My guess at this point is that the Fed will look to reduce its balance sheet well before it looks to increase interest rates.
In addition, the Fed had provided up to $650 billion in swap lines to other central banks at the height of the financial crisis. Those swap lines are now down to $70 billion (source: Marc Chandler, Brown Brothers Harriman). This reduction in a liquidity-induced appetite for U.S. dollars may be a major reason the Dollar is falling right now even against the Pound and the Swiss Franc where the central banks are engaging in quantitative easing.
One of President Obama’s top economic strategists said on Thursday that the government was now starting to shrink many parts of its gigantic financial bailout following the collapse of Lehman Brothers last September, The New York Times’s Edmund L. Andrews reports.
“We must begin winding down some of the extraordinary support we put in place for the financial system,” said the Treasury Secretary, Timothy F. Geithner, in written testimony prepared for the Congressional Oversight Panel on the Treasury’s $700 billion rescue program. (Go to a Webcast of Thursday’s hearing.)
The Governor invited the Committee to vote on the proposition that:
Bank Rate should be maintained at 0.5%;
The Bank of England should finance a further £50 billion of asset purchases by the creation of central bank reserves, implying a total quantity of £175 billion of such asset purchases. The Bank should seek to complete the additional purchases within the next three months.
Six members of the Committee (Charles Bean, Paul Tucker, Kate Barker, Spencer Dale, Paul Fisher and Andrew Sentance) voted in favour of the proposition. Three members of the Committee (the Governor, Tim Besley and David Miles) voted against, preferring to increase the size of the asset purchase programme by £75 billion to a total of £200 billion.
Yep, Mervyn King, together with Besley and Miles wanted the rate of monetary stimulus increasing, not just extending at the current rate of £50bn-a-quarter. That was good for half a cent off sterling versus the dollar and a third of a cent v the euro on Wednesday morning. Gilts, of course, spiked higher.
The extraordinary thing about UK monetary policy today is how close it is shadowing fiscal policy. This year, the Bank of England printing presses will produce roughly the same amount of new money as this year’s fiscal deficit. Or to put it more bluntly, the private sector have, on a net basis, stopped lending money to the government.
> The estimated issuance is based on this "optimitic" forecast…. Especially compared to the IMF, OECD, Bloomberg etc….. No surprise to see the BOE also out of touch……. Good to know that at least this leads to a "review" of the AAA rating…. Hallelujah!
The Chancellor has forecast that the economy will contract by 3.5% in 2009, followed by GDP growth of 1.25% in 2010 and 3.5% in 2011. He sees long-term trend growth at 2.75%
The modern US banking system came into existence with the passage of the Federal Reserve Act in 1913. This legislation established the Federal Reserve System as the central bank of the United States with monopoly privileges to create and manage the nation’s currency as it saw fit. After almost 100 years of experience with the Federal Reserve, most contemporary economists, it seems, can’t even imagine our economy without a central bank.
The Federal Reserve’s objectives were spelled out in the 1913 Act: "… to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” The Fed’s current web site goes on to discuss the expected benefits of its monetary stewardship:
" When prices are stable and believed likely to remain so, the prices of goods, services, materials, and labor are undistorted by inflation and serve as clearer signals and guides to the efficient allocation of resources and thus contribute to higher standards of living. Moreover, stable prices foster saving and capital formation, because when the risk of erosion of asset values resulting from inflation—and the need to guard against such losses—are minimized, households are encouraged to save more and businesses are encouraged to invest more."[1]
Of course, swallowing this line is a bit difficult for anyone with knowledge of economic history. Twenty five years ago, in 1984, Murray N. Rothbard noted an interesting fact:
"Since instability, inflation, and depressions have been far worse since the inception of the Federal Reserve, many economists have concluded that the Fed has failed in its task and have come up with various suggestions for reform to try and get it on the correct track." [2]
Since the early 1980s, our central bankers proudly note, the Consumer Price Index has fallen steadily to levels that are currently very low. Nevertheless, the remainder of Rothbard’s statement appears to be just as valid in 2009 as it was in 1984. There may not be many economists criticizing the Fed itself today, but reformed bank regulation is now being discussed as one government response to our latest economic crisis.
So why is it that the Federal Reserve has been unable to perform its price stabilization and counter cyclical duties? Something sure seems to be amiss. After…
This represents my personal opinion, not the views of the SEC or its staff.
I am not going to spend time here talking about how the price of gold is off-the-wall, that it is not just a bubble in the making, but a bubble waiting to burst. I don’t want to waste your time on that point.We all know it is a bubble.
George Soros has said “The ultimate asset bubble is gold”. Many of the top asset managers, such as Tudor and Paulson, are piling on; Paul Tudor Jones recently said gold “has its time and place, and now is that time.” The banks are echoing this view with their research. Goldman has a research piece that looks f...
We know you are busy, we also know you are hell bent on intercepting IOI manipulation as per Mr. Jon Kroeper's recent media appearances. Which is why we kindly request that you get back to us at your earliest convenience with information on how many of the IOIs disclosed below are, in fact, "natural." We will make this a recurring topic on Zero Hedge until such time as you respond to our information request. You can contact us at outsourcefinra@zerohedge.com
Small Caps and Tech continued their good form. Technicals continue to support the move higher for Small Caps (Russell 2000) with new highs for the MACD and +DI line. The Russell 2000 would have to give up 25 points (or 4%) just to test breakout support at 650.
The prior underperformance of the semiconductors was undone with today's 2% gain.
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Tuesday was good and bad for the Oxen Report. Our short sale of the day worked very well for us. I chose Ultrashort Proshares Oil and Gas for our short sale of the day due to my expectation...
BPOP - The ‘popular’ bank popped up on our screens this afternoon after a large-volume risk reversal was established on the stock. The massive trade was likely the work of an investor with knowledge of commercial banks as approximately 60,000 contracts were exchanged on BPOP amid a more than 12% rally in shares of the underlying to $2.60. It appears the trader purchased 30,000 now in-the-money October 2.5 strike calls for an average premium of 33 cents apiece. He funded the purchase of the calls by selling 30,000 puts at the January 2.5 strike for 43 cents each. The investor received a net credit on the transaction of 10 pennies per contract. The motivation is perhaps that this individual is swimming with the rising tide of financial names today and expects a far larger...
Let's take a look at Insider Buying and Selling over the last week or so. These are screen shots from Finviz - the significant buys against a green background first and significant sells against the pink background second. All the buys fit into my screen shot but the sells did not. Click here to see all the sells.
Note that the largest buy in the group, for KITD was at a price of 9.73 (KITD is currently at 11.54). The buy was part of an Equity Offering rather than an open market purchase. Tuzman Kaleil Isaza's (KITD's Chairman and Chief Exec. Officer) history of buys is http://www.insidercow.com/more from Insider
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(