The Fed is trying to ease financial conditions without taking the more controversial step of increasing the amount of money that it’s pumping into the financial system, since it will be using money already generated from other programs. A bond buying program the Fed completed in June was widely criticized internally and externally because it pumped $600 billion of newly printed money into the financial system, sparking fears of inflation……..
The more potent step of launching a new round of bond purchases that would further expand the Fed’s $2.867 trillion balance sheet remains a possibility, but inflation likely would need to slow much further to spur Fed officials to take that step……..
Economists aren’t so sure that the Fed’s latest gambit will do much to spur growth.
“The odds are ‘Operation Twist’ won’t work,” Anthony Sanders, a real-estate finance professor at George Mason University, said before the Fed action. The housing market has shown no reaction to interest rates that are already at record-low levels, he said. Freddie Mac’s latest survey finds the average rate on 30-year, fixed-rate mortgages at 4.09%, the lowest level in more than 50 years.
Of course it’s right to ringfence rogue universals – Martin Wolf
Thank you, UBS. As a member of the UK’s Independent Commission on Banking, under Sir John Vickers, I could not have asked for a better illustration of the unregulatable risks to which investment banks are exposed than Thursday’s announcement of a loss of $2bn in “unauthorised trading”. No sane country can allow taxpayers to stand behind such risks.
That is the kernel of the case for ringfencing of retail banking from investment banking, recommended in the ICB’s final report.
via Of course it’s right to ringfence rogue universals – FT.com.
IMF Urges European Banks to Raise Capital – WSJ.com
European banks face about €300 billion about $409 billion in potential losses from the euro-zone debt crisis, the International Monetary Fund said Wednesday as it urged banks to raise capital to protect the global economy from more turmoil.The fund said fiscal strains emanating from weaker euro zone members have had a direct impact of about €200 billion on banks in the European Union since its debt crisis started last year. In addition to the holdings of government debt, lower bank asset prices raised credit risks between banks for an overall hit of €300 billion.
Rio Tinto warns of slowdown in demand – FT.com
Rio Tinto, one of the world’s largest natural resources companies, has warned that some of its customers were asking to delay shipments of metals, in a clear sign that the financial turmoil is starting to affect the commodities sector.
Barack Obama, Home Alone – Rich Lowry
In his new book on the Obama economic team, Ron Suskind quotes former administration official Larry Summers complaining: “We’re home alone. There’s no adult in charge. Clinton would never have made these mistakes.”
via Barack Obama, Home Alone – Rich Lowry – National Review Online.
Larry Summers “We’re home alone” comment could damage Barack Obama’s already slim chances of re-election. Already slim because there is little he can do that will create jobs before November next year.
How to Prevent a Depression – Nouriel Roubini – Project Syndicate
The risks ahead are not just of a mild double-dip recession, but of a severe contraction that could turn into Great Depression II, especially if the eurozone crisis becomes disorderly and leads to a global financial meltdown. Wrong-headed policies during the first Great Depression led to trade and currency wars, disorderly debt defaults, deflation, rising income and wealth inequality, poverty, desperation, and social and political instability that eventually led to the rise of authoritarian regimes and World War II. The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.
via How to Prevent a Depression – Nouriel Roubini – Project Syndicate.
Beijing warned on foreign investment – FT.com
China’s refusal to open its economy to foreign investment could backfire by encouraging European politicians to curb Chinese investments on the continent, the European Union’s trade chief has warned.
Home building down 5% in August as slide continues – latimes.com
U.S. builders broke ground on fewer homes in August, more evidence that the housing market remains depressed.
The Commerce Department said Tuesday that builders began work on a seasonally adjusted annual rate of 571,000 homes last month, a 5% decline from July and a three-month low. That’s less than half the 1.2 million homes that economists say is consistent with healthy housing markets.
via Home building down 5% in August as slide continues – latimes.com.
Japan Unveils Measures on Yen Strength – WSJ.com
The government aims to “soften the pain” from the strong yen and keep it from leading to more “hollowing out” of Japanese industry, the plan says. It calls for expanding and extending funds for key industries that create jobs, as well as expanding training for workers and the unemployed.
It also urges expansion of financial support for small- and medium-sized businesses, many of which have been hit hard by the currency’s surge.
The government also revealed measures intended to exploit the strong yen’s merits, implicitly acknowledging the limits on Tokyo’s ability to weaken the currency.
The plan proposes support for Japanese companies conducting mergers and acquisitions overseas, as well as for development of overseas natural resources and energy supplies, which the strong yen could help make cheaper.
Tokyo also wants to make the benefits of the strong yen apparent to consumers in areas such as electricity and gas utility prices, and calls for the implementation of a survey of consumers on the merits of the currency’s rise.
IMF slashes Australian growth – macrobusiness.com.au
In short, the West must stimulate with a credible longer term deficit reduction plan, the East must dump its mercantilism and banks must be reigned in everywhere. All eminently sane — and the opposite of what’s happening.