Fed’s Bullard says must shield Federal Reserve’s independence
This pains me to say but at the moment, Bullard is correct on this point. With the Fed pursuing their policy of quantitative easing (print money), there is a real concern with foreign investors that hold significant U.S. bond holdings that an erosion of the Fed’s independence could be a sign that a more populist approach to this stage of the economic recession. If the investors think the amount of money printing will increase to pay for more stimulus and bailouts then they will demand much higher yields and will increase the cost of imported goods which in turn will import inflation into the U.S. Long term I do think the independence on the Federal Reserve will be eroded because they are not maintaining the normal policy central bankers use of “price stability”.
News (Reuters):
St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.
Popularity: 1%
Yen rises on bets carry trade to evaporate on economic turmoil
As the the carry-trade(borrow yen to purchase higher yielding assets) unwinds, the Yen has been strengthing at a profound level. According to Bloomberg, the Yen is trading at a 13-year high against the U.S. dollar. Near the bottom of this article, it mentions the Aussie Central Bank(ACB) has been conducting open market operations to purchase the Aussie Dollar to give it support after it has dropped over 30% in past months.
Article:
The yen rose to the strongest level versus the euro since May 2002 and traded near a 13-year high against the dollar as global economic turmoil encouraged investors to sell higher-yielding assets funded in Japan.
Popularity: 1%
China central bank warns of risks in illegal gold futures speculation
Looks like a secondary market is developing for the gold market in China. With the paper price of gold bullion a far cry from the “street-price” that you would great if you walked into a dealer to purchase. We will likely see more of this as long as there is manipulation in the markets in general.
News Piece:
The People’s Bank of China said on Thursday that “underground gold futures speculation” was “typical illegal trading on gold futures” and was not protected by law. The central bank warned Chinese investors of the extremely high risks in illegal futures trading.
Popularity: 1%
The Fed cuts interest rate in emergency meeting by 50 basis points to 1.50%
No surprise, there was a 75% chance of a half percent rate cut at the next FOMC meeting at the end of the month. The fact that they did this well before their meeting shows the dire situation and leaves the door open for another rate cute at the next meeting if the credit and stock market conditions worsen. Along with this cut, other central banks are following suit to try and stabilize the global market.
I feel there is enough uncertainty in the credit market and risk with other banks that we are still going to see a sever contraction and much higher inflation in a time when consumer purchasing power and credit are being greatly reduced. Just because there is “cheap” money available does not mean people want to borrow.
Release:
Central banks around the world cut interest rates in unison on Wednesday, responding to a worldwide clamor for concerted action to contain the worst financial crisis since the Great Depression.
The surprise announcement set off volatile trade in global stock markets, which have seen trillions of dollars in wealth wiped out over the past year. But it failed to win a ringing endorsement from any one market.
Popularity: 1%
Gold Bullion Reserve lending by central banks has “almost completely stopped”
This is a sign of the financial community is reigning in all good assets and preparing for the coming storm which most media outlets and analyst are finally acknowledging. I am still surprised that central banks actually lease gold and we let that show on both balance sheets when in reality it only exists in one physical location. In the article, they mention that they are worried that banks will not be able to fulfill their bullion lease terms and this is why central banks are not leasing to any banks. I am watching a gentlemen (Mr. Blanchard) from the International Monetary Fund (IMF) stating that we will not see any turn around til mid-2009. He even made sure to state that this was based on current estimates which in my opinion are still far too optimistic. He said industrial countries will see zero or negative growth and emerging markets will have limited growth.
News Piece:
Central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market, in a move that on Tuesday sent the cost of borrowing bullion for one-month to more than twenty times its usual level.
The one-month gold lease rate rocketed to 2.649 per cent, its highest level since May 2001 and significantly above its five-year average of 0.12 per cent, according to data from the London Bullion Market Association.
Popularity: 1%
Bank of Canada not joining Fed to increase global liquidity
The Bank of Canada said on Wednesday it is not coordinating with the U.S. Federal Reserve and other central banks in operations to boost market liquidity.
“The Bank of Canada is not participating in this,” said Jeremy Harrison, a spokesman for the Canadian central bank. The Fed said on Wednesday it would extend a loan program it began in March after the near collapse of Bear Stearns.
Popularity: 1%