"Housing prices are climbing at near double digit rates. The stock market just hit a new high. At some point price inflation kicks in. How is Bernanke going to land his helicopter? If he stops printing, it all crashes." Continue reading →
"Greece's central bank had billions of euros of banknotes shipped in from other central banks to avert a bank run during the country's debt crisis as depositors withdrew their money. Fears the debt-laden country might ditch the euro and return to the drachma led Greeks to pull out billions of euros of savings in the last three years, stashing their cash under mattresses or in safe deposit boxes. To meet the high demand for cash, the Bank of Greece had loads of banknotes secretly airshipped from abroad, feeding it to banks throughout the country to avoid shortages that could have intensified worries and set off a bank run." Continue reading →
"In Congressional testimony last week, Fed Chairman Ben Bernanke slipped something in that no one much noticed. He said that the Fed might eventually choose to exit from its current monetary expansion binge, not by selling US government securities, but by letting them mature. So what happens if the Fed holds a bond to maturity? In that case, the Fed presumably receives the principal payment from the Treasury and then sends that back to the Treasury too. In effect, the government has simply canceled its own debt. Bernanke has in effect announced an intention to cancel US bonds, and it doesn’t cause a ripple." Continue reading →
"The U.S. economy should emerge from the doldrums next year if the Federal Reserve sticks to its super-easy monetary policies, a top Fed official said on Thursday, even as he warned that cutting back too early would be a 'big mistake.' The Fed is buying $45 billion in Treasuries and $40 billion in mortgage bonds per month, its third round of 'quantitative easing,' and has said it will continue the purchases until it sees substantial improvement in the labor market outlook. 'I don't think we are anywhere near the end of the program,' Chicago Federal Reserve Bank President Charles Evans told reporters after speaking to the CFA Society of Iowa here." Continue reading →
"Japan's prime minister is likely to nominate an advocate of aggressive monetary easing - Asian Development Bank President Haruhiko Kuroda - as the next central bank governor to step up his fight to finally rid the country of deflation. The yen fell on the nomination news to a 33-month low and the yield on five-year government bonds hit a record low as markets moved to factor in bolder monetary policy. Kuroda has long criticized the BOJ as too slow to expand stimulus, and is expected to push for more radical efforts to achieve a 2 percent inflation target set in January." Continue reading →
"Federal Reserve Chairman Ben Bernanke strongly defended the U.S. central bank's bond-buying stimulus before Congress on Tuesday, easing worries monetary policymakers might be getting cold feet. The Fed chairman also urged lawmakers to avoid sharp spending cuts, which he warned could [..] create a 'significant headwind' for the economic recovery. Bernanke said Fed policymakers are cognizant of potential risks from their extraordinary support for the economy, including the possibility the public loses confidence in the central bank's ability to unwind its stimulus smoothly or the potentially destabilizing effect of low rates on key markets." Continue reading →
"A new paper for the US Monetary Policy Forum and published by the Fed warns that the institution's capital base could be wiped out 'several times' once borrowing costs start to rise in earnest. A mere whiff of inflation or more likely stagflation would cause a bond market rout, leaving the Fed nursing escalating losses on its $2.9 trillion holdings. This portfolio is rising by $85bn each month under QE3. The longer it goes on, the greater the risk. Exit will become much harder by 2014. What is new is that these worries are surfacing openly in Fed circles." Continue reading →
"Bank of England Deputy Governor Paul Tucker said he’s open to adding to asset purchases as policy makers stressed the central bank has the flexibility to expand stimulus if needed. Tucker was testifying alongside policy makers David Miles, Charlie Bean and Ian McCafferty at a Parliament hearing in London today on the BOE’s latest quarterly forecasts. The BOE has said it will 'look through' a period of above-target inflation to keep nurturing growth, which Bean said 'made sense' in the current environment. Tucker also raised the prospect of negative interest rates at the hearing." Continue reading →
"The result is that you don't just get one currency devaluing, but all currencies devaluing against real assets, commodities, goods, and services. I do believe that within the foreseeable future all these paper currencies are going to be devalued to zero – in other words, they will reach their actual intrinsic values. This is extremely serious, because the productive people of the world – the ones who actually consume less than they produce and save the difference, which is what all economic growth and progress depends upon – will be wiped out. When their savings vanish, it's going to create a social and political earthquake right off the Richter scale." Continue reading →
"Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail. Economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, researchers put the number at about 0.8%. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year." Continue reading →