Ben Bernanke & US Fed 01 (May 08 - Nov 10 )

[millionairemind]

Fed Restarts Currency-Swap Tool as Sovereign-Debt Crisis Flares
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Scott Lanman and Craig Torres


May 10 (Bloomberg) -- The U.S. Federal Reserve will restart its emergency currency-swap tool by providing as many dollars as needed to European central banks to keep the continent’s sovereign-debt crisis from spreading.

The swaps with the European Central Bank, Bank of England and Swiss central bank will allow them to provide the “full allotment” of U.S. dollars as needed, the Fed said late yesterday in a statement in Washington. A separate swap line with the Bank of Canada will support as much as $30 billion, the Fed said, and the Bank of Japan said it approved reactivating its U.S. line. The swaps were authorized through January 2011.
http://www.bloomberg.com/apps/news?pid= ... 8gDI&pos=4

[millionairemind]

Despite repeated denials from Bubbleman Greenspan and Helicopter Ben, finally someone acknowledges the elephant in the room.


Fed's Hoenig says low rates can lead to bubbles: report

(Reuters) - Keeping interest rates low for a long time can create ripe conditions for dangerous asset price bubbles, a Federal Reserve official said in a Wall Street Journal interview published on Saturday.

Thomas Hoenig, president of the Kansas City Federal Reserve Bank, said it was "understandable" that the U.S. central bank cut interest rates to near zero during the financial crisis, but it was time to at least start reconsidering that stance.

"We've gotten through the crisis," he said. "We are not out of the woods, the economy isn't booming, but we are now in a position where we ought to be thinking about the long run. That's what central banks should do."

Hoenig has dissented at the past three meetings of the Fed's policy-setting committee because he is uncomfortable with the central bank's pledge to keep rates ultra-low for "an extended period" of time.

He said keeping rates near zero gave Wall Street banks an advantage over Main Street because financial firms could borrow at low rates and lend or invest for bigger returns.

"I can't guarantee the carpenter down the street a margin. I really don't think we should be guaranteeing Wall Street a margin by guaranteeing them a zero or near zero interest rate environment," he said.

The Fed has said that its low-rate pledge will stand as long as the economy is weak, unemployment high, and inflation low. But Hoenig said monetary policy "has to be about more than just targeting inflation.

"It is a more powerful tool than that."

He also said Greece's debt crisis was a lesson for the United States, which has its own massive debt pile that could eventually drive up interest rates if creditors grow uncomfortable with cheaply financing large deficits.

"We shouldn't be so, if I may say, arrogant to think that that couldn't happen to us or others," he said. "We're fortunate, we're a much bigger economy and we're the reserve currency."

He said U.S. deficits were not sustainable, and there could be pressure on the Fed to print money to pay off debts. If that happens, "the outcome of that will be a very strong inflationary bias," Hoenig said.

[kennynah]

I think we all know fed will increase rates.. When, is the beckoning question

let's guess:

I say... Within 2010 by as much as 50 basis points:)

you say leh?

[millionairemind]

At least 50 basis points starting Q4.

[peter]

25 basis points if any by end 2010

[millionairemind]

Published May 18, 2010

Bond bears reverse calls for Fed rate hikes
Europe's debt crisis sparks move; Fed now seen holding rates near zero


(NEW YORK) Europe's sovereign debt crisis is prompting some of the Treasury market's biggest bears to reverse calls for Federal Reserve interest-rate increases this year.

Morgan Stanley, Wrightson and Pierpont Securities say the Fed will keep interest rates near zero per cent after the European Union unveiled an almost US$1 trillion loan package to halt a slide in the euro and local bonds that threatened to shatter the currency union.

Futures show traders place a 40 per cent likelihood that the central bank will raise borrowing costs by December, down from 73 per cent a month ago.

'This is a mea culpa from me on our rate call,' James Caron, global head of interest-rate strategy at Morgan Stanley, wrote at the start of a May 13 report.

The New York-based firm, the most pessimistic among the Fed's 18 primary dealers, reduced its year-end 10-year note yield forecast to 4.5 per cent from 5.5 per cent. 'We did not appropriately discount the sovereign risk conditions which have contributed to keeping yields low.'

Firms that started 2010 predicting a second consecutive year of losses in US government debt are growing less pessimistic after the Fed opened currency swap lines last week to central banks to ensure European financial institutions have access to dollars, expanding the Fed's balance sheet.

Treasuries, the benchmark for everything from corporate bonds to mortgage rates, have returned 3.4 per cent since December, including reinvested interest, the most at this point in a year since gaining 8.48 per cent in 1995, according to Bank of America Merrill Lynch indexes.

While policy makers are putting plans in place to reduce reserves as a step toward bringing borrowing costs back into line after cutting the target for overnight loans between banks during the 2008 credit crunch, the swap lines put those efforts on hold, said Lou Crandall, the chief economist at Wrightson, a Jersey City, New Jersey-based unit of ICAP plc that specialises in US government finance research.

The Fed's balance sheet increased by US$10 billion to almost a record US$2.34 trillion in the week ended May 12 as seven firms took advantage of the swap lines to arrange dollar loans through the European Central Bank. That's up from less than US$2 trillion as recently as August.

'The fact that they felt they need to do this reflects the attitude that they're not anywhere near considering a rate hike,' Mr Crandall said on May 11. It shows 'their intense focus on rebuilding a damaged global financial system,' he said.

Wrightson pushed back its forecast for a Fed increase to the first half of 2011 from November. Policy makers have kept their target rate in a range of zero to 0.25 per cent since December 2008.

The median estimate of 72 economists surveyed by Bloomberg News from April 29 to May 10 is for the federal funds rate to rise to 0.5 per cent by year-end. That's down from 0.75 per cent in the previous monthly poll.

Fed Bank of Chicago president Charles Evans said 'very accommodative' rates are appropriate, though they will have to rise over time. The Fed said last month the labour market was improving and household spending has picked up as it reiterated rates will stay near zero for an 'extended period.'

'The risks, obviously, with the global situation make things a little bit more uncertain than we were expecting,' Mr Evans said on Friday. 'If anything, I'm even more comfortable with my assessment that accommodation continues to be appropriate.' - Bloomberg

[millionairemind]

US money supply plunges at 1930s pace as Obama eyes fresh stimulus
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

By Ambrose Evans-Pritchard
Published: 9:40PM BST 26 May 2010


The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.

David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.

The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.

Recent data have been mixed. Durable goods orders jumped 2.9pc in April but house prices have been falling for several months and mortgage applications have dropped to a 13-year low. The ECRI leading index of US economic activity has been sliding continuously since its peak in October, suffering the steepest one-week drop ever recorded in mid-May.

Mr Summers acknowledged in a speech this week that the eurozone crisis had shone a spotlight on the dangers of spiralling public debt. He said deficit spending delays the day of reckoning and leaves the US at the mercy of foreign creditors. Ultimately, "failure begets failure" in fiscal policy as the logic of compound interest does its worst.

However, Mr Summers said it would be "pennywise and pound foolish" to skimp just as the kindling wood of recovery starts to catch fire. He said fiscal policy comes into its own at at time when the economy "faces a liquidity trap" and the Fed is constrained by zero interest rates.

Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown "Friedmanite" monetary stimulus.

"Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty," he said.

Mr Congdon said the dominant voices in US policy-making - Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke - are all Keynesians of different stripes who "despise traditional monetary theory and have a religious aversion to any mention of the quantity of money". The great opus by Milton Friedman and Anna Schwartz - The Monetary History of the United States - has been left to gather dust.

Mr Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, deeming it too erratic to be of much use.

This may have been a serious error since double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 - just as the Fed talked of raising rates - gave a second warning that the economy was about to go into a nosedive.

Mr Bernanke built his academic reputation on the study of the credit mechanism. This model offers a radically different theory for how the financial system works. While so-called "creditism" has become the new orthodoxy in US central banking, it has not yet been tested over time and may yet prove to be a misadventure.

Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. "Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched," he said.

However, Mr Ashworth warned against a mechanical interpretation of money supply figures. "You could argue that M3 has been going down because people have been taking their money out of accounts to buy stocks, property and other assets," he said.

Events may soon tell us whether this is benign or malign. It is certainly remarkable.

** While the Fed does not publish M3, it still publishes the underlying components. The indicator is reconstructed accurately for clients by Dr John Williams. See it here.

[kennynah]

long time no more limelight on helicopter ben....

he must be happily relag one corner...

[winston]

long time no more limelight on helicopter ben....

he must be happily relag one corner...

I think he was in BJ with Geitner then Tokyo. Not sure whether he's in Europe with Geitner or not.

No need for him to speak. The market is rebounding very nicely without him

[kennynah]

this is a classic example of how english words can be confusing...

I think he was in BJ with Geitner then Tokyo

if this was re-arranged and reads as

i think he and geithner was in tokyo for BJ

then, the meaning is all warped...