The Great Debate UK

Ben Bernanke could teach the EU a thing or two

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By Kathleen Brooks. The opinions expressed are her own.

Markets thrive on certainty. Anything that smacks of uncertainty, fence-sitting or indecision will lead to market turbulence, as investors punish those who don’t tell them how it is.

This is exactly what we are seeing in Europe right now. The markets are losing patience with the EU’s inability to come up with a credible plan to fight the sovereign debt crisis and that is why it is escalating at an alarming rate.

In general, investors in credit markets are a canny bunch. Bond spreads between Germany and Greece, Ireland, Portugal, Spain and Italy have already blown out, but in recent days spreads between Germany and France, Belgium and even Austria have increased to their widest level for more than two years.

So what does this all mean? In short it suggests that bond investors are going off Europe, even those members who were previously considered safe are no longer out of harm’s way. The credit markets are turning against the political make-up of the currency bloc and until concrete changes are made to the structure of the euro zone the pressure on European credit markets is unlikely to abate.

from Breakingviews:

Bernanke’s star turn may win over Fed critics

By James Pethokoukis
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

WASHINGTON -- The curtain finally went up on Ben Bernanke's one-man show. It was full of high drama. Just one flubbed line by the embattled star could have sent markets heading for the exits. And although the performance was impressive, Bernanke will need a long-running hit to make taking to the stage pay off.

Bernanke steps up to scrutiny

-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.- U.S. Federal Reserve Chairman Ben Bernanke speaks at the Federal Reserve Bank of Atlanta 2011 Financial Markets Conference in Stone Mountain, Georgia, April 4, 2011. REUTERS/Tami Chappell

While ECB head Jean Claude Trichet is nearing his final post-policy decision press conferences – he retires in October – on the 27 April the Fed’s Ben Bernanke will be stepping up to the podium for his first.

Did the Fed catastrophically mis-time QE2?

USAThe sternest criticism of QE2 is the way it pumped up asset prices like commodities in recent months without making much of an impact on U.S. economic growth. Rising fuel and food costs have weighed on inflation everywhere from emerging markets to the UK. But this criticism might step up a gear if Middle East tensions lead to a spike in oil prices and the Fed tries to protect growth using a similarly blunt tool as QE2.

The political crisis in the Middle East has been the game-changer for the global economic outlook in the past couple of weeks.  In just five days WTI oil (U.S. crude) jumped $10, and Brent (European oil) surged to within touching distance of $120 per barrel. This showed us what fear is like: since the 1970’s each recession has been preceded by an oil price shock. You don’t need much more evidence than this to see the extremely close relationship between oil and growth especially in the U.S., the largest consumer of crude in the world.

What if the U.S. labour market never returns to “normal”?

-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-

USA-ECONOMY/JOBSWhile the investment community trudged through the snow-fogged January labour market report, the only glimmer of hope was the fall in the unemployment rate to 9 per cent from 9.4 per cent in December. But while investors grabbed that as a sign that the economic recovery in the U.S. was back on track, the data is unlikely to have cheered Federal Reserve chief Ben Bernanke.

from The Great Debate:

Bernanke’s high stakes poker game at the G-20

By Peter Navarro
The opinions expressed are his own.

Ben Bernanke is about to play the biggest poker hand in global monetary policy history: The Federal Reserve chairman is trying to force China to fold on its fixed dollar-yuan currency peg. This is high-stakes poker.

Although Bernanke will not be sitting at the table to play his quantitative easing card when all the members of the G-20, including China, meet this week in South Korea. Every G-20 country is suffering from an already grossly under-valued yuan pegged to a dollar now falling rapidly under the weight of Bernanke’s QE2. In fact, breaking the highly corrosive dollar-yuan peg is the most important step the G-20 can take for both robust global economic recovery and financial market stability.

When is it the Fed’s cue to leave?

The Federal Reserve’s second round of quantitative easing to the tune of $600bn put a firework under a trend that started back in August when Fed Governor Ben Bernanke first touted the idea of providing more monetary policy support to the US economy. Risky assets are in demand and the market is happy to sell dollars.

After digesting the Fed’s statement released after its meeting, investors aren’t willing to stand in the Fed’s way as it keeps its hand on the monetary policy trigger: “The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”

from The Great Debate:

Savers shoulder the inevitable burden of bad loans

Britain's new coalition government likes to remind voters we are all in this together. The phrase is rather glib. But in an important sense savers and borrowers around the world are finding the costs of reckless lending are falling on the innocent and guilty alike.

Few people this century will have experienced what it is like to turn up at their bank and be told they cannot withdraw deposited funds because the bank has "suspended" payments.

from The Great Debate:

There’s no way to hedge politics

Ben Bernanke in peril and the Volcker crackdown on proprietary trading by banks show two truths of the current dispensation: there is no effective hedge against politics and the reflation trade rests on fragile foundations.

Neither of these realities is particularly good for financial markets and neither is going away any time soon.

from MacroScope:

Bernanke Who?

When it comes to investing in a turbulent market, is ignorance bliss? According to a new survey by IBM, around half of U.S. investors have never heard of Federal Reserve Chairman Ben Bernanke. This, despite the fact that 67 percent say the global financial crisis has prompted them to pay greater attention to financial news. More than one-third could not identify the current unemployment rate. In case you missed it, the jobless rate eased to 10 percent in November after hitting a 26-1/2-year high of 10.2 percent in October.

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