The Great Debate UK

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.

Both, too, are utterly related not just to each other, but to the Senate election in Massachusetts which installed a Republican into what had been a Kennedy seat, in the process terrifying Democrats who fear they will be sunk by association with a set of policies perceived to be favoring Wall Street.

In the aftermath, President Obama unveiled a policy authored by former Fed chief Paul Volcker, which is intended to make financial firms get out of the business of using government insurance to underwrite speculative bets; well, er, not all speculative bets, but the bad kind.

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.

from Commentaries:

Time for the Fed to stand up to its critics

John M. Berry is a guest columnist who has covered the economy for four decades for the Washington Post and other publications.

By John M. Berry

Financial crises and the policies to deal with them top the agenda at the Kansas City Fed's Jackson Hole conference. But what is actually going to be on everyone's mind at the august gathering is the uncertain future of the Federal Reserve itself.

from Commentaries:

Bernanke: Back to Clark Kent

Having averted a disaster, cartoon superheroes typically revert to their bland civilian identities. With the recession loosening its grip, Ben Bernanke is trying a similar trick.

After a period of heroic boldness and creativity, the Fed is determined to be dull. Wednesday's statement from the Federal Open Market Committee may well be calculated to bore.

from The Great Debate:

First exit for the Fed

fed-- Agnes T. Crane is a Reuters columnist. The views expressed are her own --

Call it a battle for beginnings and endings, and the Federal Reserve is smack in the middle.

As Fed policymakers convene for a two-day meeting starting on Tuesday, the lines are growing more defined between those who want the Fed to do more to stimulate a still fragile economy, and those who are calling for a defined exit strategy to prevent the global economy from going into an inflation-inducing overdrive.

Issues in monetary normalisation

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john_kemp– John Kemp is a Reuters columnist. The views expressed are his own –

Investors like simple narratives, which is why markets swing erratically and illogically between extremes of hope and fear. Reality is more complex. As F. Scott Fitzgerald remarked “the true test of a first-rate mind is the ability to hold two contradictory ideas at the same time”.

from The Great Debate:

Too failed to live not too big to fail

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

The U.S. policy of keeping zombie financial institutions alive is so clearly failing that it is now attracting attack from inside policymakers' circle of covered wagons.

The most interesting intervention in the banking debate in the past few weeks was an extraordinary attack by Kansas City Federal Reserve President Thomas Hoenig on what he termed a policy of "piecemeal" nationalization which leaves discredited management in place, repels new capital from the banking system and allows bad assets to fester rather than be cleared.

from The Great Debate:

Redefining the sacred in the banking rescue

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Another week, another set of protestations that U.S. banks will remain in private hands, apparently almost regardless of the consequences.

It is clear that nationalization violates a sacred value for U.S. policymakers, or perhaps they believe it to be a sacred value held by voters. As we know from behavioral economics, when people are confronted by a conflict between material advantage and their ideas of the sacred, they tend to opt surprisingly often for the sacred.

from The Great Debate:

Global imbalances and the Triffin dilemma

John Kemp Great Debate-- John Kemp is a Reuters columnist. The opinions expressed are his own --

For the world monetary system, the financial crisis which erupted in the summer of 2007 is a cataclysmic shift that will prove every bit as significant as the outbreak of the First World War (which heralded sterling's demise as a reserve currency) and the suspension of gold convertibility in 1971 (which marked the end of bullion's monetary role).

The crisis marks the passing of an era in which the U.S. dollar has been the world's undisputed reserve currency for making international payments and storing wealth.

from The Great Debate:

“Risk free” rate going way of free lunch

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

One of the many comfortable but unreliable certainties now coming unglued is the idea that U.S. Treasury interest rates are the paramount benchmark, a measure of "risk free" investment, an idea at the heart of finance.

In the old days we quaintly believed that U.S. government debt yields represented a benchmark against which all other types of risk taking could be measured. The 30-year yield, later supplanted by the 10-year, used to be called the most important rate in the world for just that reason. All other risk taking began from this handy jumping off point and all capital allocation decisions used it as an implicit or explicit input.

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