The Great Debate UK

from The Great Debate:

Uncertain Fed support sinks bonds

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

The bond market's adverse reaction after the Fed announced no new asset purchase facilities or bond buyback programs highlights the fundamental difference between interest rates and quantitative easing (QE).

Rate cuts provide ongoing support for an indefinite period until the Federal Open Market Committee chooses to reverse them. In contrast, QE programs provide a one-off, time-limited boost that has to be continually reapplied to have the same effect.

With interest rates a decision to leave rates alone represents "no change" in policy; with QE, a decision to leave the scale and duration of the buyback program unchanged is a "tightening".

QE is time-limited because it drives up bond prices and cuts yields only as long as buybacks continue, or are expected to do so. Once planned buybacks have been completed, or are not expected to be extended, the market will revert to its natural clearing equilibrium. Repeated doses of QE are needed just to keep yields unchanged.

from The Great Debate:

World stuck with the dollar, more’s the pity

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jimsaftcolumn5-- James Saft is a Reuters columnist. The opinions expressed are his own --

The dollar is, and will remain, the U.S.'s currency and its own and everyone else's problem.

The idea of creating a global currency, as espoused by China earlier this week, is interesting, has a certain amount of merit and is simply not going to happen any time soon.

from The Great Debate:

Time to rethink inflation targeting

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

It is time to add another victim to the ever-growing list of institutions (Bear Stearns, Lehman Brothers) and theories (value at risk, fair value accounting and originate to distribute) which have been tested by the financial crisis and found wanting. The central bank practice of inflation targeting -- the jewel in the crown of modern monetary economics -- has palpably failed.

Over the last two decades, inflation targeting has emerged as the most popular strategy for monetary policy among the world's major central banks, and become something of a state-of-the-art choice among theorists and central bankers.

from The Great Debate:

Too many hopes pinned on EU bank

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paul-taylor-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

It works more like a sprinkler than a power hose, but the European Investment Bank has a role to play in preventing a financial inferno from sweeping across central and eastern Europe.

The trouble is that politicians have overloaded the European Union's long-term lending arm with exaggerated expectations, calling on it like a fire brigade in every emergency, from saving credit-starved small firms to greening the car industry, combating the energy crisis and fighting climate change.

from The Great Debate:

Fighting deflation globally ain’t easy

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

With the U.S., Japan and Britain -- nearly 40 percent of the global economy -- facing the threat of deflation, it's going to be just too easy for one, two or all three of them to get the policy response horribly wrong.

The global economy is so connected, and our experience with similar situations so limited that the scope for error is huge.

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