The Great Debate UK

from The Great Debate:

Fed is banking on phony wealth effect

The Federal Reserve is committed to enticing Americans into doing once again what worked out so badly in the last decade: spending the phony paper gains engineered by overly loose monetary policy.

That, at least, is the very strong impression given by a speech by Brian Sack, the markets chief of the New York Federal Reserve, a man whose job it will be to implement the second round of large-scale quantitative easing coming after the elections in November.

A round of speeches from key Fed officials has given the clear view that, faced with deteriorating conditions and trapped by the lower bound of zero in its monetary policy, the Fed is preparing to once again buy up large amounts of Treasuries, perhaps even more than the government is issuing on an ongoing basis, in an attempt to drive down market interest rates and stimulate the economy.

Will that do any good, given that people generally do not want to borrow and the banking system is impaired?

Regulatory gaps let banks off the bonus hook

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– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Peter Thal Larsen

Investment banks have reined in their worst pay excesses. But inconsistent enforcement of bonus rules in the United States and Europe means some are still getting away with bad behaviour. If banks and regulators can’t agree common standards, they risk another political backlash.

Greenspan and the curse of counterfactual

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Laurence_Copeland-150x150- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

Suppose that, instead of appeasing Nazi dictator Adolf Hitler at Munich in 1938, Neville Chamberlain had taken Britain to war, what would today’s history books say about the episode?

from The Great Debate:

Tightening underway, Fed a passenger

A tightening in financial conditions is under way but its principal architect won't be the Federal Reserve.

Far from it, the Fed will be pinned down by powerful disinflationary, perhaps even deflationary, forces, making it very unlikely to be willing to raise interest rates any time soon.

from Breakingviews:

Markets right to take Fed move badly

The Federal Reserve deserves some sympathy. The U.S. central bank did everything it could to stage-manage its minimal tightening moves, announced late on Feb. 18. But markets reacted as if to serious bad news.

The changes really are small. The main one was to increase the Fed's discount rate, which is not currently crucial to the financial system, by a token quarter of a percentage point. That widens the spread between the policy interest rate, currently zero, and the discount rate, which is used for emergency lending to banks, to half a percentage point. Before the crisis, the gap was a full percentage point.

from The Great Debate:

Fed redux: Making policy behind the curve

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

With clear signs the U.S. and world economies have returned to growth, investors are trying to guess when the Federal Reserve will begin to raise interest rates again.

Voting to maintain the federal funds target at 0.00-0.25 percent at this week's meeting, the rate-setting Federal Open Market Committee (FOMC) reiterated that low rates of capacity utilisation, subdued inflation trends and stable inflation expectations were "likely to warrant exceptionally low levels of the federal funds rates for an extended period".

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 The Great Debate:

The death of the “punchbowl” metaphor

jamessaft1.jpg (James Saft is a Reuters columnist. The opinions expressed are his own)

Don't expect the year-long rally in risky assets to be undermined any time soon by the Federal Reserve becoming concerned about inflation.

The old metaphor -- that the Fed's job is to take away the punchbowl just when the party starts getting good -- just doesn't apply in the current circumstances. That's not to say inflation isn't a threat in the medium term -- it is virtually a promise.

from Commentaries:

Time to get tough with AIG

It's time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group's new $7 million chief executive.

Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer's corporate offices in New York.

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.

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