The Great Debate UK

from The Great Debate:

Fed sets out exit strategy

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

Intense criticism of the Fed's role in the financial rescue program and the decision to triple its balance sheet, including monetizing a portion of the Treasury's debt, has forced the central bank to issue an unusual defense of its actions (http://www.federalreserve.gov/newsevents/press/monetary/20090323b.htm).

It attempts to placate critics by acknowledging the real risk of inflation, and marks the Fed's first attempt to set out an "exit strategy" for ending quantitative easing and other credit programs once the crisis is safely passed.

The joint statement issued with the U.S. Treasury reflects "the common views of the Treasury and the Federal Reserve on the appropriate roles of the Federal Reserve and the Treasury during the current financial crisis and in future."

The last time the Fed and Treasury were forced to reach such an agreed statement defining their respective responsibilities was in 1951. Over the previous 15 years, monetary and fiscal policies had largely become fused as a result of the Great Depression (with interest rates kept artificially low to support recovery, then abandoned as a tool of monetary management in favor of reserve requirements) and World War Two (with rates repressed to help finance the government's massive borrowing program).

from The Great Debate:

U.S. government borrowing runs into resistance

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

Investors have started to balk at absorbing large quantities of U.S. government debt, taking on substantial inflation and devaluation risk in return for little reward. While the government has no trouble placing short-term debt with a maturity of up to 2 years, longer-dated securities are proving much harder to sell.

Increasing resistance from the market explains why the Federal Reserve felt it had no choice but to announce it would start buying back longer-term U.S. Treasury securities last week, in a $300 billion program of direct quantitative easing and monetization.

from The Great Debate:

Geithner’s naked subsidy redefines toxic

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jimsaftcolumn31-- James Saft is a Reuters columnist. The opinions expressed are his own

Treasury Secretary Geithner is all but admitting that U.S. banks are suffering not from market failure but self-inflicted collateral damage.

The U.S. Treasury on Monday detailed an up to $1 trillion plan to buy up assets from banks in partnership with private investors, using financing bankrolled by the government, financing that is only secured by the value of the doubtful assets the fund buys.

from The Great Debate:

First 100 Days: Prioritize and take a hands-on approach

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ram-charan-photo-- Ram Charan is the author several book, including "Leadership in the Era of Economic Uncertainty: The New Rules for Getting the Right Things Done in Difficult Times." A noted expert on business strategy, Charan has coached CEOs and helped companies like GE, Bank of America, Verizon, KLM, and Thomson shape and implement their strategic direction. The opinions expressed are his own. --

The first 100 days demand that President Barack Obama sort out his priorities and choose the ones that will help solve many others. With many constituencies and direct reports clamoring for his time and attention, he cannot attend to them all.  He has to decide which of the many complex and urgent issues that have accumulated must be resolved first.

from The Great Debate:

How will the Fed get off its Tiger?

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

The Federal Reserve and U.S. economy have two considerable risks now that quantitative easing is at hand: keeping the dollar from a disorderly decline and figuring out how to dismount from the tiger.

The Fed has cut interest rates to a range of zero to 0.25 percent and said it would use "all available tools" to get the economy growing again, including buying mortgage debt as well as exploring direct purchases of Treasuries.

from Ask...:

Money, money everywhere …except in your pocket?

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There's lots of money sloshing around the financial system these days. The Federal Reserve has established a target range of 0-0.25 percent for its key rate, bringing it closer to unconventional action to lift the economy out of a year-long recession.

From Washington, the first package aimed at rescuing the credit crisis-hit banking sector amounted to $700 billion. Treasury can use only half of that amount and it has already pledged all but $15 billion of it. The Senate has refused to pass a $14 billion rescue package for Detroit's three major car companies last week, leaving it in the hands of the Bush administration to work out a deal.

from The Great Debate:

Light at the end of the tunnel

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

After more than a year of denial, misdirected policies and a steadily worsening outlook, the past fortnight has witnessed a marked improvement. For the first time, there are reasons to be cautiously optimistic that the economy faces a recession rather than a prolonged slump, and recovery could get underway in H2 2009.

Markets share some of that optimism. The Dow Jones Industrial Index has risen 15.5 percent over four consecutive sessions, the most sustained rally since April 2008. It is not yet time to break out the champagne. But there are reasons to start looking through short-term weakness to focus on an eventual, albeit modest, recovery by the end of next year.

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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