The Great Debate

It's hard not to be cynical about what the markets are supposedly telling us this week.

Don't get me wrong, I think markets can be a good barometer for sentiment and a leading indicator for trends before they bubble to the surface.

But their behavior this week suggests that the few traders and investors working during these dog days of summer are more interested in pushing prices around for short-term gain than making a bet on where the economy and financial markets are heading.

It's nothing new that trading desks are thinly staffed in the last weeks of summer, but after last year's rude interruption of summer holidays, more are taking advantage of the relative calm this year to soak their feet in the ocean rather than man the phones.

That's caused some interesting cross-currents that are making the message a bit of a muddle. Today, for example, oil prices rose early on hopes of an economic recovery while gold, a haven for those seeking a safe harbor, marched toward $1,000 per ounce as investors grew more cautious.

– Wei Gu is a Reuters columnist. The opinions expressed are her own —

Please don’t call it a liquidity crunch, but it rather looks as though China might have had to sell a sliver of its vast hoard of U.S. Treasury paper to fund its private sector’s big overseas foray.

China’s holding passed $800 billion in May, sparking speculation that it could reach $1 trillion within a year, but the net June figure, published on Monday, showed a 3.1 percent drop to $776.4 billion, the biggest percentage fall in nearly nine years.

– Christopher Swann is a Reuters columnist. The views expressed are his own –

Offer a U.S. Treasury secretary visiting Beijing one wish, and he will certainly opt for a revalued Chinese currency. Offer a second, and the probable choice would be a strengthened social safety net.

Timothy Geithner followed bipartisan tradition when he recently called on the Chinese to strengthen their social benefits. Indeed, it has become an article of faith that a solid welfare state will allow the Chinese to curb their abnormally high savings rate — which is at the heart of the global economic imbalance.

– 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.

– 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.