James Saft

Don’t expect coordinated easing

Sep 22, 2011 21:31 UTC

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

HUNTSVILLE, Ala. – That much-anticipated global coordinated easing won’t be global, won’t be coordinated and won’t even be much of an easing.

In 2008 the world got global coordinated monetary easing, with contributions from central banks from Tokyo to Washington.

In 2009 virtually every member of the Group of 20 nations contributed to global coordinated fiscal easing, committing to a total of almost $700 billion in additional spending, or more than 1 percent of global GDP.

In 2011 we will get half measures, conflicting policy and self-preservation. This should be no surprise; not only has the crisis spread from being one about banks and houses to one about governments, it has also hardened the divisions between constituencies and interests.

Short of a not inconceivable breakup of the euro it’s hard to see this changing soon. The U.S. and Europe are riven by political and fundamental divisions, China is hardly poised to carry the water and the rest of the world is weak, small and looking to its own diverse interests. It is easier to see currency wars and protectionism rising than the linking of arms of 2008 and 2009.

One-note Geithner’s leverage song

Sep 21, 2011 21:12 UTC

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

HUNTSVILLE, Ala. – Tim Geithner went a very long way on Friday to accomplish very little, flying to Poland to pitch to the assembled euro zone finance ministers the same tactics that have worked so poorly in the U.S.

Faced with another debt problem, Geithner once again proposed more debt as the solution, suggesting that Europe should leverage its EFSF bailout fund so it can have enough firepower to buy up the debts of weak euro zone nations. This mislabels a debt problem as a price problem, and is an almost exact analogue to the U.S.’s own tactics in addressing its own financial system problem — creating leveraged funds to buy up toxic debt and thereby massage the balance sheets of banks.

This is the deflationary equivalent of reacting to runaway inflation by deciding to lop a zero off the end of prices; things will appear better but the underlying issue is not resolved. This is borne out in the U.S., where private fortunes continue to be made in banking, but where the system is unable to play its role in capital intermediation. Many lenders are still wary, rightly, of funding U.S. banks and are unconvinced that the toxic debt problem is gone for good.

As politics fails, will central banks step back

Aug 18, 2011 21:50 UTC
James Saft is a Reuters columnist. The opinions expressed are his own.

HUNTSVILLE, Ala,  – We’ve grown accustomed to central banks swooping to the rescue when events overtake governments’ ability to address economic and market fractures.

There are good reasons to wonder if that era may be coming to an end.

In the past week both the Federal Reserve and European Central Bank have come under intense pressure to act; the Fed from a slowing economy and steep market sell-off and the ECB from a buyers strike on Italian and other euro zone bonds.

Both chose to intervene. The Fed moved to keep interest rates at virtually zero until 2013, while the ECB, in a change in its recent tactics, once again waded into bond markets to buy up and support peripheral euro zone government debt.

For the Fed, faith may not follow transparency

Apr 28, 2011 16:58 UTC

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

HUNTSVILLE — Wednesday was a weird day, caught somewhere between being a victory for the paranoid and a genuine step forward for openness and transparency.

And no, I am not talking about the sad spectacle of President Obama trotting out his birth certificate to assuage his deluded doubters. I am instead speaking of the Federal Reserve, which for the first time in its long history has taken the step of actually taking questions from the press after announcing its monetary policy decision.

Unlike the birth nonsense, there are two not mutually exclusive ways you can interpret the Fed’s decision to put itself at the mercy of the hacks. First, it is a real step forward for transparency, a step along the way towards renouncing the cant of the era of Greenspan, who seemed to regard himself as part economist, part Delphic Oracle and part Wizard of Oz.  Second, it marks a waning of the power of the Fed, which has been diminished by its poor track record and by steps it took which opened it up to attack.

3 numbers spell danger: $100, 3.44, 20

Feb 24, 2011 13:13 UTC

If you think the recovery is firm and the risk of deflation has vanished, look at the three following numbers: $100, 3.44 and 20.

The first, everyone knows, is the price that New York crude oil touched briefly on Wednesday, driven 14 percent higher in just five trading sessions by conflict in Libya and concern over the reliability of supply elsewhere.

The second is the yield on 10-year U.S. Treasury notes, and if you are keeping score, they have dropped a rapid 28 basis points from early February, a drop that is telling you that bond investors do not believe the U.S. economy can easily withstand $100 oil.

Bonds, risk and Bernanke’s intentions

Feb 10, 2011 20:49 UTC

Will bond investors keep faith with U.S. government debt amid signs of growing global inflation?

In the end, as with all banks, even central banks, it boils down to trust.

Asked on Wednesday at an appearance before the U.S. House of Representatives Budget Committee if the Fed’s $600 billion programme of quantitative easing amounted to monetization — that Peter to Paul transfer when a government prints money to pay for a shortfall — Ben Bernanke said an interesting thing:

“Monetization involves a permanent increase in money supply though money creation. (QE) is a temporary measure that will be reversed. Money will be normalized and there will be no permanent increase in outstanding balance sheet or inflation.”

Currencies: war, tragedy or farce?

Feb 8, 2011 12:46 UTC

Call it what you like — war, tragedy or farce — but the disagreement over global currency exchange rates shows no sign of coming to a peaceful negotiated agreement.

Asked last week if loose Federal Reserve monetary policy was to blame for inflation in emerging markets, Ben Bernanke stoutly denied that it was anything to do with him, maintaining in central banker-speak that he’d been tucked up in bed at home at the time.

“I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy, because emerging markets have all the tools they need to address excess demand in those countries,” the Fed chief told reporters assembled at the National Press Club in Washington.

Good luck hedging against inflation

Feb 3, 2011 13:42 UTC

Looking to hedge against a spike in inflation? Equities may not be much help.

Neither, for that matter, will you do all that well over the longer haul with bonds, cash or even commodities, at least on the historical evidence. In short, when it comes to investing, inflation is a real drag.

It’s impossible to know if, much less when, the current very stimulative monetary policy in the developed world will spur inflation, but increasingly indicators are raising concerns. Emerging market economies show signs of overheating, while prices of food and many other commodities are surging.

The traditional view has been that equities are an effective hedge against inflation, in least over the long term, because companies will, all things being equal, eventually pass on inflation to their clients as higher prices.

Good-bye credit crunch, Hello slog

Jan 25, 2011 14:04 UTC

If you have forgotten the credit crunch it appears you have company: U.S. banks are lending again.

Bank earnings reports and data from the Federal Reserve confirm that, at long last, banks are beginning to step up lending, a much-needed ingredient for a stronger and more sustainable recovery.

The good news is that lending is growing to commercial and industrial companies — exactly where you want to see growth if the U.S. is going to address its unsustainable dependence on domestic consumption. That’s good so far as it goes, but with a fragile euro and an undervalued yuan the upside is decidedly limited.

Fed hits its 3rd mandate: rising shares

Jan 18, 2011 15:29 UTC

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

Apparently not satisfied with being unable to fulfill its dual target of price stability and maximum employment the Federal Reserve has set itself a third mandate: higher asset prices.

Speaking on CNBC at a Federal Deposit Insurance Corporation-sponsored forum on small business lending last week, Fed Chairman Ben Bernanke was asked how, in essence, his $600 billion quantitative easing programme could be called a success when interest rates and commodity prices had actually risen in response.

“We see the economy strengthening, its gotten better over the last three or four months, a 3-4 percent growth number for 2011 seems reasonable,” he said.