The Fed accelerated what was its now expected level of rate cut, 75 basis points, from its scheduled January 29 Fed Open Market Committee Meeting to today, putting the target Fed funds rate at 3.5% and the discount window rate at 4%, The prospect of the S&P and Dow opening down appears to have focused […]
Read more...Mere mortal investors and their professional colleagues are (at least if they are honest and have a modicum of sense) a bit confounded as to what to do at this juncture. By all measures, inflationary pressures are gaining strength, and yet recessions lower aggregate demand and with it, price pressures. Ah, but what about the […]
Read more...Mohamed El-Erian, in “A route back to potency for central banks,” in today’s Financial Times, gives a short but persuasive analysis of what ails central banks today and what they need to do to strengthen their role. El-Erian is insightful and his opinions often carry some weight, by virtue of being both a Serious Economist […]
Read more...Ooh, I am ill. The Financial Times seems to have scooped this story (I don’t see it on Bloomberg). In keeping with Greenspan’s tutelage at the knee of Ayn Rand, he has exercised his right not to be constrained by propriety or other rules that govern little men and has gone and sold himself to […]
Read more...Today, Ben Stein, in his New York Times column, “Larry, Curly, Moe and the Economy,” uses the Three Stooges as metaphor for the Fed’s actions: the central bank, like the celluloid comics, keep hitting the wrong person on the head. According to Stein, the Fed is unduly preoccupied with inflation and it should instead engage […]
Read more...Ray Dalio, founder and chief investment officer of Bridgewater Associates, is no doubt far from alone in being someone whose opinion is solicited by the Fed. Nevertheless, in an interview in today’s Financial Times, he takes a position diametrically opposed to conventional wisdom. He argues that the remedy for our current economic, particularly credit, woes, […]
Read more...For those who may be too young to have been around in his heyday, Henry Kaufman, aka Dr. Doom, was one of the preeminent economists during the early to mid 1980s, when his firm, Salomon Brothers, ruled the bond markets. Kaufman had a particularly well honed ability to read interest rate trends, no mean skill […]
Read more...Anyone who has worked in a large organization knows the syndrome: top executives are briefed by their subordinates and go and make pronouncements even though they are stretched too thin to have a full understanding. A study by two University of California (Berkeley) economists concludes that that pattern applies to the Fed. Christina and David […]
Read more...Two readers pointed us to very good post by John Hussman that goes through the Fed’s open market desk operations in detail, and then looks at similar work done on the European Central Bank’s activities (including its widely reported $500 billion liquidity injection). He concludes that in fact liquidity, meaning bank reserves plus money in […]
Read more...A solid, well argued case against further central bank accommodation by Charles Wyplosz, professor of economics at the Graduate Institute of International Studies in Geneva, in the Financial Times. The centerpiece of his argument is that by providing ample liquidity and low interest rates, monetary authorities are delaying the very steps necessary for banks to […]
Read more...Why am I cynical about the measures that the Federal Reserve proposed today to stem predatory mortgage lending? They smack of being an obligatory effort taken in the face of Congressional and media pressure. The Fed appears to have done little in the way of its own investigation of what is happening in the field […]
Read more...On Monday, the European Central Bank announced an even more aggressive version of a liquidity facility it had used last August in its efforts to lower interbank lending rates that are stubbornly higher than policy rates. This move is an admission that the coordinated efforts of five central banks last week, including the Fed and […]
Read more...John Dizard of the Financial Times has learned that Goldman is trying to find a counterparty for a bearish position on banking industry risk. Is this a house bet, a hedge, an attractive product, or is the firm merely trying to find a taker for a punt a client wants to make? Regardless, the actions […]
Read more...Steve Cecchetti, Professor of Global Finance at Brandeis, has a nice post at Vox EU, “The Art of Crisis Management: Auctions and Swaps.” The title’s misleading; Cecchetti describes it as a FAQ on the central bank actions of last week to try to close the unusually high and troubling spread between interbank rates like Libor […]
Read more...An odd sign of the times, or perhaps specifically, of financial stress; reversals of position. Today we have Citigroup, which previously stated it wouldn’t take SIV assets on to their balance sheet, relenting and doing just that. The Fed makes a few hawkish noises but still delivers a rate cut. Henry Paulson, a believer in […]
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