Paulson weak dollar policy ends- MOF to resume intervention

Posted on December 18, 2008 @ 8:01 am (Thursday) by WARREN MOSLER

Before the body is cold the MOF has announced they are no longer going to be intimidated by being called ‘currency manipulators’ and ‘outlaws’ by Paulson and are resuming the building of the USD reserves to support their export industries.

Bernanke’s beggar thy neighbor policy is being matched by real action- direct intervention- rather than interest rate rhetoric.

The move in the yuan suggest China has been doing much the same.

This will leave the eurozone all the more vulnerable as they are the only nation not using fiscal policy and ideologically cant buy USD, so the combination of a relatively high euro and weak domestic demand will keep them on the ropes while others recover.

Yen Declines as Nakagawa Says Japan May Take Currency Action

By Kim-Mai Cutler and Stanley White

Dec. 18 (Bloomberg) — The yen weakened from near a 13-year high against the dollar after Japanese Finance Minister Shoichi Nakagawa signaled the nation is ready to intervene in the foreign-exchange market for the first time in four years.

“We will take necessary steps if needed” to limit the currency’s advance and protect the overseas earnings of Japanese exporters, Nakagawa told reporters in Tokyo. The dollar fell to an 11-week low against the euro on speculation the Federal Reserve’s near-zero interest rate policy will reduce the appeal of U.S. assets.

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Obama package smaller than expected

Posted on December 18, 2008 @ 7:52 am (Thursday) by WARREN MOSLER

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Obama team dismisses reports of trillion dollar stimulus

ByJessica Yellin

(CNN) ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ An Obama transition official says reports that the president-elect will release a stimulus plan with a trillion-dollar price tag are overblown, and that the actual figure being discussed is far smaller.

Some outside economists have pushed the trillion-dollar figure. One recent report suggested the transition team was working with an $850 billion plan. But this official describes the amount Obama advisors are currently considering as significantly lower than both.
Obama and his economic team met for four hours yesterday. They are still working on the package, which will not be announced before the president-elect returns from Hawaii later this month.

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Fed’s powers of consequence

Posted on December 18, 2008 @ 7:48 am (Thursday) by WARREN MOSLER

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Thanks, Jim.

Now consider this- the main thing interest rate policy does is move income between savers and borrowers.

For example, in the last year or so savers have gone from earning maybe 4.5% to something near 0 today. And borrowers (and lenders making larger spreads) have equally benefited.

So what I’m getting at is the Fed has the authority to shift mega sums from savers to borrowers, and vice versa.

That’s like giving the social security commissioner the authority to raise payroll taxes and pay out more benefits, etc.

Not to mention the swap line authority where the fed can lend unlimited sums to foreign governments, and on an unsecured basis as well.

The real ‘power’ of the Fed is with these powers of distribution, which far outweigh the generally perceived power of altering the macro economy via changes in interbank interest rates.

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