Trichet on funding the national governments


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Trichet on funding the national governments

When asked specifically if there are any obstacles to the ECB purchasing government assets, Mr Trichet reiterated that the ECB “are not pre-committed for any new decisions”, while his comments suggest the issue of risk-sharing and fiscal indemnity remains an important consideration: “One element which has to be taken into account is that the risks of the central banks and the risks of the governments are, in the euro area, clearly separated without combination of risks or blending of responsibilities”.


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Swiss National Bank confirms beggar thy neighbor policy


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AKA, “Beggar Thy Neighbor” policy straight from the book.

SNB’s Jordan says Franc Can’t be Allowed to Strengthen Further

by Dermot Doherty

Mar 22 (Bloomberg) — The Swiss franc can’t be allowed to appreciate further as “excessive” strength would put Switzerland’s export industry at a “disadvantage” and threaten the country with higher unemployment, Sonntag reported, citing Swiss National Bank board member Thomas Jordan.

The SNB’s decision this month to purchase corporate bonds is aimed at reducing the risk premium by narrowing the spreads on such debt instruments, Jordan said in an interview in today’s
newspaper.

“We are facing a severe recession” and need to be “unconventional” in dealing with it, Jordan said. The SNB will expand the money supply “as strongly as is needed” to prevent deflation, according to the newspaper.


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Re: New CBO chief Elmendorf gets it wrong


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(email exchange)

Thanks!

In case you thought the new head of the CBO understands the way the monetary system works…

>   
>   On Sat, Mar 21, 2009 at 1:37 AM, Scott wrote:
>   
>   FYI . . . from page 43 of CBO’s 10-year projections published
>   today…influence of CBO’s new head Doug Elmendorf (co-author a few
>   years ago of a widely cited paper on the effects of deficits on interest
>   rates) is pretty clear . . . .
>   
>   ”Capital accumulation is affected because the increase in government
>   debt is expected to displace, or “crowd out,” a smaller amount of private
>   capital.
>   

There is no such thing.

>   
>   That result occurs because the reduction in overall national saving
>   dampens spending on business fixed investment and the construction of
>   housing.
>   

Non-sensical rhetoric. ‘National savings’ as he is using the term is a relic from the gold standard when there were hard supply side constraints on reserves.

>   
>   Although the size of such displacement is very uncertain,
>   

Yes, in fact it doesn’t exist.

>   
>   CBO assumes that, in the long run, each dollar of additional federal debt
>   crowds out about a third of a dollar’s worth of private domestic capital
>   (with the remainder of the rise in debt offset by increases in private
>   saving and inflows of foreign capital).”
>   

Ridiculous empty rhetoric from yet another deficit terrorist.


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Liddy testimony at the Fed


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Congressional testimony from Mr. Liddy, the AIG CEO:

Liddy testimony

Mar 18 (CNN) —

KANJORSKI: Thank you very much, Mr. Liddy.

I guess my first question is, you’ve just announced that some of your members or employees that received those bonuses after Saturday this week have agreed to return it. Why couldn’t that have been negotiated for the last two months? And why couldn’t that information have been made available to both this committee, to the secretary of the treasury, and to the chairman of the Federal Reserve?

These are the allegations that have made AIG subject to the wrath of the media, the administration, and the ‘American public’.

LIDDY: I think there’s two parts to that question, sir. Let me see if I can address them in turn.

We’ve been working on this issue of what to do with these retention payments. We’ve made the information publicly available in our various 10-K filings and 8-Ks and (INAUDIBLE). The decision we made — I made — was as much one of risk assessment as it was blindly following legal advice. The risk assessment was we’ve made great progress in winding down this business, but there is still $1.6 trillion of stuff in that portfolio.

There’s risk that that could blow up. And if it were to explode, it can cause irreparable damage to that progress that we’ve already made.

KANJORSKI: Necessitating, Mr. Liddy, a further investment of the American taxpayers in (INAUDIBLE) with equity if we were to keep you solvent.

LIDDY: Would you repeat that, sir?

KANJORSKI: The risk is if those assets deteriorate or blow up, you would either go into total destruction or have to come back to the United States government and this Congress for additional funds.

LIDDY: Yes. I think that’s exactly correct, sir.

So the judgment that we made, in cooperation with the Federal Reserve — we treat the Federal Reserve as our very important partners. The decision we made was that we could preserve that unit and continue to wind it down in a very orderly fashion and not expose the taxpayer and the company for the risks that, heretofore, they’ve been exposed to.

I know $165 million is a very large number. It’s a very large number. In the context of $1.6 trillion and the money that’s already been invested in us, we thought that was a good trade.

KANJORSKI:Am I to understand you’re saying that Chairman Bernanke or his designated person at the Federal Reserve was informed that you were going to make these payments and acquiesced in that decision?

LIDDY:Yes. Everything we do, we do in the partnership with the Federal Reserve. The Federal Reserve is at our board meetings, at our compensation committee meetings, at our various meetings on strategy. And they have the ability to weigh in either yea or nay on anything that we decide.

So why hasn’t all that venom been redirected to the Fed?


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2009-03-23 CREDIT


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In line with recent equity price actions as the Obamaboom takes shape due to the automatic stabilizers, and soon to be enhanced by the fiscal adjustments.

IG On-the-run Spreads (Mar 23)

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IG6 Spreads (Mar 23)

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IG7 Spreads (Mar 23)

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IG8 Spreads (Mar 23)

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IG9 Spreads (Mar 23)


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2009-03-23 USER


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Existing Home Sales (Feb)

Survey 4.45M
Actual 4.72M
Prior 4.49M
Revised n/a

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Existing Home Sales MoM (Feb)

Survey -0.9%
Actual 5.1%
Prior -5.3%
Revised n/a

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Existing Home Sales YoY (Feb)

Survey n/a
Actual -4.6%
Prior -8.6%
Revised n/a

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Existing Home Sales Inventory (Feb)

Survey n/a
Actual 3.798
Prior 3.611
Revised n/a

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Existing Home Sales ALLX 1 (Feb)

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Existing Home Sales ALLX 2 (Feb)

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Existing Home Sales TABLE 1 (Feb)

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Existing Home Sales TABLE 2 (Feb)


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Fed swap lines up $15.7 billion


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Fed USD swap lines outstanding increased $15.7 billion to $329.6 billion last week.

Not good! It’s only one week’s data, but the Fed doesn’t want to see this moving up.

They recently extended the lines from April to October, and likely realize there is no way
they can let the outstanding loans mature and demand payment without market disruptions that would make the rest of the financial crisis look like child’s play.

And if the rest of the world catches on to the notion that the Fed can’t call these loans without serious market disruptions, market forces will cause the lines to expand continuously and only stop when the Fed finally does call a halt either on their own or via Congressional order.


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In case you thought the Swiss National Bank understands its monetary system


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Interesting the legendary Swiss National Bank doesn’t yet understand it’s own monetary system.

Seems their understanding has yet to move beyond the days of the gold standard.

SNB Moves Are Defense Against Deflation, Jordan Says

by Simone Meier

Mar 19 (Bloomberg) — Swiss central bank Governing Board member Thomas Jordan comments on the economic outlook, the SNB’s use of unconventional policy tools and deflation risks. He made the remarks in a speech in Zurich today.

On currency measures:

“From the SNB’s point of view, the current currency-market measures are serving as an insurance against the threat of an unwelcome strong appreciation of the franc. At the same time, they’re serving as defense against deflation.”

Yes, the ‘deflation’ from lower costs of falling export prices that drive down domestic wages, profitability, and asset prices.

“The SNB’s currency purchases don’t have anything to do with a ‘beggar thy neighbor’ policy and must not be interpreted as the beginning of a currency war. It’s not about Switzerland creating advantages with a weak franc.”

He can call it whatever he wants. Functionally it’s a policy to keep their currency weak enough to keep export prices from falling. ‘Beggar thy neighbor’ is not a matter of degree. It means leaning on your neighbors domestic demand for your own employment purposes.

This is what happens when those running a government don’t understand how their non convertible currency works.

“Our purchases on the currency market are only to be seen as an additional instrument in times of zero-rate policy to fight the deflation threat.”

Call it what you want, mate. It’s a dead on beggar thy neighbor policy by ‘previous’ definition.

On unconventional tools:

“The use of unconventional measures doesn’t go without risks. On one hand, effects and side effects aren’t as well known as those of the conventional monetary policy.

First, they are highly unsure of the effects of ‘conventional monetary policy’ as per their own econometric research and theory.

Second, the effects of ‘unconventional measures’ are not only not well known, they are not understood at all.

Ironically, however, they are easier to understand, they alter the term structure of rates and remove interest income from the non government sectors.

And selling your currency to buy FX is an inflationary bias that drives down your currency and increases local currency prices of imports and exports.

On the other hand, it’s an intentional over-supply of the economy with liquidity.

Whatever that means in this context. Close questioning of what this means operationally reveals it’s empty rhetoric, all based on the backwards notion that the banking system needs reserves to be able to make loans.

There needs to be an immediate exit of unconventional measures once the monetary stimulus can be reduced. The assessment of the current crisis means that the SNB has to take these risks.”

There are no such risks. They don’t know how their own monetary system works.

The SNB “has to already engage itself with the question of a timely exit of these measures, however. Even with all uncertainty in forecasts, there’s certainty that there will be quieter times in the future. The exit of unconventional measures has to immediately happen once the monetary stimulus can be reduced. That’s the case when tensions on money and credit markets are over and inflation risks are increasing along with an economic recovery.”

“The dosage of monetary policy isn’t easy in the current environment. The assessment of current risks is clearly in favor of rather too much monetary stimulus than too little.”

The SNB is “confident” it will be able “reduce liquidity” when the time comes.

This is all non-sensical.


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