BY THE EXAMINER ~ NAMA PAYING OUT DEVELOPERS : NAMA loaned developers already on its books another €47m · Business ETC
BY JOHN PILGER ~ RISE UP : New Statesman – The party game is over. Stand and fight
BY ANON ~ DEBT BASED MONEY AND ITS CONTROLLERS
‘I’m not the issue of debt-money alone is the problem. I’m saying debt-money that’s 100% owned/controlled by a small group of global private capital holders that have hierarchical power over all liquidity in the system is the problem. as long as it’s 100% privately held, you will never succeed in getting your plan implemented…elimination of interest. it’s the source of their power.’
The Fed statement just released indicates that the central bank intends to purchase a net total of $600bn of longer term Treasury securities between now and the end of 2011 Q2, at a pace of around $75bn per month. This was almost exactly in line with what the market had been led to expect, so there was no surprise in the extent and timing of QE2. However, there was no further softening in the Fed’s statement that interest rates are likely to remain exceptionally low for an “extended period”, which may have disappointed some observers who were looking for this language to shift in a dovish direction. Overall, the markets initial reaction was a shrug of acceptance that the Fed has done just about what it told us it would do, but certainly no more.
So what has the Fed actually done? The $600bn of net Treasury purchases, which will be spread fairly evenly across the yield curve, will increase the size of the Fed’s balance sheet by around 25 per cent over the next 8 months. The monetary base in the US will rise by about 30 per cent over the same period. By the yardsticks that would be applied in any normal period, these would be considered to be extraordinary developments. But in the current environment, with short-term interest rates at the zero bound, and the economy in a liquidity trap, the effects of this monetary injection on the economy may be rather small.
The second round of QE, as announced on Wednesday, is only about one-third the size of the first round. QE1 is usually estimated to have reduced long-term interest rates by about 0.5-0.75 per cent, and to have had almost no effect on broader monetary aggregates like M2. On a pro rata basis, the impact of QE2 would therefore be to reduce long-term rates by about 0.25 per cent, and to boost the growth of M2 and bank credit by a percent or two. These are fairly trivial figures, so what is all the fuss about?
Clearly, the fuss is mostly about asset prices. The announcement of QE2 has broken new ground not so much in its initial quantum, but in the fact that the Fed is willing to embark on this unconventional programme in the absence of any obvious financial or economic emergency. In fact, it has been willing to do so in the face of recent economic data which are definitely not indicative of a double dip in the economy. The ISM figures released in the past few days suggest that the economy may re-accelerate in the current quarter, despite the Fed’s insistence that the recovery remains disappointingly slow.
And, importantly, the Fed said that it would be willing to adjust the pace and overall size of its asset purchases in the light of future economic circumstances, which may encourage the markets to believe that there is a “Bernanke put” underlying the equity market. Almost certainly, the Fed is happy to see rises in equity prices and declines in the dollar, despite warnings that this stance may induce bubbles to develop in the US and overseas.
It is interesting to review market behaviour since Mr Bernanke’s speech at Jackson Hole on 27 August, which indicated that QE2 might be around the corner. Bond yields have hardly moved since that speech, but inflation expectations within the TIPS market have risen by over 0.5 per cent. And commodity and equity prices have risen sharply, by 16 per cent and 11 per cent respectively. These developments are all consistent with a belief that the Fed is intent on reflating the US economy, and that it will succeed in doing so.
Probably the oldest piece of advice in asset management is “don’t fight the Fed”. It usually works. If the economy grows moderately in coming months, while the Fed steadily injects money into the financial system, risk assets could benefit further.
BY TELEGRAPH / PRITCHARD ~ IRELAND RUNNING OUTTA TIME : Ireland is running out of time – Telegraph Blogs
Ireland has been desperately unlucky.
The bond crisis is snowballing out of control before the country has had enough time to let its medical, pharma, IT, and financial services industries (don’t laugh, some of it is doing well) come to the rescue.
Yields on 10-year Irish bonds surged this morning to a post-EMU high of 7.41pc.
Yes, Ireland is fully-funded until April – and has another €12bn in pension reserves that could be tapped in extremis – but that is less reassuring than it looks. The spreads over German Bunds are mimicking the action seen in Greece in the final hours before the dam broke.
Once a confidence crisis takes root in this fashion it starts to contaminate everything, as we are seeing in punitive borrowing costs for Irish banks.
The uber-strong euro does not help. Under the IMF’s rule of thumb, currencies should fall by 1.1pc to offset every 1pc of GDP in fiscal tightening, ceteris paribus. Given that Ireland is going through the most wrenching fiscal squeeze ever conducted in a modern economy – though Greece is catching up – it needs a devaluation to match. Instead, the euro has risen by 18pc against the dollar since June. (less in trade-weighted terms).
UCD professor Karl Whelan, a former Fed economist, told me this morning that there is a “reasonably high probability” that Ireland will have to turn to the EU-IMF even though this will be resisted until the bitter end as a horrible humiliation.
The Fianna Fail government has one last chance to avoid tutelage. He advises draconian cuts of €7bn when the 2011 budget is unveiled in coming days, rather than the €3bn previously agreed.
“Yields on government bonds have priced in a high likelihood of default. If this continues, Ireland may not be able to continue borrowing on the sovereign bond market,” he said in an article posted on The Irish Economy website, a good source for anybody following this Gaelic tragedy.
He rebuts the oft-repeated claim (including by me, I confess) that Ireland had shown admirable courage in getting a grip early. “They have taken far too long to admit the scale of the fiscal problem that we are facing”
His UCD colleague Colm McCarthy said Dublin has until January or February at the latest to return to the bond markets after suspending all auctions when yields exploded. “The €1.5bn not borrowed in October plus the €1.5bn not borrowed in November represent borrowing postponed, not borrowing avoided,” he said in the Irish Independent.
BY ANON ON EURO ENTRY FOR IRELAND :
It’s no surprise that all this is happening – The problem stems from the time we joined the Euro and created access to billions of euro worth of credit. We are in a system similar to the FED in the US in certain respects. We cannot control our money supply. We have no control over interest rates and we are at the behest of the German chancellor, who in turn is at the behest of the Euro Cental bank. Whether we give some relief to the peopel who are struggling is almost immaterial. It would be a good idea. It might save some peoples lives. But the fundamental problem is still there – the way our society, government and banking system is set up is flawed and there has been nothing to to address this. Davis makes some great suggestions, but ultimately the whole thing needs to crash and burn before rebuilding. Get out of the EU monetary system. Elect people with vision and brains to power and start anew.’