Monetary News Oct. 18-22

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News
FRIDAY
Greece's Debt Swaps Signal Threat of Imminent Default Easing: Euro Credit
Credit-default swaps protecting Greek government bonds for a year cost 565 basis points, 61 basis points less than 10-year protection, according to CMA in London.
Sentance Says U.K. Recovery `Encouraging,' Needs Interest-Rate Increase
Bank of England policy maker Andrew Sentance said the recovery in U.K. manufacturing is “encouraging” and repeated his call for a “gradual” increase in interest rates from a record low.

THURSDAY
Geithner's Goal: Rebalanced World Economy
Treasury Secretary Timothy Geithner said he would use weekend meetings of G-20 finance ministers to advance efforts to "rebalance" the world economy so it is less reliant on U.S. consumers, to move toward establishing "norms" on exchange-rate policy, and to persuade others the U.S. doesn't aim to devalue its way to prosperity.
New York Fed Faces `Inherent Conflict' in Mortgage Buybacks
The Federal Reserve Bank of New York’s effort to recover taxpayer money used in bailouts during the crisis may be at odds with its mission to ensure the stability of the financial system.

WEDNESDAY
Asian markets fall on China interest rate hike
This is classic risk aversion from a market that was overdone.
U.S. Should Focus on Deficit, Not More Stimulus
U.S. policy makers should focus on deficit reduction rather than an economic-stimulus package or additional bond purchases by the Federal Reserve.
Medley says Fed to buy $500 bln in US debt
The Federal Reserve plans to launch a program to buy $500 billion worth of U.S. Treasuries over six months but leave itself room for more buying, said a report from influential consultancy Medley Global Advisors
Australia Urges Market-Based Exchange Rates
Australia wants to see all countries move to market-based exchange rates, including China, Treasurer Wayne Swan said Wednesday ahead of a weekend meeting of Group of 20 finance ministers in South Korea.
Short-term Treasury Yields Near Record Lows
Until the midterm elections, Fed meeting and payrolls report in the first week of November, "strap in for a bumpy and aimless ride." Yields on 2-year notes , which move inversely to prices, slipped 1 basis point to 0.35%, after against touching the all-time low of 0.33%.
Will the Federal Reserve Cause a Civil War?
Novermber 3rd is when the Federal Reserve's next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong. It could be the most important meeting in the Federal Reserve's history.
European growth to be weaker next year: IMF
Citing that Europe is recovering from its deepest recession in the post-war period, the Fund said on Wednesday that regional GDP will rise by 2.3 percent in 2010 and 2.2 percent in 2011.European economy had contracted 4.6 percent in 2009.
Why a weak dollar is no strategy for economic growth
"The falling dollar could boost exports and help American multi-nationals compete abroad. But any impact it has on earnings won't be enough to boost the overall economy."
U.S. and China Play Politics Over Economy
China's central bank sent tremors through global financial markets today by announcing that it will raise its benchmark interest rate by a quarter-point, a move that is certain to complicate its dispute with the United States and many other countries over its trade and currency policies
N.Y. Fed seeking money back from BofA
Investors reportedly want bank to buy back $47 billion in securities.
Berlin's Quest for Tough Euro Zone Rules Has 'Failed Spectacularly'
Germany has caved in to France on the reform of the euro zone's Stability Pact by agreeing to jettison plans for automatic sanctions against countries that breach budget rules. The EU is in danger of breaking its promise to get its house in order in the wake of the Greek crisis, say German commentators.
Officials hint Fed on the verge of more easing
A string of Federal Reserve officials on Tuesday indicated the central bank will soon offer further monetary stimulus to the economy, with one saying $100 billion a month in bond buys may be appropriate.

TUESDAY
EU nations reach deal on tighter hedge fund rules
The deal would involve a so-called "passport" under which funds that are approved in one country would eventually have acess to investors in other EU countries.
Canada leaves rate unchanged
Canada's central bank is leaving its key interest rate unchanged after three consecutive rate hikes. The Bank of Canada left its benchmark at 1 % on Tuesday.
World Bank raises outlook for East Asia, warns of bubbles
This year, East Asia's gross domestic product is expected to rise 8.9%, up 0.2 percentage points from the bank's previous estimate in April, but then slow to a 7.8% increase in 2011 as governments unwind stimulus measures and growth in developed economies remains flat.
Geithner: 'The economy is definitely healing.'
Geitherner's central message: The Obamam administration's policies, enacted in response to the nation's worst economic crisis since the 1930s, are working. Fast, decisive action to address the banking industry crisis and the recession "with overwhelming financial force," succeeded in averting economic catastrophe.
New York Fed Chief Says the Economy is Garbage
In recent months, the momentum of the recovery has slowed. For example, after rising at a 3.25 percent annual rate during the second half of 2009, there has been a progressive slowing—to a 2.75 percent annual rate during the first half of 2010 and, most likely, to an even slower rate when the third-quarter real gross domestic product (GDP) figures are released at the end of this month."
Greek crisis requires massive reforms
Nobel laureate and Washington University economist propose herculaneum overhaul.
Regulator warns of US farm asset bubble
The next asset bubbles with potential to endanger the US financial system are in farm property and Treasury bonds, a leading regulator has warned.
U.S. economic fix: print money
"The U.S. Federal Reserve hinted last weekend it would pursue another round of quantitative easing, effectively printing more money, in an effort to stimulate its economy and reduce the likelihood of deflation.
Regional Fed governmor warns policy could spur economic bubbles
During visit to Oklahoma, Federal Reserve official Thomas Hoenig continues to voice his dissent with the Fed's current monetary policy, and worries that keeping interest rates artificially low could eventutally cause more economic damage.
Debt and inequality: Why China and US must both change their ways
The clash between the US and China has led to a global economic imbalance that threatens peace and prosperity. The two powerhouses must stop finger pointing and start fundamentally reforming from the inside out.

MONDAY
What exactly is a currency war, anyway?
Currency volatility is certainly a problem, but no one's quite sure if we'll know when it becomes a full-blown war.
IMF chief warns recovery 'in peril'
The head of the IMF on Monday warned central bankers that the global recovery would be "in peril" if the world's major economies do not keep working together, amid mounting fears of a currency war.
Dollar Declines for Fifth Week on Prospects of More Monetary Easing by Fed
The U.S. currency dropped this week to a 15-year low against the yen and fell to parity with the Australian and Canadian dollars before next week’s Fed report on regional economies.
WRAPUP 1-Two Fed officials favor aggressive easing options
Two top Federal Reserve officials argued for further aggressive action by the central bank, with one saying the economy needs "much more" help and the other pointing to Japan's painful lessons.
Bernanke Gives Strong Indication Fed Will Act
Just how much money the Fed will inject into the economy remains uncertain, and Bernanke gave no indication of a figure in his address. He did note some risks to embarking on another round of quantitative easing, including worries that the Fed would have a difficult time extricating itself when it wanted to tighten monetary policy again.
Bernanke: Fed prepared to act to boost economy
The Federal Reserve is prepared to take new action to boost the economy, its chairman, Ben S. Bernanke, said Friday morning, because inflation has been too low of late and unemployment is poised to come down too slowly.

Economists Comments
FRIDAY
Time to Sell America's Family Silver?
Coping with the economic consequences will be challenging enough but, as we’ve seen from the threatened outbreak of “currency wars,” the political implications are far more awkward.

THURSDAY
America's 'Plan' to Destabilize China
This isn't the first time America has used currency as a secret weapon to destabilize China. In the early 1930s, China was still on the silver standard and the United States was not. Accordingly, the Chinese yuan-U.S. dollar exchange rate was determined by the U.S. dollar price of silver.
What Does It Take for U.S. to Avoid Stagnation?
For the U.S. economy, he calls for reversing the explosion of the national debt, pro-growth tax reform, “a serious turnaround in our banking system” and care at the Federal Reserve to avoid hyperinflation.
Latest Fed Report Won't Alter Course to Monetary Expansion
In short, there's still a recovery underway, it's just really, really slow. This is the narrative that Fed economists have heard several times since last spring. So if they were planning to engage in a new quantitative easing program before, then they probably still are now.
QE2? Not QED.
Why most economists are not hopeful about "quantitative easing," the Fed's latest idea to help the economy.
What Would Milton Friedman Say About Fed Policy Under Bernanke?
However, Friedman's views may not be well understood even by those who would claim him as their intellectual fountainhead — which could be problematic for policy-making. So what would Milton Friedman say about our current monetary policy?
Parsing the arguments against new stimulus
At a minimum, we need to acknowledge up front the limited potential of QE2 and be prepared to admit when it has accomplished all it can. Options for limiting the commitment include targeting the 2- or 3-year Treasury yield or announcing an exit strategy based on a particular level for the core PCE...

WEDNESDAY
Will the markets tank in November?
Stocks took a nasty tumble Tuesday after the People's Bank of China surprised investors with its first interest rate hike in nearly three years.
Quantitative Easing Is Only Show in Town
Central bankers would like to be able to get back to business as usual where they change the price of money rather than its quantity. That day seems a long way off on both sides of the Atlantic.
Fed Wants to Hoodwink Public, Only Fools Itself
Central bankers in the U.S. are being bombarded with market-based signals suggesting their fears of deflation, or falling economy-wide prices, may be misplaced.
China Hides Rampant Inflation in Money Binge
Money, money everywhere. At least that’s what it feels like at the moment in China. Awash in luxury cars, condos and expensive jewelry, the Chinese are enjoying what looks to be an unstoppable boom.
Bonds Face New Negativity in Ballot-Box Backlash
Americans going to the polls on Nov. 2 will be asked to vote on congressional representatives, senators, governors, treasurers, state lawmakers, tax initiatives and $16.8 billion in municipal bonds.
Fed Ignores Gold, Targets Higher Inflation And Plays With Fire
After years of resisting a target of stable prices, the Fed is now promoting actual inflation.
Fumbling towards a truce
The first of three pieces on currency tensions looks at a possible path to peace
Bernanke's Inflation Target Misses the Mark
The more latitude the Fed has to try to spur economic growth, the more economic uncertainty there will be.
Expected QE matters more than static QE:
Some Fed hands thinking $100B/mo for a while.

TUESDAY
Secondary Sources: Underwater Mortgages, Small Business Lending, Currency Battle
A roundup of economic news from around the Web.
Fed Is Monitoring Mortgage Foreclosure Process
The leader of the Federal Reserve Bank of New York addressed the ongoing saga of mortgage foreclosures, saying “the Federal Reserve actively encourages efforts to find viable alternatives to foreclosure, like loan modifications, or deeds in lieu.

MONDAY
Trichet and His Possible Replacement Feud Over Monetary Policy
Implications regarding the valuation of the US dollar versus the euro are at stake.
Time for freely floating exchange rates
The longer additional currency flexibility is resisted, the greater will be global financial volatility and associated resource misallocation. One hopes we don't have to endure 14 months of currency turmoil as we did after December 1971.
The Case for Quantitative Easing
Vincent Reinhart, of the American Enterprise Institute, argues the Federal Reserve should resume its purchases of Treasury securities to jump-start the economy.
No Fix in Quantitative Easing
Bond Buying Will Keep Yields Low but Is Unlikely to Spur the Economy.
QE2 and Rising Markets: Where Can Investors Find Real Value?
Don't be seduced by rising securities and commodities prices into thinking that all's well.
Five Ways More Fed Easing Could Make Things Worse
Federal Reserve Chairman Ben Bernanke took another step toward signaling further monetary stimulus Friday, but in doing so left one key issue unanswered: What if all this intervention causes more harm than good?

Blogs
FRIDAY
Federal Reserve: Economic Prognosticators Or “Just Winging It”?
Two years ago this month the Fed projected our Unemployment Rate for 2010 would fall somewhere between 6.5 to 7.3%. A mere few months later, they had revised that range to 8.0 to 8.3%. What might they think now about those calls given our current Unemployment Rate of 9.6% and likely massively manipulated at that?
Good for the goose
Ultimately, I think nations must attempt to maximise their economic performance subject to existing institutional constraints, while remembering that institutions can be changed, albeit slowly.
Concerns Overseas About Quantitative Easing
In Korea, the discussions about further quantitative easing has given fuel to discussion of some capital controls.

THURSDAY
Federal Reserve Paychecks Soar
Now the really interesting question is whether they have automatic inflation adjustments to their salaries. They are going to need them.
Fed’s Plosser: Bad Incentives Drove Much of Financial Crisis
“The financial crisis was not a failure of our capitalist system,” Federal Reserve Bank of Philadelphia President Charles Plosser said. “Nor was it largely the result of a lot of greedy evildoers whom we could just put in jail to solve the problem.”

WEDNESDAY
Federal Reserve Bank Pay Soars
The public is concerned that governments are providing excessively generous compensation to their workers. Attention has focused on the high salaries and benefits of federal civilian employees and the often lavish pensions paid to state and local workers.
We Are All Protectionists, Right?
All national policies affect the exchange rate of the national currency. The relevant question is one of relative effects and degrees.
Fed's Lockhart: QE2 is an "insurance policy" against further disinflation
In my view, the decision is not clear cut. We policymakers have to weigh these arguments pro and con, potential costs versus benefits, and competing risks. As I said earlier, I am leaning in favor of additional monetary stimulus while acknowledging the longer-term risks the policy may present.
Fed’s Fisher: Outcome of Coming Meeting Is Not Settled
Wall Street may think otherwise, but it is not yet a settled matter the Federal Reserve will provide additional support to a weak economy,

TUESDAY
It is folly to place all our trust in the Fed
Traditionally, monetary authorities focus policy around setting the short-term government interest rate. But, leaving aside the fact that with interest rates near zero there is little room for manoeuvre, the impact on the real economy of changes in the interest rate remains highly uncertain.
Look to Emerging Markets as the Federal Reserve Diminishes the Dollar
The dollar has been on a one-way elevator ride to the ground floor since August, when U.S. Federal Reserve Chairman Ben S. Bernanke first warned that quantitative easing was on the horizon.
Fed: We're in a Liquidity Trap That Must Be Cured by Inflation
Quantitative easing won't save the economy, but it will create inflation. Ultimately, though, we'll experience stagflation instead of the desired robust real economic growth.
QE2: Like Pushing Water With a Fork?
Bernanke says inflation is too low, but there's more than meets the eye.
Bob Hall on Quantitative Easing
With quantitative easing, the Fed borrows short and lends long. So the Treasury could do the same thing by issuing less longterm debt and more short term debt. So he does not undestand why quantitative easing is anything to get excited about.
Hungary Still Lacks A Coherent Economic Policy
Hungarian Prime Minister Viktor Orban’s much-awaited speech in Parliament Monday, which was to outline the new government’s second economic action plan, was a disappointment. It failed to prove that Hungary has a coherent economic policy for the coming years, with well thought-out plans for the most pressing fiscal issues.

MONDAY
Bernanke Prices in QE2 as Decline in Yields Stalls
The Fed is is fueling commodity speculation, which leads to inflation, as Main Street struggles with reduced incomes and a higher cost of living.
Fed Is Fooling Itself With Inflation Targets
Bernanke is risking another set of destructive bubbles.
China Uneasy with Quantitative Easing Prospect.
Chinese commentators are starting to show unease at the increasingly likely prospect that the U.S. Federal Reserve will relaunch a program of buying bonds to push down interest rates. And no wonder: Even before it has actually started, such so-called quantitative easing is complicating the nation’s continued effort to manage its currency.
Up, Up and Away (Again)
Federal Reserve Chairman Ben Bernanke is pushing for another significant round of “quantitative easing” – now dubbed “QE2” by Fed observers – on the grounds that the economy’s response to stimulative macro policies since 2008 has been anemic.
Guest Contribution: Myron Scholes on Whether QE2 Will Work.
Myron Scholes, the Nobel Prize-winning retired Stanford University finance economist, contemplates the prospects for another round of Federal Reserve quantitative easing, and wonders if it’ll work as well as the Fed hopes.
Choosing Inflation, Redux
After all, the main motivating factor behind the Fed's strategy of higher inflation is still its desire to increase the relative prices of everything else with respect to U.S. housing prices as a way of arresting their fall, which is evident from the nation's growing foreclosure crisis.
Bernanke Let Down?
Much of the econo-sphere seems displeased with Bernanke’s speech at the Boston Fed. Brad Delong sees it as very bad. David Beckworth is disappointed. Krugman sees a central bank that is still turning Japanese.
Atlanta’s Lockhart: Fed Should Provide ‘Certainty’
The whole theme of uncertainty is really very prominent in the minds” of Fed officials and quantitative easing could help alleviate the problem.
Parsing Bernanke: Takeaways From Boston Speech.
The takeaways:Unemployment is way too high, inflation is too low, the first round of bond buying — aka Quantitative Easing — worked and the Fed is thinking about publicly pledging to keep short term rates near zero for a REALLY long time.
Big Ben: What He Said and What it Means for the Markets
The S&P emerges as a government sponsored entity.
Time to go to work.
With a new round of monetary easing probably,every little utterance out of the leaders of the Fed's Open Market Committee is heavily scrutinised. Today it was the Chairman, Ben Bernanke's turn to set tongues wagging.
The wrong sort of inflation
Terrified by memories of the 1930s and Japan’s more recent experience in 1990s and 2000s, the academics who now dominate the Federal Open Market Committee display a hyperactive compulsion to tinker with monetary policy in a bid to solve all the problems besetting the U.S. economy.

Reports
TUESDAY
Currency Wars: Misguided US Economic Policy
The critical issues in America stem from minimally a blatantly ineffective public policy, but overridingly a failed and destructive Economic Policy.