Monetary News Nov. 1-5

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News
FRIDAY
Fed bond move spurs backlash from Asia to Europe
China, Germany and Brazil warned the Federal Reserve's move to inject money into the U.S. economy might harm the rest of the world, though Beijing said Friday the tactic was understandable because of the slow recovery.
Doubts remain over economic growth
The Federal Reserve can only be delighted with the initial market reaction to its pledge to buy $600bn in Treasury securities by the middle of 2011. But the question for the US central bank is what happens next?
`Hell Week' Ends With Central Banks Split on Recovery Policies
Central banks marked their busiest week since uniting to fight the financial crisis of 2008 by taking divergent steps to keep economic recoveries on track.
Fed Said to Plan Guidelines for Bank Dividends, Stock Buybacks
The Federal Reserve is preparing guidelines for supervisors to use in assessing whether banks are strong enough to boost dividends or buy back shares.

THURSDAY
How It Works; When It Doesn't
The Federal Reserve announced a new round of bond-buying Wednesday to support the economy. Here are some of the key issues involved in its decision.
Bernanke: It's all about jobs
The Federal Reserve's latest move to help stimulate the economy should help fulfill its obligation "to help promote increased employment and sustain price stability," Fed chairman Ben Bernanke said.
Oil hits six-month peaks on falling dollar, Fed move
World oil prices hit fresh six-month peaks on Thursday as the dollar slumped on the back of the US Federal Reserve's new huge stimulus package aimed at boosting the American economy.
U.S. dollar printing is huge risk -China c.bank adviser
Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.
Stock Markets Surge on Fed's $600B Plan
Will the Federal Reserve Help Unemployment, Housing Market? Here's What the Fed's Move Means to You.
5 facts on quantitative easing
The U.S. Federal Reserve on Wednesday announced it will resume stimulus spending, known as quantitative easing, to jump-start the weak economic recovery. Here are five facts about quantitative easing:

WEDNESDAY
Bernanke Bond Buying May Risk Rise in Prices Similar to 2004
The Federal Reserve may be underestimating the inflation outlook for the second time in less than a decade as it prepares to pump more money into the U.S. economy.
Bernanke Faces Greater Scrutiny After Republican Election Gains
Federal Reserve Chairman Ben S. Bernanke may have to renew his battle to preserve the central bank’s independence after Republican victories in yesterday’s congressional elections.
Fed Easing May Mean 20% Dollar Drop: Bill Gross
The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said on Monday.

TUESDAY
Australia raises interest rates
All eyes may be on the Fed, but not all central bankers are on the same page.
What the Fed should really be buying
Wall Street is counting on the Federal Reserve to announce purchases of long-term government bonds on Wednesday, a policy known as quantitative easing. But some Fed watchers think that buying up more plain-vanilla bonds won't work, and recommend more unorthodox strategies.
Don't rule out Fed 'shock and awe'
According to the Chinese calendar, next year will be the year of the rabbit. But for the Federal Reserve, 2011 is shaping up to be the year of the hawk -- the inflation hawk, that is.
Fed Set to Launch Fresh Round of Bond Purchases
The U.S. Federal Reserve opens a two-day meeting on Tuesday that is expected to conclude with a decision to pump hundreds of billions of dollars into the economy to stir the tepid recovery out of its doldrums.
Setting Sail on QE2
Since late August, when QE2 first loomed on the horizon, the dollar has sold off and commodities have surged, and the stock market has rallied 13%. By the time the Fed outlines its plans Wednesday, some traders will "sell the news" and book profits. But a consensus is also quickly building that any resulting pullback must be a buying opportunity.

MONDAY
Dollar sinks before 'busiest week in decades'
The dollar hit a 15-year low point against the yen on Monday and sank against the euro ahead of "the busiest week in decades" during which the US Federal Reserve could announce fresh stimulus measures.
Fed’s bond buys seen $500 billion to $750 billion: survey
Economists expect the Federal Reserve to buy between $500 billion and $750 billion of government bonds and say the impact of such purchases already is baked into markets.

Economists Comments
FRIDAY
The age of the dollar is drawing to a close
Currency competition is the only way to fix the world economy, says Jeremy Warner.
Bernanke's Bond Buy a Likely Bust
Typically, the Fed only buys and sells short-term Treasury obligations -- ones that mature in a few days to a few months. But interest rates are near zero on short-term Treasury debt, so the Fed turned to long-term debt. There was nowhere else for it to go if it wanted to inject money into the system.
Why QE2 Won't -- and Can't -- Work
QE2, to put it simply, does not address the fundamental problems the U.S. economy faces. It is preposterous to think that reducing medium-term interest rates by 25 to 50 basis points is going to lead to a significant increase in gross domestic product and a reduction in unemployment.
Bernanke on QE2: The Goal Is to Create a Bubble
The Fed is looking in the wrong place for inflation: It's in asset prices outside the US, to be followed by consumer prices outside the US, to be followed by higher inflation here.

THURSDAY
What the Fed did and why: supporting the recovery and sustaining price stability
Two years have passed since the worst financial crisis since the 1930s dealt a body blow to the world economy. Working with policymakers at home and abroad, the Federal Reserve responded with strong and creative measures to help stabilize the financial system and the economy.
Bernanke Is Taking a Risk With QEII
One big loser in Tuesday's GOP tidal wave was someone who didn't even appear on a ballot. It's Fed Chairman Ben Bernanke, who'll face greater scrutiny from a skeptical Congress about his policies.
Milton Friedman vs. the Fed
The Nobel laureate would never have endorsed increasing inflation to stimulate the economy.
Fed's $600bn gamble risks throwing away America's biggest asset
Apparently, there's been an election in the US. The BBC tells us that America's wholly unsurprising verdict on the past two years is frightfully important and signals the end of the Obama dream, whatever that may have been; it was never entirely clear.
More Monetary Cowbell
"I got a fever, and the only prescription is more quantitative easing!"
QE2 Sails -- But Where's It Going?
It's likely the new money will find its way into the general economy, increase money supply, and result in some price inflation -- which could lead to stagflation.

WEDNESDAY
G-20: A Viewer's Guide
It is certainly true that the leaders gathered in London agreed to go forth and save their economies. But the question is what the leaders would have done in the absence of such summitry.
QE2 is risky and should be limited
The Federal Reserve’s proposed policy of quantitative easing is a dangerous gamble with only a small potential upside benefit and substantial risks of creating asset bubbles that could destabilise the global economy. Although the US economy is weak and the outlook uncertain, QE is not the right remedy.
High Rollers at the Fed
The central bank becomes a Treasury profit center—for now.
Bon Voyage, QE2!
Investors ready for the next dose of drugs.

TUESDAY
Fed Is Poised to Aid Economy, but Impact Is Cloudy
The Federal Reserve is all but certain to move to spur the nation’s sputtering recovery this Wednesday, but most economists say it is unlikely to have a big impact on employment and growth.
Why Australia Will Benefit From Inflation
In assessing where inflation will be advantageous, look to countries that extract natural resources and export them around the world, particularly to China.
QE2 IS ANOTHER BANK BAILOUT & NOT A MAIN STREET RECOVERY PLAN
All of my work regarding QE has me wondering why the Fed would implement such a policy when the evidence appears to point to little to no gain in economic growth?  The only logical answer is that QE2 is really just another case of the Federal Reserve proving that this is a country centered around the bankers, by the bankers and for the bankers. Before you brush me off as some conspiracy theorist please consider the evidence.
Opinions Are Split on Fed Policy Move
Proponents say buying hundreds of billions of dollars more in Treasury bonds will provide only modest support for the economy. Foes warn that it could backfire by pushing up commodity prices, sowing seeds of unwelcome inflation in the future, or by undermining confidence in the Fed's ability to manage—and eventually reduce—its holdings.

Blogs
FRIDAY
Currency Wars Also Have Unintended Consequences and Collateral Damage
In short, the Fed’s actions have undone whatever good came out of the G20 meetings. Any hope for cooperation on currency values and financial stability is out the window. There are potential spillovers in other areas of global cooperation.
Bernanke’s Twist on Price Stability
He believes we are in danger of too little inflation.  While common sense might imply that price stability means neither inflation nor deflation, in Bernanke’s book, anything below the Fed’s target of 2 percent is bad.

THURSDAY
The Lone Dissenter: Thomas Hoenig Hits Seven
It’s seven for seven for Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. Hoenig’s dissent kept his streak alive at today’s Federal Open Market Committee meeting with an objection to his colleagues’ move to buy more Treasurys to support the economy.
The QE2 Sails
The Fed Open Market Committee (FOMC) announced today they would buy $600 billion of US Treasury bonds through Q2 2011, mostly of  longer-term maturities. They said:
Chairman Bernanke’s Brave New World
Economists and others weigh in on the Fed’s decision to purchase an additional $600 billion of Treasurys, a second round of a policy known as quantitative easing and referred to as QE2.
Bernanke’s $600 Billion Helicopter
It would be nice if wealth could be created by handing out pieces of paper. It can’t. It is not even clear that the Fed plan will put people back to work. Markets have a way of undoing economic decrees. They react in a way that tends to cancel out the government’s efforts.
Parsing the Fed: How the Statement Changed
The Fed’s statement following the November meeting announced a new round of asset purchases.
Completing the Loop, Take 2?
In fact, in many ways, the period from April through September 2010 displays a number of deflationary characteristics, which is the primary reason the Fed is initiating QE 2.0.
Completing the Loop, Take 2, Part 2
It seems there's more to our observations than we knew. The Fed is indeed targeting stock prices in its quantitative easing programs.
Fed Micromanaged Economy to Oblivion With QE2
On misguided calls to "do something" the Fed is blowing a bubble in commodities that can't possibly help.
No cutting back: the Bernanke money-printing story
If this were Greece or Ireland, the government would be forced to cut back. But with quantitative easing ready, there is no need to face the music.
The Fed Decision: This is Not the End of Quantitative Easing!
The FOMC emphasized its dual mandate of "maximum employment and price stability." This indicates that as long as unemployment does not decrease substantially and inflation does not spike much higher, quantitative easing is likely to continue well into the future. This could be particularly true if there is no additional fiscal stimulus forthcoming from Congress.
Does QE work? Ask Japan
The Bank of Japan tried out a QE program from 2001 to 2006 under generally similar conditions to what the Fed is confronting today. In both cases, central bankers faced a situation in which the real economy was stagnating after a crisis, but they were unable to use the usual monetary-policy mechanism to stimulate growth – lowering interest rates – since those rates were effectively zero and couldn't be lowered any further.

WEDNESDAY
The Strangest Macro Model Ever
I do not think that I understand Why Inflation Targets Need to be Higher.
Q&A on QE2: What a Fed Move Would Mean
Debate is raging inside and outside the Fed about how much good it will do, if any. Proponents say purchasing hundreds of billions of dollars more in Treasury bonds will provide only modest support for the economy. Foes warn that it could backfire by pushing up commodity prices, sowing seeds of unwelcome inflation in the future, or by undermining confidence in the Fed’s ability to manage — and eventually reduce — its holdings.

TUESDAY
Q&A: Kohn Says QE2 Won’t ‘by Huge Amount’ Turn Economy Around
I don’t think that anything they will end up doing will instantly and by a huge amount turn the economy around. But it could help on the margin in what is an unsatisfactory situation. If they go ahead and do it, I expect some benefit.
Will QE2 Lead to High Inflation?
Not necessarily, and those who promote this view adhere to an overly simplistic view of the quantity theory of money.
QE2 Preview: How Much Is Too Little or Too Much?
Asset purchase commitments of roughly $125 billion per month -- with the option to alter the program along the way -- is the policy announcement I'm expecting.

MONDAY
US Debt: A Recipe for Economic Disaster?
The foundation of the US dollar is already under threat. If it collapses, it will take other economies and currencies down with it.
Why I assign less weight to the liquidity trap argument
A few people have been asking me about this, so here is a summary statement of some points:
By Request: Monetarism and the Great Depression
My guess is that if we were to try a Sumnerian monetary expansion today, the effect on employment and real output would not be very great. I don't think that the misalignment between nominal wages and prices is such a big deal at the moment.

Reports
THURSDAY
FOMC: QE 1.6 Sets Sail in Uncertain Seas
The Fed will re-engage in quantitative easing by launching QE 1.6—the purchasing of up to $600 billion of Treasuries on a $75 billion per month schedule through June 2011.

TUESDAY
Bernanke Battles U.S. Deflation Threat
Additional quantitative easing, as proposed by Federal Reserve chairman Ben Bernanke, is a necessary, though not sufficient, measure to preempt deflation and a possible economic relapse.