With the Bank of England already deep into the process of printing money by buying back the government’s debt, The Fed has yet to attempt this operation, preferring to buy corporate bonds instead.
The potential inflationary effects are the main are of concern. Others take the line that the Bank in the UK could do little else to boost the money supply, while a few politicians have pointed out that broad money (M4) is already rising by 20+ percent.
The BBC’s Economics Editor, Stephanie Flanders, weighs in with an informative piece on how the Americans are doing it — mainly by buying corporate bonds, not Treasuries:
Ahead of the curve
A good primer on the pros and cons is given by the BBC’s Business Editor, Robert Peston on his blog:
Will QE work?
My favourite is by the Daily Mail’s City Editor, Alex Brummer, who today gives an emphatic thumbs down to the whole operation.
Bank’s great experiment may prove gamble too far
Syntagma also greeted the “new dawn” of lumpen monetarism with incredulity:
Watch out for the mashed potato machine
Food for thought.
Albert Edwards at Societe Generale has grave doubts about the American economy.
The S&P 500 index of US shares, he thinks, is about to crash through its half-century support line to 500.
“Technicals say it is time to bail out. Cut equity expose and prepare for rout. US depression looking likely. While China’s 2009 implosion could get ugly.”
Albert Edwards has called this crisis right from way back. He goes on:
“The Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression. … Do you really trust politicians to do the right thing?
“Could the economic situation in China become so bad that it threatens the regime itself? Of course it could. But before being swept away in a tidal wave of worker unrest it has one key tool in its economic armoury it has used before. MEGA-DEVALUATION. China has a track record of such things. At the end of 1993 the authorities devalued the yuan by 33pc.”
Is the way to a Smoot-Hawley II — the Act that caused a catastrophic loss of world trade and the Great Depression? I doubt that a U.S. with Ben Bernanke at the Fed would make the same mistake twice.
However, Edwards continues:
“Amid confidence that the ongoing, massive, monetary and fiscal stimulus will prevent a repeat of the Great Depression, will it instead be competitive devaluation and implosion of world trade that we should watch out for.”
Update: The rescue package was finally passed by Congress and is currently being implemented, with some changes allowing equity in banks to be bought by the government.
Wall Street is back in panic mode again after politicians failed to secure a rescue package for the distressed banking sector last night.
The scenes in Washington were close to farcical as senior members of the administration had stand up rows in the White House. Treasury Secretary, Hank Paulson, reportedly went down on one knee and begged Democrat Nancy Pelosi to pass the bill.
Her response, “Ask the Republicans,” was met with a bewildered “I know, I know” from Paulson.
The $700 billion bank bailout bill is meeting determined opposition from many quarters, in particular a group of Republicans who say the public is 100 to one against the deal.
Negotiations start again today and may spill over into the weekend.
The American investment bank Goldman Sachs, which is currently enjoying a “flight to quality” in its business, believes that America will lead Britain and Europe out of the credit crunch.
In many ways that’s a statement of the obvious since the U.S. economy is usually nine months to a year ahead of its transatlantic rivals/partners. And whereas Ben Bernanke at the FED and the Government in Washington have pulled out all the stops to limit the damage, Britain and the eurozone have been slow to react and have concentrated their fire on the dangers of inflation.
David Viniar, Chief Financial Officer at Goldman’s said, “March was the low point up until now, but if I try and predict the future, I am likely to be wrong.
“Do I think we are through? No, I don’t, but I think there is a lot behind us. Now there is less concern about systemic liquidity risk. People are focused individual investments and credit.”
The real danger now appears to be inflation, driven by oil and food prices. That would be reduced by a worldwide downturn. Experience tells us though, that once inflation sets in, it’s a long hard slog to get rid of it, simply because the remedy is recession itself.