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.
U.S. investment bankers have almost disappeared off the face of the Earth. The so-called Masters of the Universe only have themselves to blame, of course.
Last week a “flight to safety” of investors in America’s $3.5 trillion Treasury money market was only halted by Secretary Henry Paulson’s swift action in nationalising the banking sector’s bad debts.
Read The Great Harvard Sausage Scandal 2008 over at Syntagma.
Today we hear that the two surviving giant American investment banks, Goldman Sachs and Morgan Stanley, have turned themselves into “holding banks”, which will allow them to beg on the streets for any deposits we the people may have remaining after their Attila the Hun rampage through our domestic balance sheets. They will also gain access to Government funds designed to bail out the banks.
In common parlance, Goldman and Morgan and the other stricken titans are signing on the dole.
Read the rest of the article.
As economies around the world face up to the “perfect storm” slowly building around us, with various “crunches” lethally combining their woes, the word recession is on everyone’s lips.
Does the past tell us anything we ought to know? Here is a list of the five worst slumps of the past century in rough order of magnitude. They may provide some sort of comparison, but we should remember that the current episode may have several years to run:
1 1929-33: Great Depression 11,000 of America’s 25,000 banks closed and number of unemployed rocketed. Result: global depression
2 1989-93: The savings and loans crisis More than 700 lenders failed. The crisis cost more than $160bn. Result: recession
3 Now: Collapse of US sub-prime mortgage market This has spread financial panic worldwide. Result: unclear
4 1980s: Latin American debt crisis The flow of international capital to region dried up, leaving massive debts. Result: global economy weakened
5 1973-74: Secondary banking crisis Slowdown led to three-day week in Britain. Result: recession
Source: Times Archive
The United States’ Federal Reserve has intervened dramatically to cut base rates by a huge 75 basis points or 0.75 percent, indicating that it regards recession as more likely than not. This is the single biggest cut by the Fed in 20 years.
The markets are less than impressed, however, regarding it as a panic measure. The White House has also weighed in with the President saying he is considering an even bigger fiscal stimulus than the recently announced $150billion.
America means business.
Syntagma has an in-depth analysis of the upcoming recession. Here’s a taster :
As weâ€™ve been saying here in Syntagma for some months, a long, deep worldwide recession now looks more likely than not. Opinions are hardening among key players, principally in America and Britain.
Yesterday, the Wall Street Journal proclaimed : â€œU.S. warning signs point toward deep recessionâ€.
Now even the insurance companies, or Monolines, that underwrite possible defaults, are also in trouble, with two of the biggest in the U.S. said to be close to Chapter 11 status (a form of bankruptcy protection against creditors).