Tuesday, Sep 15, 2009
Print money and buy back debt or let interest rates rise?
Telegraph: US credit shrinks at Great Depression rate prompting fears of double-dip recession
Sure AEP is an ueber bear - but I'm with him: You have to wonder what happens next given shrinking money supply.
There has to be a point that printing money will cease and interest rates move up. Most likely when countries holding dollar reserves call time.
Posted by growler @ 07:14 AM (495 views) Add Comment
6 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. Interested said...
they can continue to print and hold int rates low in the us but ultimately it will collapse the usd... maybe thats what they want?
2. mountain goat said...
"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.
It is unclear why the US Federal Reserve has allowed this to occur.
"The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."
What we need is more lending to a fully maxed-out indebted consumer, all this while making the banks safer. Next we need free energy and food that falls from the heavens whenever we get hungry.
3. growler said...
We will see US and maybe UK bond sales fail soon if inflationary expectations become felt in counties holding large US reserves or debt. Like China. It could yet be that Eurozone does "least worst" in this environment. This will send the Euro (and Gold and other precious metals - such as those in China) skywards. International investors will want to hold paper in currencies other than USD or GBP. Getting on the back of Euro might end up with a win-win outcome for them: security and currency gain.
Why am I getting a very twitchy feel on all this? Are we about to have another "black Monday"...
4. mountain goat said...
I don't understand bonds well at all, so maybe someone else will comment on today's article on bond issuance.
"Germany on Monday issued only its second foreign currency bond (i.e. US dollars) since the second world war as it responded to intense competition for funds in Europe."
European issuers have already raised $12.5bn in dollar-denominated bonds this month, according to Dealogic, nearly double the levels of average monthly issuance. This demand for dollars has forced down the cost of switching back into euros from dollars in the so-called basis swaps market. This is where a price is set for transferring from one currency to the other.
European governments can currently issue bonds in dollars, then switch into floating euro London interbank offered rates at a cost of euro Libor minus 20 basis points.
If they had raised the money in euros, they would have had to pay euro Libor. Before the financial crisis, the cost of switching from dollars into euros was only a handful of basis points.
Simon Boughey, research analyst at interdealer broker Icap, said: “European governments can use the dollar markets as it has a completely different pool of investors, helping to boost demand.
“It is also cheaper to issue in dollars because of the dislocation in the market since the financial crisis.
“The demand for dollars was so great that the basis swap market became heavily offered, meaning that there are cost savings to be derived from swapping back to euros.”
5. cynicalsoothsayer said...
"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."
Credit contraction starting properly then. If it starts over here it will be a jobs bloodbath, with all those workers on part pay being let go.
This next financial tsunami may arrive before the general election.
6. icarus said...
AEP / Tim Congdon write only about the supply of credit, not the demand for it, as mg @1 hints in the last para.