Jim has consistently advised that the Fed cannot stop QE, as to do so is to initiate an financial disaster that would propel us into an economic Stone Age.
Jim’s MailboxPosted July 5th, 2013 at 9:13 AM (CST) by Jim Sinclair & filed under Jim's Mailbox.
Hi Thierry,
Jim has consistently advised that the Fed cannot stop QE, as to do so is to initiate an financial disaster that would propel us into an economic Stone Age. Simply put, the can will continue to be kicked down the road because there is no longer another option other than QE to infinity defined as the US dollar in the very low .7000s.
Regards,
Peter Mickelberg
Communications Consultant
www.JSMineset.com
Jim,
How can you promise such [see NY Times article below] unless you know you will do more QE. QE to infinity is as sure as more taxes (aka wealth taxes) in the Western world until all falls apart due to governments incompetence.
Best regards,
CIGA Christopher
Christopher,
You have to know what you intend to do to make this promise. I suspect the Bernanke July 10th public appearance will be the same.
Respectfully,
Jim
http://www.jsmineset.com/2013/07/05/jims-mailbox-1303/
===============================================
http://www.nytimes.com/2013/07/05/business/global/central-banks-of-europe-and-england-pledge-to-keep-rates-low-for-a-while.html?pagewanted=all&_r=1&
July 4, 2013
2 Central Banks Promise to Keep Rates Low
By JACK EWING and JULIA WERDIGIERFRANKFURT —
Answering critics who said they were running out of ways to promote growth and lending, the European Central Bank and the Bank of England on Thursday did something neither had done before, committing themselves to keeping interest rates low indefinitely.
The bid to reassure investors brought the two central banks into closer alignment with the Federal Reserve, which, under Chairman Ben S. Bernanke, has become more open about its intentions.
At the same time, they appeared eager to signal that they would not follow the Fed in preparing for a gradual withdrawal of economic stimulus.
Mario Draghi, the president of the European Central Bank, based in Frankurt, said at a news conference that crucial interest rates would “remain at present or lower levels for an extended period of time.” Until Thursday, the bank had steadfastly refused to pin itself down on future policy.
“It’s not six months,” Mr. Draghi said. “It’s not 12 months. It’s an extended period of time.”
Mr. Draghi also said that the central bank was signaling a “downward bias” in interest rate policy, meaning further cuts were possible or even likely.
Only hours earlier, Mark J. Carney, who became governor of the Bank of England on Monday, made a similar break with tradition. The British central bank said in a statement that any expectations that interest rates would rise soon from their current record low level were misguided.
With their promises of easy money stretching toward the horizon, the central bankers offered more certainty to investors at a time when tensions in Europe are rising again. So-called forward guidance is considered one of the tools available to central banks, but it was one the European Central Bank and the Bank of England had not used before.
European markets reacted positively to the announcements, with the FTSE 100 in London closing 3.1 percent higher and the Euro Stoxx 50, a benchmark of euro zone blue chips, climbing 3 percent. (Markets in the United States were closed for the Fourth of July holiday.) The euro fell sharply, a development that was probably not unwelcome at the European Central Bank, since a cheaper euro makes European products less expensive in foreign markets, feeding exports. The British pound also fell.
Mr. Draghi said it was a coincidence that his central bank and Bank of England introduced forward guidance on the same day. Both left their main interest rates at 0.5 percent and did not announce any other policy moves. It was a day for talk rather than action.
“Mr. Draghi did what he does best today: intervene verbally to great effect,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in a note.
Mr. Draghi’s statement on Thursday came almost a year after he defused the euro zone debt crisis with a promise to do “whatever it takes” to preserve the currency union.
But after months of relative calm, Europe has been rattled in recent days by a political crisis in Portugal, which has raised questions about whether the region’s governments will be able to withstand popular discontent with their policies of cutting budgets to bring public debt under control. Investors have responded by pushing up the risk premium they demand on bonds issued by Italy, Spain and other troubled euro zone countries. Market rates on Italian and Spanish bonds retreated on Thursday after Mr. Draghi’s comments.
The commitment to keep rates low helps amplify the effect of rates that are already nearly rock bottom, by reassuring investors that they can count on easy money for the foreseeable future.
But some analysts saw Mr. Draghi’s statement as a bluff — a tacit admission that the central bank has run out of other ways to stimulate the euro zone economy.
“A change of a few words in the way he phrases the E.C.B.’s policy stance is an insufficient policy response to alter the — very troubled — course of the euroland economy,” Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., said in an e-mail.
Though the central bank remains unwilling to stimulate the economy as aggressively as the Fed, it promised last year to buy government bonds in unlimited amounts to bring down the issuing governments’ rates and counteract fears of a euro zone breakup. By the central bank’s standards, that was a bold promise, even if the bank has not been forced to deliver on it yet. The shift to forward guidance on Thursday could be seen as another expansion of the central bank’s arsenal.
In a further, more tentative break with precedent, Mr. Draghi said that monetary policy would be guided by changes in the rate of inflation, the state of the euro zone economy and indicators of the money supply. Previously, the central bank emphasized inflation above all else. But Mr. Draghi would not elaborate on what economic benchmarks the bank might use to guide policy.
Mr. Draghi suggested that, with inflation well below the central bank’s official target of about 2 percent, the bank has room to focus on other factors.
“We do believe that we have an outlook for inflation in the medium term that would justify this new way of communicating,” he said. The bank’s governing council, which met on Thursday, unanimously endorsed the shift in verbal strategy, he said.
The Bank of England has been less restrained than the European Central Bank since the financial crisis began in 2008, buying bonds on a vast scale as a way to push down market interest rates, a strategy very similar to that used by the Fed. The Fed has amassed more than $3 trillion in Treasury securities and mortgage-backed securities, and since December it has been expanding those holdings at the rate of $85 billion a month. It has also said it intends to hold short-term interest rates near zero for as long as the unemployment rate remains above 6.5 percent.
At the same time, recent comments by Mr. Bernanke looking ahead to a time when the Fed will begin tightening its monetary policy have caused turmoil in global financial markets and probably put pressure on the European Central Bank and the Bank of England to clarify their own intentions.
“Our exit is very distant,” Mr. Draghi said, though he refused to say how many months or years that might be.
That the Bank of England even issued a statement after its monetary policy meeting was a departure from previous practice and showed that Mr. Carney, the former governor of the Canadian central bank, is making his mark just days after taking office.
“The drop in the pound is a byproduct of the comments, and the market reaction indicates just how eager it is for comments from the new regime,” said Peter Dixon, an economist at Commerzbank.
The British central bank also held its bond-buying program at £375 billion, or $570 billion. Recent data from the services and manufacturing industries surprised some economists by showing faster rates of growth.
The bank said it decided not to change its stimulus program and benchmark interest rate, which it calls the bank rate, because “there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.”
As for the euro zone, Mr. Draghi affirmed his view that the economy was gradually improving but remained fragile.
“Euro area economic activity should stabilize and recover in the course of the year, albeit at a subdued pace,” he said.
Jack Ewing reported from Frankfurt, and Julia Werdigier from London.
Hi Thierry,
Jim has consistently advised that the Fed cannot stop QE, as to do so is to initiate an financial disaster that would propel us into an economic Stone Age. Simply put, the can will continue to be kicked down the road because there is no longer another option other than QE to infinity defined as the US dollar in the very low .7000s.
Regards,
Peter Mickelberg
Communications Consultant
www.JSMineset.com
Jim,
How can you promise such [see NY Times article below] unless you know you will do more QE. QE to infinity is as sure as more taxes (aka wealth taxes) in the Western world until all falls apart due to governments incompetence.
Best regards,
CIGA Christopher
Christopher,
You have to know what you intend to do to make this promise. I suspect the Bernanke July 10th public appearance will be the same.
Respectfully,
Jim
http://www.jsmineset.com/2013/07/05/jims-mailbox-1303/
===============================================
http://www.nytimes.com/2013/07/05/business/global/central-banks-of-europe-and-england-pledge-to-keep-rates-low-for-a-while.html?pagewanted=all&_r=1&
July 4, 2013
2 Central Banks Promise to Keep Rates Low
By JACK EWING and JULIA WERDIGIERFRANKFURT —
Answering critics who said they were running out of ways to promote growth and lending, the European Central Bank and the Bank of England on Thursday did something neither had done before, committing themselves to keeping interest rates low indefinitely.
The bid to reassure investors brought the two central banks into closer alignment with the Federal Reserve, which, under Chairman Ben S. Bernanke, has become more open about its intentions.
At the same time, they appeared eager to signal that they would not follow the Fed in preparing for a gradual withdrawal of economic stimulus.
Mario Draghi, the president of the European Central Bank, based in Frankurt, said at a news conference that crucial interest rates would “remain at present or lower levels for an extended period of time.” Until Thursday, the bank had steadfastly refused to pin itself down on future policy.
“It’s not six months,” Mr. Draghi said. “It’s not 12 months. It’s an extended period of time.”
Mr. Draghi also said that the central bank was signaling a “downward bias” in interest rate policy, meaning further cuts were possible or even likely.
Only hours earlier, Mark J. Carney, who became governor of the Bank of England on Monday, made a similar break with tradition. The British central bank said in a statement that any expectations that interest rates would rise soon from their current record low level were misguided.
With their promises of easy money stretching toward the horizon, the central bankers offered more certainty to investors at a time when tensions in Europe are rising again. So-called forward guidance is considered one of the tools available to central banks, but it was one the European Central Bank and the Bank of England had not used before.
European markets reacted positively to the announcements, with the FTSE 100 in London closing 3.1 percent higher and the Euro Stoxx 50, a benchmark of euro zone blue chips, climbing 3 percent. (Markets in the United States were closed for the Fourth of July holiday.) The euro fell sharply, a development that was probably not unwelcome at the European Central Bank, since a cheaper euro makes European products less expensive in foreign markets, feeding exports. The British pound also fell.
Mr. Draghi said it was a coincidence that his central bank and Bank of England introduced forward guidance on the same day. Both left their main interest rates at 0.5 percent and did not announce any other policy moves. It was a day for talk rather than action.
“Mr. Draghi did what he does best today: intervene verbally to great effect,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in a note.
Mr. Draghi’s statement on Thursday came almost a year after he defused the euro zone debt crisis with a promise to do “whatever it takes” to preserve the currency union.
But after months of relative calm, Europe has been rattled in recent days by a political crisis in Portugal, which has raised questions about whether the region’s governments will be able to withstand popular discontent with their policies of cutting budgets to bring public debt under control. Investors have responded by pushing up the risk premium they demand on bonds issued by Italy, Spain and other troubled euro zone countries. Market rates on Italian and Spanish bonds retreated on Thursday after Mr. Draghi’s comments.
The commitment to keep rates low helps amplify the effect of rates that are already nearly rock bottom, by reassuring investors that they can count on easy money for the foreseeable future.
But some analysts saw Mr. Draghi’s statement as a bluff — a tacit admission that the central bank has run out of other ways to stimulate the euro zone economy.
“A change of a few words in the way he phrases the E.C.B.’s policy stance is an insufficient policy response to alter the — very troubled — course of the euroland economy,” Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., said in an e-mail.
Though the central bank remains unwilling to stimulate the economy as aggressively as the Fed, it promised last year to buy government bonds in unlimited amounts to bring down the issuing governments’ rates and counteract fears of a euro zone breakup. By the central bank’s standards, that was a bold promise, even if the bank has not been forced to deliver on it yet. The shift to forward guidance on Thursday could be seen as another expansion of the central bank’s arsenal.
In a further, more tentative break with precedent, Mr. Draghi said that monetary policy would be guided by changes in the rate of inflation, the state of the euro zone economy and indicators of the money supply. Previously, the central bank emphasized inflation above all else. But Mr. Draghi would not elaborate on what economic benchmarks the bank might use to guide policy.
Mr. Draghi suggested that, with inflation well below the central bank’s official target of about 2 percent, the bank has room to focus on other factors.
“We do believe that we have an outlook for inflation in the medium term that would justify this new way of communicating,” he said. The bank’s governing council, which met on Thursday, unanimously endorsed the shift in verbal strategy, he said.
The Bank of England has been less restrained than the European Central Bank since the financial crisis began in 2008, buying bonds on a vast scale as a way to push down market interest rates, a strategy very similar to that used by the Fed. The Fed has amassed more than $3 trillion in Treasury securities and mortgage-backed securities, and since December it has been expanding those holdings at the rate of $85 billion a month. It has also said it intends to hold short-term interest rates near zero for as long as the unemployment rate remains above 6.5 percent.
At the same time, recent comments by Mr. Bernanke looking ahead to a time when the Fed will begin tightening its monetary policy have caused turmoil in global financial markets and probably put pressure on the European Central Bank and the Bank of England to clarify their own intentions.
“Our exit is very distant,” Mr. Draghi said, though he refused to say how many months or years that might be.
That the Bank of England even issued a statement after its monetary policy meeting was a departure from previous practice and showed that Mr. Carney, the former governor of the Canadian central bank, is making his mark just days after taking office.
“The drop in the pound is a byproduct of the comments, and the market reaction indicates just how eager it is for comments from the new regime,” said Peter Dixon, an economist at Commerzbank.
The British central bank also held its bond-buying program at £375 billion, or $570 billion. Recent data from the services and manufacturing industries surprised some economists by showing faster rates of growth.
The bank said it decided not to change its stimulus program and benchmark interest rate, which it calls the bank rate, because “there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.”
As for the euro zone, Mr. Draghi affirmed his view that the economy was gradually improving but remained fragile.
“Euro area economic activity should stabilize and recover in the course of the year, albeit at a subdued pace,” he said.
Jack Ewing reported from Frankfurt, and Julia Werdigier from London.