Tidbits from the Financial Markets and Economy

1979 Audio Clip – Phil Donahue interviewing MiltonFriedman on GREED

FED Watch : St. Louis Fed President James Bullard has released a new research paper that argues that the Federal Open Market Committee’s extended period language may be increasing the probability of a Japanese-style deflationary outcome in the U.S. within the next several years. In the paper “Seven Faces of ‘The Peril’ he states :

” A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”

I wonder whether he was actually talking about ” direct ” purchase of Treasury securities…

Souvereign Debt Crisis : David Rosenberg sums it up nicely on 29 May 2010: ….. So let’s get the story correct. We are still in the midst of a credit collapse where there is simply too much debt and debt service globally relative to worldwide income. The fact that we had a year-long respite does not alter this view. It was a respite that was induced by what is now an apparent unsustainable pace of bailout and fiscal stimulus in practically every country on the planet, not just the United States. What has happened was that governments bailed out the banks and massively stimulated the economy but because the revenue cupboard was bare, in part due to the savage effects of the global recession, public sector debt loads exploded at all levels of government, and to varying degrees, in every jurisdiction.
But someone had to buy these government bonds, and who else, but the very same banks that the governments rescued! And, they had a super-steep yield curve to generate profits from this bond-buying activity. Talk about a symbiotic relationship.
Not only that, but because of global bank capital rules, these financial institutions were not compelled to put any new capital into reserve against these government bonds because of their investment-grade status from the ratings agencies, when in fact, very few countries actually deserve the ratings they have when one assesses structural deficit ratios, debt/GDP ratios and interest costs/revenue ratios appropriately. Now, ironically, the governments, having saved the banks, only to then rely on the banks to fund their bloated deficits, are now in a situation where their banks need help again because of the eroding quality of the government debt on these bank balance sheets.

17.06.2010 BNP Paribas projects EURUSD below Parity

Despite this week’s rebound we have revised our EURUSD projections lower once  again. So far, we had expected EURUSD to hit parity in Q1 2011, followed by a gradual rebound of the EUR. Now we are convinced that EURUSD will have to remain weaker for longer and we expect it to drift to 0.97 in Q3 2011.

The actual Euro/USD ex rate at 31.07.2010 was 1,30,  they were forced to swap gold with the BIS to get out of a massice currency crunch. I wonder whether they have closed their money losing bet on the Euro …

Excellent analysis from “Some investor guy”:

What happens if things go really badly …