Bernanke went up to the Hill and the Congressional halls were alive with legislator’s inane questions and so much public posturing, we though we were back at freshman orientation. As our friend JA pointed out, Bernanke’s job was to explain HOW the emergency liquidity measures were to be removed, rather than WHEN. The Fed chairman did exactly that, as he reinforced Janet Yellen’s speech in specifying that “by increasing the interest rate on reserves, the Federal Reserve will be able to put significant upward pressure on all short-term interest rates.”
The Fed seems to believe that this is now the bazooka in its pocket. The economic stress over a lack of job creation remains a concern for Bernanke, so the question of WHEN seems to remain on the horizon of some far-off galaxy where growth has firmly taken root. The most ridiculous question was whether the FED was going to monetize the DEBT. Do you really think the Fed chairman is going to tell the American public that he has plans to monetize the DEBT?!?!
A follow-up to yesterday’s note on IFO president Herr Sinn’s comments–he made an issue of the EURO being overvalued and Greece not blackmailing the rest of Europe. Paul Carrel of Reuters wrote an article explaining how the EURO has greatly benefited Germany. David Marsh, a very knowledgable man on the Bundesbank, said:
“The Germans have been very clever over the last 20 years to pretend that monetary union was a huge problem for them. In fact, they are great winners from monetary union. They have got a huge amount out of it. At the moment, the export industry is becoming more competitive. They were very competitiveat $1.50, even more competitiveat $1.35.”
Marsh also goes on to express his belief that the Germans will get their way and Axel Weber will replace Trichet. The politics will play out for awhile longer, and, as long as the markets do not get chaotic, the Germans will view it as a win, win. The BUNDS have staged a strong rally for the last few days, so contagion is not a problem for the German debt markets. Plus, the EURO is on the 1.34 handle so it is all good. Throw in Toyota’s public relations problems, and the German auto industry is breaking open the bubbly.
Bloomberg ran a story out of China that we found more than of passing interest. The China Gold Association–where do they come up with these names–stated through an unidentified official that China would not be buying Gold from the IMF. The unnamed offical said that such an event would trigger “market speculation and volatility.” An analyst from another bank thought the Chinese would wait for more attractive prices. The bottom line is that the Chinese will not race the market but sit comfortably and let the market come to them. This makes perfect sense as the world seems to have taken to a new round of deleveraging so let the liquidators do the work for some. It will be interesting if India were to step back in at the previous price level, 1042, and outflank the Chinese again.
Even though the DOLLAR is recovering, the world cannot be comfortable with current U.S. policy of expanding the public balance sheet. The Obama administration had been happy with DOLLAR weakness but rest assured, if the jobs picture does not improve soon the drums will be beating for DOLLAR weakness. When the EURO was $1.51 and the global financial world was panicked about the demise of the DOLLAR, Bernanke opined that it was no big deal but simply represented the fact that the world was returning to health as the DOLLAR’s safe haven status had been removed. Well, we wonder what say ye now that we are back at $1.34. We await your answer.