In the very anticipated FOMC release, the FED announced that the Operation Twist would be extended from the June expiration until the end of the year. No surprise as Bernanke seemed to believe that the FED had to do something about the lethargic growth in the economy. Listening to the press conference held after the FOMC release, it seems that Ben Bernanke is the most troubled man in America. All of the FED‘s actions during the last two years have failed to generate the robust growth that TEXTBOOK MODELS HAVE PREDICTED. Europe continues to be the main theme as to why the GLOBAL ECONOMY IS FAILING TO GAIN ANY REAL TRACTION. Europe continues to plague the world as capital investment languishes in fear of European debt problems causing a massive new round of deleveraging.
Bernanke was peppered with questions about the way around the “FISCAL CLIFF” that is looming in post-election America. Chairman Bernanke noted that the FED would appreciate any clarity about from the fiscal authorities as to the road ahead, but otherwise the FED still has some monetary tools in its arsenal if the CONGRESS cannot get beyond the politics that inflates the fear of the “FISCAL CLIFF.” Again, the FED was not forthcoming about what tools it would utilize but it seems that the best effort would be directed at massively increasing the DOLLAR SWAP LINES so as to prompt the ECB into swifter action.
If not swap lines, then we can look on the order of something similar to the efforts of the Bank of England’s EXTENDED COLLATERAL TERM REPO FACILITY. Bernanke made mention in his press conference that he found the BOE’s recent action very interesting. The British bank is attempting to get some velocity into the vast amount of bank liquidity by lowering collateral standards for short-dated repo. The FED is watching as it deals with a velocity constrained monetary situation. This is just a quick note as the effects of WORLD TRAVEL weigh heavy … more tomorrow.
***A quick heads up: The JAPANESE YEN traded weak today and it important to be alert to any major currency action by the BOJ. Now that the G-20 has come and gone–and accomplished little more than setting out a list of platitudes in its wake–it will be important to monitor the YEN to see if the Japanese were able to get the OK for YEN intervention in its exchange for greater IMF funding for Europe and, of course, in aiding in the PUBLIC BROWBEATING of Chancellor Merkel. The consensus outcome of the G-20 was that Germany needed to capitulate and allow for a EUROBOND and EUROPEAN BANK BACKSTOP.
If the Japanese were to INTERVENE AGAINST THE YEN BE ON THE ALERT FOR FURTHER COORDINATED ACTION FROM THE FED AND OTHERS SO AS TO HALT THE RISE IN EUROPEAN PERIPHERY YIELDS. The usually hyped up Secretary Geithner was very calm and sanguine about the outlook for the European summit at the end of JUNE. Never underestimate the impact of presidential election politics on global events–think the August 1971 DEVALUATION OF THE DOLLAR and NIXON’S CHINA TRIP–all intended for election effectiveness. The Obama administration is very well versed in the Nixon playbook. (READ ALLEN MATUSOW’S BOOK–NIXON’S ECONOMY).