The RBNZ—KIWI CENTRAL BANK–announced they were holding rates at 3 percent and awaiting further news on the global economy before they would move again. Also, South Korea said it was considering more capital controls to halt the appreciation of the WON. The South Koreans offered up several possibilities for exchange controls but it appears they will follow upon the heels of the Brazilians. In two weeks the G-20 leaders will meet in Seoul and yet we have the hosts promoting the use of currency controls. Several G-20 members have thrown down the gauntlet in an effort to prevent the U.S. from embarking on depreciation of the DOLLAR by stealth.
The developing nations are none too happy to be the recipients of the hot money flows being fostered by the FED‘s zero interest rate policy, making it mandatory for China and the U.S. to reach some type of agreement on the YUAN in order to slow down the FED‘s backdoor effort at DOLLAR depreciation.
In another bout of political antagonism, Angela Merkel threw some water on the recent German/French agreement concerning the penalties to be invoked for violating budgetary rules of the Growth and Stability Pact. Going into the European summit, Merkel announced that Germany is going to push for a reopening of the Lisbon Treaty in order to harden budgetary rules and put some real teeth in the law.
Sarkozy felt strong that by backing Merkel down on the issue of severe punishment for excessive profligacy that Germany would be in a much more subdued mood going into the European summit. It seems that Merkel is playing to the fiscal conservatives in Germany by demanding a hardened “crisis resolution mechanism” to replace the present European Fianacial Stability Facility (EFSF). We will watch this carefully as Frau Merkel is toughening her stance for the homefront after been seen as very soft in defending German interests within Europe.
It seems to me that, today, Bill Gross removed Ben’s testicles by coming out against further quantitative easing. He openly called QE2 a Ponzi Scheme, although he renamed it a”Sammy Scheme” in honor of Uncle Sam. When the largest bond fund comes out against such action, the FED Chairman cannot be happy. Gross acknowledges that the FED has little choice but warns that going down this unmapped road can result in hellacious outcomes for bond holders.
Jeremy Grantham also weighed in with a similar note but was even more forceful in warning of the repercussions of another round of massive liquidity injection by the Bernanke Bunch. However, Grantham laid the blame heavily on the shoulders of Greenspan but takes Bernanke to task for following the same “green brick road” of monetary stimulus to maintain the illusionary power of equity gains in acting as the driver of the wealth effect. It was not a good day for the FED in its push for QE, as the FED has put a lot on the line with its constant drumbeat of the need to do everything to halt the onslaught of deflation. Hmmmm, we may have some new voices in the Tabernacle Choir.
Tags: Ben Bernanke, Bill Gross, Dollar, Fed, Jeremy Grantham, Kiwi, New Zealand Central Bank, PIMCO, QE2, Won, Yuan
October 27, 2010 at 11:50 pm |
Hi Yra,
Huge fan of the blog I have learned and continue to learn a ton from it. I was surprised to see no mention of the Hilsenrath WSJ article (suggesting only 300 billion of QE) in your rundown of macro events today. I thought that the market digested that news reasonably well and would interpret that as moderately bullish for asset reflation. More importantly though I am curious if this impacts your thinking on what the Fed’s most likely course of action is. Thanks,
Ben
October 28, 2010 at 7:10 am |
ben–thanks .Yes the Hilsenrath piece was again a dime drop by the fed as they are looking for some cover from the impact of big mouth Dudley and of course Jan from Goldman.The Ambrose Evans-pritchard piece was even more powerful—the list goes on
October 28, 2010 at 2:13 pm |
[…] Quote of the Day “Bill Gross removed Ben’s testicles by coming out against further quantitative easing.” […]
October 28, 2010 at 2:42 pm |
Very interesting debate, from the EIU: “Overall, it appears likely that the FOMC will roll out QE2, with an initial purchase of around US$500bn worth of government bonds.”