FINANCIAL TIMES AVVISA....
Wobble betrays fragile confidence
By Krishna Guha in Washington
Published: May 22 2009
For a brief moment this week, it looked as if confidence in the two pillars of the US fightback against the crisis – the creditworthiness of the government and the Federal Reserve’s ability to exploit its position as the monetary authority of the world’s reserve currency – was starting to wobble.
A synchronised fall in US bonds, stocks and currency on Thursday was a reminder that the nation relies on the tolerance of global investors to sustain its aggressive crisis-fighting strategy. On Friday markets were calm, but US government bonds and the dollar declined further.
Signs of improvement distorted by debt fears - May-22Dollar hits five-month low - May-22Demand for debt is bad news for Treasuries - May-22Dollar wrong side of economic revival - May-21Both the administration’s fiscal discipline and the Fed’s conduct of unconventional policy face renewed scrutiny and criticism.
We are entering a new phase in the crisis, in which concern shifts from private to sovereign credit. Central banks must either take extreme measures to smother a bond market revolt against soaring public debt, or let rising yields choke off recovery.
Concern about US public finances has risen amid projections that public debt will soar from 41 per cent of gross domestic product in fiscal 2008 to 75 per cent in 2015 and keep rising every year thereafter.
“Despite the ongoing popularity of President [Barack] Obama, confidence in policy is fading,” wrote analysts at MF Global. “If the vigilantes return and the markets attempt to inflict discipline, the Treasury prices could see serious weakness.”
The administration aims to improve long-term finances through healthcare reform. Peter Orszag, the White House budget director, told the Financial Times it would consider additional “policy adjustments” if needed post-crisis to ensure sustainable medium-term deficits. But investors are sceptical.
The Fed finds itself interposed between the government and the market without a clearly articulated strategy that explains how it calibrates its bond-buying operations.
Investors misread the last Fed minutes. While some extra purchases are plausible, officials have tried to manage down expectations of large additional amounts. But the misunderstanding suggests a failure in Fed communication.
Buying Treasuries was a late add-on to the Fed’s credit easing strategy, which focuses on private credit markets. Some investors fear the Fed will end up chasing its tail, creating ever more money to restrain a rise in bond yields that pushes up private rates, but succeed only in spooking investors.
Others worry that Fed buying has created an artificial price for bonds and agency securities that might collapse the day it stops. Its attempt on Thursday to buy $7.4bn of Treasuries was met with $45.7bn in offers to sell.
Fed officials see the danger of being sucked into ever larger commitments. They never set out to defend a Treasury yield, nor even a mortgage rate, although they care about them and Fed purchases have compressed mortgage spreads to low levels.
Policymakers believe it is the stock of purchases that matters, not the flow of buying. This suggests decisions to extend or not extend buying boil down to a choice as to how much stimulus the Fed wants to provide.
But market participants view continuing Fed purchases as providing a stop-loss guarantee that prices cannot fall too far. This makes the possibility of disorderly adjustment much greater when the Fed refuses to double up, or tries to stop, its purchases.
By Krishna Guha in Washington
Published: May 22 2009
For a brief moment this week, it looked as if confidence in the two pillars of the US fightback against the crisis – the creditworthiness of the government and the Federal Reserve’s ability to exploit its position as the monetary authority of the world’s reserve currency – was starting to wobble.
A synchronised fall in US bonds, stocks and currency on Thursday was a reminder that the nation relies on the tolerance of global investors to sustain its aggressive crisis-fighting strategy. On Friday markets were calm, but US government bonds and the dollar declined further.
Signs of improvement distorted by debt fears - May-22Dollar hits five-month low - May-22Demand for debt is bad news for Treasuries - May-22Dollar wrong side of economic revival - May-21Both the administration’s fiscal discipline and the Fed’s conduct of unconventional policy face renewed scrutiny and criticism.
We are entering a new phase in the crisis, in which concern shifts from private to sovereign credit. Central banks must either take extreme measures to smother a bond market revolt against soaring public debt, or let rising yields choke off recovery.
Concern about US public finances has risen amid projections that public debt will soar from 41 per cent of gross domestic product in fiscal 2008 to 75 per cent in 2015 and keep rising every year thereafter.
“Despite the ongoing popularity of President [Barack] Obama, confidence in policy is fading,” wrote analysts at MF Global. “If the vigilantes return and the markets attempt to inflict discipline, the Treasury prices could see serious weakness.”
The administration aims to improve long-term finances through healthcare reform. Peter Orszag, the White House budget director, told the Financial Times it would consider additional “policy adjustments” if needed post-crisis to ensure sustainable medium-term deficits. But investors are sceptical.
The Fed finds itself interposed between the government and the market without a clearly articulated strategy that explains how it calibrates its bond-buying operations.
Investors misread the last Fed minutes. While some extra purchases are plausible, officials have tried to manage down expectations of large additional amounts. But the misunderstanding suggests a failure in Fed communication.
Buying Treasuries was a late add-on to the Fed’s credit easing strategy, which focuses on private credit markets. Some investors fear the Fed will end up chasing its tail, creating ever more money to restrain a rise in bond yields that pushes up private rates, but succeed only in spooking investors.
Others worry that Fed buying has created an artificial price for bonds and agency securities that might collapse the day it stops. Its attempt on Thursday to buy $7.4bn of Treasuries was met with $45.7bn in offers to sell.
Fed officials see the danger of being sucked into ever larger commitments. They never set out to defend a Treasury yield, nor even a mortgage rate, although they care about them and Fed purchases have compressed mortgage spreads to low levels.
Policymakers believe it is the stock of purchases that matters, not the flow of buying. This suggests decisions to extend or not extend buying boil down to a choice as to how much stimulus the Fed wants to provide.
But market participants view continuing Fed purchases as providing a stop-loss guarantee that prices cannot fall too far. This makes the possibility of disorderly adjustment much greater when the Fed refuses to double up, or tries to stop, its purchases.
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1 commento:
Zio Barbero,
diffondiamo a coloro che non sanno cosa è l'inflazione e la storia dell'economia dell'ultimo secolo, o comunque agli economisti che credono di conoscere l'economia, questo video.
http://video.google.com/videoplay?docid=-5180646870307609359&hl=en
I sottotitoli in italiano si trovano nel sito di Leonardo Facco Editore.
Consiglierei agli ambientalisti anche così per mantenere alta la polemica, l'ultimo video sulle bugie della CO2 che trovano nel sito di Leonardo Facco.
Per simpatia con Ron Paul ascoltiamo anche http://www.youtube.com/watch?v=nt57iOmfOLg&feature=related,
grande Ron Paul, ma guardate la faccia di Bernspam Bernanke
Il Folletto
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