The Fed Resumes “Printing”

One conclusion from the Fed’s actions is that it doesn’t care as much about its inflation target as it does about improving the unemployment rate. Thus, it will err on the side of letting inflation rise, if it would improve unemployment. But holding rates too low too long fueled the housing bubble. Repeating the same game will have consequences of malinvestment in the form of new bubbles in the economy. The Fed hopes to restore employment before the negative consequences of loose monetary policy show up

Headline 4Q-2011 GDP Growth of 2.75% Masks Mixed Signals

This report is disturbing because of how the headline number masks real and troubling weakness in the more substantive details. Hopefully anyone trying to engineer the economy is basing their tinkering on better information than that provided by the BEA. In fact, it is likely that much of the negative consequences of the recent economic event can be attributed to precisely the poor quality and timeliness of the economic and monetary information available to those whose hubris drives them to such tinkering

Monetary and Fiscal Policy for Sovereign Currencies

This week we begin a new topic: functional finance. This will occupy us for the next several blog posts. Today we will lay out Abba Lerner’s approach to policy

ECB/Fed Support for the European Banking System – 750 billion USD, and counting …

It is my view that the ECB is now the only thing between the economy and widespread bank failures, but I also concur that the consequence of this is a permanent outsourcing of the interbank market in Europe to the ECB’s balance sheet and, quite possibly, Fed’s USD swap lines

Footnote 2011: Being cautiously optimistic was right

In January, I wrote my prognosis for 2011. The title was “Cautiously Optimistic Into 2011″. I intend to write another post like this early in 2012 with asset allocation and market calls for the new newsletter. But right now I just want to review the basic outlook I presented.

I had seven major conclusions. Here’s what I said and how well it has stacked up

Downgrades, Upgrades and US Inflation

The dollar is broadly weaker as news developments remain mostly positive, boosting sentiment. North American session sees US November inflation; euro likely supported today on short-covering rally. RBI left rates on hold at 8.5%, as expected; IDR rallies after Fitch upgraded it to investment grade

Look for North America to Fade Euro Moves

The dollar is broadly weaker as sentiment improves in the wake of an agreement on fiscal integration. European officials have struck what appears to be significant agreement; one of the costs is a new split in Europe as the UK and others are not in agreement. UK trade deficits narrows but unlikely to change economic outlook; China’s inflation decelerates

News Links: Draghi – If fiscal policy becomes hawkish, monetary policy will be dovish

News links from 2 December 2011 include links on the European sovereign debt crisis, the UK economy, the latest on mortgages and technology as well as other stories.

You couldn’t inflate, even if you wanted to

So here we are, with the ECB demanding deflationary austerity from the member nations in return for the limited bond buying that has been sustaining some semblance of national government solvency, not seeming to realize it can’t inflate with its monetary policy tools, even if it wanted to

Juergen Stark explains ECB opposition to monetisation is not about inflation

As I have been saying at Credit Writedowns, the ECB’s opposition to monetising sovereign debt is not about inflation concerns but rather its resistance to moving into a politicised quasi-fiscal role

Turkey: Outlook Remains Bearish

The central bank intervened aggressively in September-October to limit TRY weakness, but it does not have a huge war chest like Brazil or Asia. Reserves were $84.4 bln at the end of October, down 10% from a peak of $93 bln in July. Reserves are thus less than short-term debt of around $85 bln, making a protracted intervention defense unworkable. Instead, the central bank should hike interest rates. While it wouldn’t save the lira in this environment, it would be a step towards re-establishing credibility and perhaps help it become an EM market performer instead of an underperformer

Charts of the day: Understanding the latest economic data out of China

The weak November HSBC PMI for China has added to market bearishness. This is not the official PMI but we do note that while the HSBC measure has been below 50 for 4 of the 5 past months, the official PMI has yet to fall below 50, but it was reported at 50.4 in October, the lowest since February 2009. A further drop in the official PMI below 50 seems hard to avoid. Slowing in the Chinese economy is inevitable given the deteriorating external environment as well as PBOC tightening measures taken in 2010-