Chart of the Day: Is Gold About to Get a Monetary Blast (Off)?

Watch gold as it pushes up against the downtrend line. Any hints from the Fed of QE3 could send it “to the Moon, Alice!” The Fed rejoining the party and the LTRO2 coming next month could be an explosive mix

The ECB is Engaging in Massive QE

Despite the ongoing hawkish rhetoric from the ECB, there are signs that they are getting it: The LTRO can’t work, as you’re essentially just swapping one liability for another one (albeit more long term in duration, therefore making it better for the banks). But note the way the ECB balance sheet is expanding: The consolidated assets of the European system of Central Banks is now 4.4 billion euros or $5.7 billion. In effect, the consolidated ESCB balance sheet is almost two times that of the Fed and its increase over the last 6 months is almost equal to the entire increase in the Fed’s balance sheet over the last several years. Bottom line: the system of European Central Banks (ESCB) has been engaged in massive QE and much more is in the pipeline. With such massive injections of “liquidity” into the European banks, a European Lehman type failure with Lehman’s systemic consequences becomes ever less likely

PIMCO’s El-Erian: QE3 won’t produce the outcomes we want

Bloomberg wrote the following paragraphs about a recent interview with Mohamed El-Erian. What i thought was interesting was his belief that the Fed is out of bullets. Monetarists and Keynesians believe the Fed can still be effective by managing expectations. So the Fed is on a mission to improve its communication of interest rate policy. Like El-Erian, I am sceptical of this policy turn, but what else can the Fed do? They say they have lots of tools left. Do they

What has the Fed done to avoid the US becoming the next Japan?

Imagine being on the FOMC and in the mainstream paradigm. In 2008 you moved quickly to make sure the US would not become the next Japan. What do you have to show for it, 3 years later

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

Chart of the Day: The ECB Balance Sheet

Who says the ECB can’t keep up with the Fed. As the euro crisis has caused liquidity for euro zone banks to dry up, the ECB has taken on the intermediation role. In essence, they have taken on the dollar liquidity function that the US money markets used to provide via its bank liquidity operations and currency swaps with the Fed

Forecasting misconceptions and the likelihood of European financial repression

Market participants, including economists and strategists are prone to confusing what they believe should be the case with what will be the case

PIMCO’s Mohamed El-Erian: US recession odds are 50%

Pacific Investment Management Co.’s Chief Executive Officer Mohamed A. El-Erian told Bloomberg TV’s Betty Liu and Dominic Chu this morning that U.S. economic conditions are “terrifying” as the nation struggles to recover from recession. El-Erian also said the odds of the U.S. returning to recession are as high as 50%

Predicting the future of policy making

Predicting the future of policy making has been and will continue to be key to understanding where this economy is headed – and by extension what your investment portfolio will do

The Four Key Issues that are Dividing Europe

First, there is a disagreement about whether the ECB should be buying a significant amount of European bonds. Second, there is a disagreement over whether the ECB should declare that is it buying bonds for an extended period or unlimited amounts. Third, the ECB currently sterilizes its sovereign bond purchases. Some want the ECB to refrain from doing this. Fourth, there is a dispute over whether Greece is a unique event

In defense of the ECB

This phrase ‘lender of last resort’ has been bandied around by people who, it seems to me, have no idea what lender of last resort actually means, to be perfectly honest. It is very clear from its origin that lender of last resort by a central bank is intended to be lending to individual banking

It must be impossible for the Fed to create inflation

For all practical purposes the Fed has done it all. And yet unemployment remains at depression levels of over 9% (and over 16% the way it used to be calculated not long ago) and the only thing keeping what’s called ‘inflation’ over 1% is a foreign monopolist supporting the price of crude oil.

So if inflation is this ominously lurking around every corner that requires eternal vigilance to keep from suddenly rearing it’s ugly head, why have all the Fed’s horses and all the Fed’s men not been able to inflate again? And why would anyone still think they can? I mean, we’re talking about college graduates with advance degrees and resources and power up the gazoo doing everything they can to reflate, and still failing after 3 long years? Not to mention the same in Japan for going on 20 years, where they have college grads with advanced degrees as well (though pretty much from the same schools)