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March 10, 2011

3 Months From Now, US Fed Will Stop Buying

Filed under: Uncategorized — bigcapital @ 5:43 pm
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3 Months from now, US Fed Will Stop Buying.

Thursday, March 10, 2011 — http://marketpin.blogspot.com

== US Fed bond buys to finish, greenback and global stocks on radar ==

Fed’s Fisher warns could vote to stop bond buying

WASHINGTON (Reuters) – A senior U.S. Federal Reserve official warned on Monday that he would vote to scale back or stop the central bank’s $600 billion bond-buying program if it proves to be “demonstrably counterproductive.”

Dallas Federal Reserve Bank President Richard Fisher, who has repeatedly said he would not support any more bond buying after the program ends in June, said he was doubtful the purchases were doing much good.

“I remain doubtful enough as to its efficacy that if at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it,” Fisher said in remarks prepared for delivery to an Institute of International Bankers’ conference in Washington.

“The liquidity tanks are full, if not brimming over. The Fed has done its job,” he said.

The Fed launched its bond buying program in November to help an economic recovery that was struggling with high unemployment after the worst recession since the 1930s.

But since then, the economy has shown signs of strengthening with the jobless rate falling to a nearly two-year low of 8.9 percent in February.

Fed officials are due to meet March 15 to discuss the bond purchase program. In January, Fisher voted with the rest of the central bank’s policy-setting Federal Open Market Committee to continue it.

In comments to the bankers’ conference, Fisher said he did not feel that further monetary accommodation would help put more Americans back to work.

“It might well retard job creation, should it give rise to inflationary expectations,” he said, adding that perhaps the Fed’s policy has compromised the central bank by implying it is “a pliant accomplice to Congress’ and the executive branch’s fiscal misfeasance.”

== How About U.S dollar ? ==

Stretching out Treasury purchases past the end of June while reducing the monthly amount would help bond dealers adjust to the Fed’s withdrawal from the market, said Lou Crandall, chief US economist at Wrightson ICAP in Jersey City, N.J

NEW YORK – The Federal Reserve’s $US600 billion bond purchase program will be completed as planned, top Fed officials signalled, though they saw heightened economic uncertainty from unrest in the Middle East.

US central bank officials from Atlanta, Chicago and Dallas said they were keeping an eye on the risk higher oil prices could feed through into broader inflation, as well as their potential to hurt growth.

Atlanta Fed President Dennis Lockhart said he would not rule out more bond buys if the recovery dwindles. Dallas Fed President Richard Fisher said he would vote to end the program early if higher oil prices fed into broader inflation.

The program, announced in November to bolster a fragile economic recovery, is due to end in June. Since it began there have been signs the recovery is picking up steam.

Mr Lockhart, a policy centrist, said he was more concerned about the risk to growth from the oil price rise. He said he would be “very cautious” about increasing the size of the purchase program.

“Given the emergence of new risks, however, I prefer a posture of flexibility,” Mr Lockhart said.

He expected overall price pressures to remain subdued and warned it is too early to “declare a jobs recovery as firmly established”.

Mr Fisher, an inflation hawk, said he “fully expected” the $US600 billion program to “run its course.”

Mr Fisher told an international bankers’ conference he would vote to curtail or stop the program, however, if it proves to be “demonstrably counterproductive.”

The Fed meets on March 15 for its policy-setting meeting, at which it is expected to reaffirm its purchase plan. Fisher is a voter on monetary policy this year, Mr Lockhart is not.

In a CNBC interview, Chicago Fed Bank President Charles Evans said the Fed was closely watching rising oil prices, adding that they were “obviously” a headwind for growth.

Revolutions beginning in Tunisia and Egypt have spread to other countries in the region, including Libya and Bahrain. This has pushed the price of oil above $US100 a barrel, complicating the Fed’s objective of stimulating economic growth while keeping prices under control.

That said, Mr Evans pointed to the improving job market and said he expected economic growth of four per cent this year and next. He called the size of the purchase program “good”.

“I continue to think the hurdle is pretty high for altering our currently announced” program, Mr Evans, seen as a monetary policy dove and one of the most outspoken proponents for quantitative easing, said. Mr Evans does not have a vote on monetary policy this year.

Mr Fisher said the question will be whether the oil price rise is sustained.

“It is really a question of how that works its way through,” he said. “We have already seen very high gasoline prices. That’s one of the ways that it most affects the consumer.”

http://marketpin.blogspot.com

February 25, 2011

Fed’s Bullard says it’s time to debate completing QE2

Filed under: Uncategorized — bigcapital @ 7:52 am
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Fed’s Bullard says it’s time to debate completing QE2

Friday, February 25, 2011 – http://marketpin.blogspot.com/

BOWLING GREEN, Kentucky (Market News) – A senior U.S. Federal Reserve official said on Thursday he thinks it is time to consider tapering off or scaling back a $600 billion bond-buying program because of an improved economic outlook.

“The natural debate now is whether to complete the program or to taper off to a somewhat lower level of assets,” St. Louis Federal Reserve President James Bullard said at a Chamber of Commerce breakfast held at Western Kentucky University.

Bullard said that he expects the topic to be discussed at a Fed meeting in March. He said he would be ready to scale back the program then.

“If it was just me, I would make small changes to account for the fact that the outlook is better than it was at the time of the November decision,” he told reporters after his speech.

Bullard, an academic economist, is not a voting member this year of the panel that sets interest-rate policy. He is seen as a centrist on the spectrum of Fed officials, which ranges from opponents of aggressive actions to support growth to advocates of accommodative policies at the other.

The Fed launched its bond buying program in November to buttress a weak recovery, struggling with high unemployment after the worst recession since the Great Depression of the 1930s.

The purchases are due to end midyear, and the Fed at its most recent policy meeting showed no sign as a body of backing away, although several policymakers have questioned the need for or the efficacy of the program.

Minutes of the Fed’s January meeting showed a few officials wondering whether data showing a strong recovery would make it appropriate to consider reducing the pace or overall size of the program.

But other officials at the meeting said the outlook was unlikely to improve dramatically enough to justify any changes. There were no dissents from the Fed policy at that meeting.

Despite his confidence in the rebound, Bullard said that events in the Middle East and lingering worries about European government fiscal soundness plague the outlook.

“We’ve got plenty of concerns out there about supply developments in oil markets, and you’ve still got brewing issues in Europe with respect to their sovereign debt crisis,” he said. “But I am saying that looking at the outlook today, it’s better than it was in November.”

Bullard said that despite his rosier outlook, further easing could never be ruled out. markets-stocks

The bond purchases are the Fed’s second round of quantitative easing, dubbed QE2. Bullard said it has been an effective tool when interest rates are near zero.

“Real interest rates declined, market expectations rose, the dollar depreciated and equity prices rose,” he said.

The Fed cut short-term interest rates close to zero in December 2008.

Bullard said a jump in food and energy costs around the world could impact U.S. prices.

“Perhaps global inflation will drive U.S. prices higher or cause other problems,” he said.

U.S. inflation is near historic lows and Fed officials have until recently been worried that the U.S. economy could slip into an outright deflationary spiral. Bullard said he believes the disinflation trend has bottomed.

“Inflation expectations are higher, which I think was a success of QE2 and if we do too much and don’t pull back in time, then we can get more inflation than we intended,” he said.

Bullard said adopting an explicit inflation target would be a better way of conducting monetary policy.

Friday, February 25, 2011 – http://marketpin.blogspot.com/

February 23, 2011

What happens when Quantitative Easing (QE2) ends in June?

Filed under: Uncategorized — bigcapital @ 1:12 am
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What happens when Quantitative Easing (QE2) ends in June?

Wednesday, February 23, 2011 – http://marketpin.blogspot.com/

The Congress : “There is no need for us to support Quantitative Easing Part 3” confirmed by the Senate last week.

I remain surprised that in the business press there is little if any discussion about what will happen when Quantitative Easing II expires in June.

From a congressional standpoint, there has been discussion designed to force an early end to the program. Others have gone in the opposite direction mentioning a possible QE3.

In my view, the economy is slowly picking up. Deflation is less an issue, manufacturing activity is up, and consumers are spending a bit more. Corporate profits have exceeded expectations for Q4 2010.

On the downside, the housing market shows no signs of improving and might not have yet bottomed. Trouble in the middle East could disrupt oil shipments. China appears to be experiencing uncontrolled inflation and an asset bubble that is about to burst. Europe is experiencing continued sovereign debt issues. Some analysts believe that the UK is in stagflation. Commodity prices are increasing rapidly. Corporations have no pricing power. The US labor market will take years to repair. And finally, US Budget deficit is out of control!!!

This all points to a tenuous financial environment at the time of QE2 expiration. For 2011, YTD stock prices might be negative.

Any yet the business press seems quiet on this issue …

Read more: Count Down to Quantitative Easing Removal ends in June.

For 2011, YTD stock prices might be negative.

Which would be unlike the quantitative easing that the CABAL (Fed) have been subjecting our economy to… The CABAL chairman told us when he implemented QE1 and Q2, that it was for the good of the economy, to spur economic growth, job creation, and keep interest rates down… Well… That’s strike one, two and three… Go grab some bench, Mr. CABAL Chairman! And that’s all I can say about that right here, right now, as this is the kinder

Since the CABAL introduced quantitative easing in March of 2009, inflation has taken off, just as I told you back almost two years ago that it would… No, we’re not seeing wage inflation, or housing inflation… But get a load of these things that have increased phenomenally since March 2009.

The average price of gas is up 69%… The price of oil is up 135%… Corn is up 78%… Sugar is up 164%… And I could go on, but I think you get the picture. Now, on the other side of the employment that was supposed to improve with QE, the number of unemployed people is up 25%… The number of food stamps recipients is up 35%… The national debt is up 32%… And then the last thing they told us would improve or remain steady was interest rates… Hmmm… Well, the 10-year Treasury is up 100 basis points in the past three months alone! Sorry to be the one that had to tell you these things, but if you only watched cable media, you wouldn’t know about these things, and when the Conference Board called to survey you about how confident you were about the economy, you would be singing the praises of the CABAL for all they had done for you!

February 14, 2011

U.K Inflation fears lead investors to bet on rate rises

Filed under: Uncategorized — bigcapital @ 8:36 am
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U.K Inflation fears lead investors to bet on rate rises

http://marketpin.blogspot.com/

Published: February 13 2011 18:54 | Last updated: February 13 2011 18:54 – The Financial Times

LONDON – Hundreds of billions of dollars have exchanged hands this year in bets on when the next interest rate rises will be in the UK and eurozone, as volumes have surged in these markets because of the growing threat of inflation.

Financial markets are betting that the UK will be the first to raise rates in June, followed by the European Central Bank in September and finally the US Federal Reserve in December.

Rising food and commodity prices have prompted markets to bring forward expectations of rate rises, sparking the jump in volumes as inflation has become one of the biggest concerns for businesses, consumers and investors.

The increasing focus on inflation has also triggered a debate over the accuracy of these predictions, with opinions divided over how much faith investors should place in them.

Don Smith, economist at Icap, said: “The market forecasts are as good a guide as you will get. They are in a sense multibillion-dollar predictions because of the vast amount of money behind the trades that set them.”

Some strategists also argue that rate forecasts can be self-fulfilling, as central banks do not like to surprise markets.

However, John Wraith, fixed-income strategist at BofA Merrill Lynch, said: “Market rate expectations are useful indicators, but they only tell you the consensus market view at any given point in time. Circumstances change and so do they.”

Mr Wraith thinks rates in the UK, for example, may be delayed beyond June, as policymakers are more concerned about weak growth in spite of rising inflation, which at 3.7 per cent is nearly double the Bank of England’s inflation target. There is also a view that rises in fixed-interest mortgage rates and some company loan costs are in effect tightening monetary policy for the Bank of England, which means that rates may not have to be increased as early as the market expects.

However, most strategists say the markets are more accurate today than they were in the past, as the contracts – known as overnight index swaps in the UK and eurozone and Fed funds futures in the US – used to make the predictions are more widely traded with hundreds of banks and investment funds making bets.

Brokers say rough estimates show daily turnover has risen to about $200bn in Fed funds futures and to about $20bn in each of the UK and eurozone overnight index swap markets

February 3, 2011

Euro Is Still Not Out Of Dangers Zone

Filed under: Uncategorized — bigcapital @ 5:43 am
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Euro Is Still Not Out Of Dangers Zone

February 02, 2011 – http://marketpin.blogspot.com/

 

NEW YORK (Market News)– The European Central Bank has become more political since its decision to buy euro-zone government bonds last year, and is therefore unlikely to raise interest rates early even if inflation surges, according to Commerzbank chief economist Joerg Kraemer. “Even if inflation moves towards 3%, the ECB is still unlikely to raise rates until the fourth quarter [of this year]” Kraemer says

EUR/USD is “teetering” lower on profit-taking, strong U.S. data and concerns about further turmoil in Egypt, says HiFX senior trader Stuart Ive. “The markets are still preoccupied with Egypt to a degree especially after (Egypt’s President) Mubarak supporters protested after his speech yesterday.”

The euro fell from the near three-month high against the dollar it reached earlier Wednesday, as social unrest in Egypt combined with the euro zone’s ongoing debt crisis to inject some caution into bullish traders.

Boiling instability in Egypt tempered a revival in an appetite for riskier investments, as violence erupted between antigovernment forces and supporters of embattled President Hosni Mubarak. Nervous investors bought dollars as a haven, pulling the U.S. currency up from its weakest level against the euro since early November.

Developments in Europe’s debt crisis also doused some of the market’s enthusiasm for the euro, reminding traders that the euro zone’s woes have not disappeared.

German Deputy Finance Minister Joerg Asmussen rejected the idea of creating a euro-zone bond, reiterating that any revisions to the existing euro-zone fiscal rescue facility will likely require fiscal concessions from euro-zone governments. Elsewhere, ratings agency Standard & Poor’s lowered its assessment of six Irish banks and placed them on watch for further downgrades.

“People are watching with one eye what’s going on in the streets in Cairo, and it’s causing second thoughts about” taking the euro higher, said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J.

Risk aversion coalesced with fears that the process for resolving Europe’s debt issues could turn “sloppy,” Dolan added. “There’s a question of some further [euro] weakness as the move-up stalls and some people head for the exits.”

The euro slipped to new U.S. session lows underneath $1.3780, below its offshore trading high at $1.3862. Against the yen, the euro purchased Y112.72, slightly higher on the day. Meanwhile, the dollar bought Y81.80, up slightly from Tuesday.

Source: http://marketpin.blogspot.com/

February 02, 2011

January 8, 2011

Surprise jobs surge boosts U.S economic outlook 2011

Filed under: Uncategorized — bigcapital @ 2:17 am
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Surprise jobs surge boosts U.S economic outlook 2011

(Reuters) – A surprise surge in private-sector employment last month to its highest level on record provided the most bullish signal in months that the U.S. economy is on the mend.

Private employers added 297,000 jobs in December, triple the median estimate by economists and up from the gain of 92,000 in November, an ADP Employer Services report, whose data goes back to 2000, showed on Wednesday.

The report undercut the prices of the U.S. Treasury securities, and helped the U.S. dollar gain against the yen and the euro. U.S. stocks opened lower though they did pare losses after the jobs news.

“Sometimes numbers come as bolts from the blue; this is one of them,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

“Nothing in any other indicators of the state of the labor market last month — jobless claims, help wanted, surveys — suggested anything like this was remotely likely.”

ISM’s index on the services sector also came in better than analysts expected, though the index’s employment component was a touch weak. Read about ISM services index.

“The data today still leaves an impression that a U.S. upside growth surprise in 2011 needs fresh assessment,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.

Macroeconomic Advisers Chairman Joel Prakken noted seasonal factors may have boosted the December numbers but said growth in employment was “comfortably into positive territory and seems to be accelerating.”

http://marketpin.blogspot.com/

January 1, 2011

IMF Economist Sees Two-Speed Recovery In 2011

IMF Economist Sees Two-Speed Recovery In 2011

(RTTNews) – A two-speed economic recovery will be extended into 2011 with rich nations facing weak growth and emerging markets moving ahead with strong recovery, according to IMF’s chief economist Olivier Blanchard.

In an interview to the Fund’s online magazine, IMF survey, Blanchard noted that along with their strong rebound, emerging economies will be facing tough challenges like managing possible overheating and capital flows. At the same time, growth in advanced economies will remain low, barely enough to bring down unemployment.

“The two-speed recovery, low in advanced countries, fast in emerging market countries, is striking and its features are increasingly stark. They will probably dominate 2011, and beyond,” Blanchard said.

He also warned that countries will be risking a healthy recovery in the absence of continued focus on rebalancing their economies in the coming year, including structural measures and exchange rate adjustments.

Countries with excessive budget deficit must rely more on external demand or exports. And, by symmetry, surplus countries, many of them emerging markets, must do the reverse, shift from external demand to domestic demand and reduce their dependence on exports, the economist noted.

Regarding the economic prospects of low-income countries, he said recovery in trade and high commodity prices have bettered economic conditions in these nations. Private domestic demand also remained quite strong

Source: http://marketpin.blogspot.com/

December 31, 2010

Rogers: Europe is Doomed…but I’m Still Long The Euro (and Breakfast)

Filed under: Uncategorized — bigcapital @ 9:30 am
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Rogers: Europe is Doomed…but I’m Still Long The Euro (and Breakfast)

Via CNBC Television – December 2010

 

http://plus.cnbc.com/rssvideosearch/action/player/id/1687065072/code/cnbcplayershare

I’ve never brought a guest such an elaborate breakfast- but when legendary investor Jim Rogers wants to come on my show- I go all out. Truth be told, it wasn’t entirely Suzy Anchorwoman of me—it was secretly a good jumping off point for his favorite topic these days- inflation.

“Have you tried to buy any cotton recently? Have you tried to buy any sugar recently?” he said pointing down to the spread in front of him.

Co-hosting with me this morning on “Worldwide Exchange” over a breakfast of Diet Coke, candy and bagels, CEO of Rogers Holdings Jim Rogers was as usual all about commodities as an inflation hedge: the sugar he adores along with gold and silver

“Prices are going up. I don’t know who these guys are who say prices are not going up. I look in the real world, and I see what’s happening. And everybody watching this show knows that prices are going up.”

Knowing Rogers’ vehement opposition to printing money (he said in a recent interview that Fed chairman Bernanke is “a disaster” and that “all he understands is printing money”), I asked him about the rumors that there would be more money printing in QE3 and QE4.

“I know there’s talk of it. It’s dumbfounding,” he said. “It’s stupefying to me that we have a Central Bank in the United States that thinks all they have to do is print money. That has never worked, anywhere in the world in the long term or the medium term.

He added that US central bankers see printing money as an easy solution, “Because that’s all they know.”

On the other hand, he said that the Central Bank’s current policy of printing money is “not good for the world, but at least they’re not raising taxes.”

So he’s staying far away from debt, saying it’s all overpriced and sticking his beloved commodities along with currencies.

“I own the Euro, I’m long the Euro, and I’m staying with it,” he said even though he knows Europe is doomed.

“You need to let Ireland go bankrupt,” he told me. “They are bankrupt. Why should innocent Germans, or innocent Poles, or innocent anybody pay for mistakes made by Irish politicians and Irish banks? That is unbelievably bad morality and it’s bad economics as well.”

“Let the bank’s shareholders lose money. Let the bank bondholders lose money. Let Ireland reorganize and start over. That’s the only thing that’s going to work. Propping people up and carrying lots of zombie banks and zombie companies is not going to work.”

“Greece is insolvent, Portugal has a liquidity problem, Spain has a liquidity problem, Belgium has been faking the books for a long time, Italy’s been faking the books for a long time. The UK is totally insolvent,” he said.

EUR/CHF hits another fresh all-time low after having earlier dropped to a series of all-time lows. Pair dips as low as 1.2678 from 1.2785 late Friday, according to EBS via CQG. Investors pressuring EUR over continued worries over the region’s sovereign debt. SNB not likely to step in to stem CHF strength, says Landesbank Baden-Wurttemberg’s Martin Guth, noting he would expect the Swiss central bank to stay on the sidelines at least until the pair drops to 1.25. “So far, especially [in] last month’s interest rate decision, in my opinion they didn’t give any hints that they are about to intervene,” he says.

UBS, Switzerland’s largest bank, is one of the biggest financial institutions in the world said : “No Sharp Decline In Global Risk Appetite”; – The Eurozone sovereign debt crisis remains contained, and has not yet leaked out to affect emerging market currencies and risk appetite more broadly, said UBS, judging on the basis of its own flow data from lat week. “There was no sign of the broad-based and indiscriminate selling that would be associated with a sharp decline in global risk appetite,” it said in a note to clients.

December 30, 2010

The Federal Want To Pressure Down U.S Dollar Worldwide

Filed under: Uncategorized — bigcapital @ 9:23 am
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The Federal Want To Pressure Down U.S Dollar Worldwide

There is a saying in the investment business, “don’t fight the Fed.”

Fed Swap Lines Purposely Keeping Dollar Weak

Central banks provided two pieces of market supportive news in the past 48 hours.

China announced its intent to buy Portuguese bonds, and the Federal Reserve extended its “swap lines” deep into 2011:

# China Ready to Buy Up to $6.6B in Portugal Debt (Reuters : http://www.reuters.com/article/idUSTRE6BL0Y220101222 )

# Fed Extends USD Swaps With Major Central Banks (Reuters : http://www.reuters.com/article/idUSTRE6BK3PS20101221 )

Via Reuters, the swap lines, at first set to expire next month, will now run til August 1st.

The lines were first opened to the ECB and SNB — the European and Swiss central banks respectively — and were later expanded to multiple additional central banks, including those of Sweden, Mexico and Brazil.

The August extension applies to the Fed’s counterparts in Europe, Japan, Canada, England and Switzerland.

So why is the Fed doing this? Straight from the horse’s mouth (official Fed statement):

“[The swap lines] are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets.”

That’s the official justification. A between the lines reading is slightly more self serving: The Fed wants to keep the dollar weak — or otherwise keep it from rising too much.

As you can see, from 2002 onward the $USD had been declining — a trend perceived as good for everyone. As Americans gorged on “stuff,” the vendor finance arrangements put in place by China and Middle East oil exporters allowed the party to continue unabated.

Long term interest rates were kept low via the recycling of $USD back into treasury bonds, in turn keeping mortgage rates low and perpetuating the housing bubble. Meanwhile many emerging markets enjoyed rapid growth — courtesy of a binging U.S. consumer — as the leverage and credit boom radiated outward.

But then, as things fell apart in 2008, the $USD saw a dramatic surge. A wave of panic swept the globe as the supernova debt boom collapsed. Trillions of dollars in credit flows evaporated, and American investors effectively “short” dollars (via overseas investments and ‘carry trade” type arrangements) had to cover with a vengeance.

As the chart shows, the $USD saw another upward surge in early 2010, first on China fears, and then eurozone sovereign debt fears as the Greek situation ignited. (This is when the Economist’s Acropolis Now cover was published — a keepsake to be sure.)

So, as you can guess, one of the many fears keeping Ben Bernanke awake at night is the possibility of a surging $USD.

Not only is the dollar a “risk-off” fulcrum, balanced against “risk on” for all other paper asset classes, a rising buck is also a political headache for the Obama White House and other American interests seeking a U.S. export revival.

So, back to those swap lines. Why and how would they be an attempt to keep the dollar down?

Well, first consider what a swap line actually is. From the Federal Reserve website:

In general, these swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve. Dollar liquidity swaps have maturities ranging from overnight to three months.

In layman’s terms, we can think of a swap line as a standing guarantee of U.S. dollar liquidity. If you (as a central banker) ever need greenbacks in a pinch, you know you’ll be able to procure them instantly, no matter how “tight” the open market may be.

This standing guarantee reduces the odds of another violent $USD spike of the type we saw in late 2008. In a way, one can think of it as “short squeeze insurance.”

The many players around the world who are “short” U.S. dollars — by way of lending arrangements denominated in dollars and so on — have spiking dollar risk implicit in their positioning.

What the Fed has essentially said to these players is, “It’s okay for you to keep borrowing in dollars, because in the event of a new liquidity crisis we will create accessible dollars for you (via the channel of your local CB).”

Consider, too, the conditions under which all these central banks would be pushed to draw on their $USD swap lines at the same time.

By definition, these would be crisis conditions in which availability of $USD was scarce relative to near-term surging demand.

In such conditions, the Federal Reserve would have to create more dollars to meet existing outsized demand (as crisis-driven preferences for holding $USD, or covering short $USD obligations, would create a shortage).

So the liquidity promise is also a sort of printing-press promise: In the event of another crisis, the Fed will be on its toes and ready to “print” however much fresh $USD the world needs.

The really neat trick is, simply in making this promise, the Federal Reserve can achieve its aim of keeping the $USD down. This effect is produced even without the Fed doing anything.

How? Simple:

* The Fed has promised $USD liquidity will be there “if needed.”
* This promise can be “taken to the bank” — literally.
* Commercial institutions can thus rest easier with short-dollar liabilities.
* To wit, whether one is a bank, a commercial operator or a speculator, it’s very tempting to borrow in $USD these days — to leverage the greenback via some form of debt arrangement and participate in the “carry trade.”

But this move could also be considered risky due to the possibility of carry trade reversal and crisis-driven supply/demand crunch … and so, with the extension of the Fed swap lines, Uncle Ben has stepped up and said “Hey, no problem, carry trade away — we’ll be there in a tight spot (via printing press) to provide liquidity for you.”

And so the dollar stays suppressed, and everyone stays happy (apart from those pesky “non-core” inflation watchers, and anyone else feeling a cost of living crunch).

November 30, 2010

Estonia On Final Countdown To Euro Adoption

Filed under: Uncategorized — bigcapital @ 8:37 pm
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Estonia on final countdown to euro adoption

 

With only one and a half month to go before the introduction of the euro in Estonia, the Commission today assessed the state of its practical preparations for the changeover. The Commission concluded that Estonia’s preparations are well advanced, while recommending further efforts in some areas during the final phase of the changeover. Estonia will be the 17th member of the euro area and will bring to 330 million the number of people in the European Union who share the single currency.

 

The Commission today adopted the eleventh regular ‘Report on the practical preparations for the enlargement of the euro area’. It focuses on Estonia, which will adopt the single currency on 1 January 2011.

 

“I am looking forward to welcoming Estonia in the euro area in January. The preparations in the financial sector are well advanced and the authorities are informing the public about the euro. I am confident everything will go well and I am convinced that Estonia will continue to pursue the stable and sound budgetary and macro-economic policies that will enable it to take full advantage of the euro”, said Olli Rehn, European Commissioner for Economic and Monetary Affairs.

 

Estonia has ordered around 45 million banknotes and 194 million coins to introduce the euro in cash. The banknotes will be borrowed from a National Central Bank in the euro area (Finland), in line with the practice in the recent changeovers. The euro coins are provided by the Mint of Finland following a public tender procedure.

 

The Central Bank of Estonia will start providing euro banknotes to commercial banks (so-called frontloading) in mid-November. The frontloading of euro coins started already in mid-September. As from 1 December 2010, all those retailers and businesses that have signed a specific contract with their bank will also be provided with euro cash. . All professional euro cash transports will be assured with the highest security.

 

As from 1 December 2010, 600,000 ‘euro coin mini-kits’ will be on sale at banks and post offices for people to by them in advance of the changeover. They will also be able to exchange their kroon cash holdings free of charge at the official conversion rate (1 EUR= 15.6466 EEK).

 

During the first two weeks of the changeover, Estonian kroons and euro will circulate in alongside each other. . Shops are however expected to give change in euro only whenever possible. This is important in order to speed up the changeover and reduce the cost of having to handle two currencies simultaneously.

 

In order to address consumers’ concerns about price increases and abusive practices in the changeover period, a Fair Pricing Agreement was launched at the end of August. The subscribers to the Agreement (e.g. retailers, financial institutions, local governments, internet shops etc) commit not to increase their prices without justification during the changeover to the euro and to respect the changeover rules. This is a very important initiative and special attention should be paid to improve its coverage, especially among small and medium-sized companies.

 

According to the latest Eurobarometer survey, carried out in September 2010, there has been an important income in the degree to which respondents in Estonia feel informed about the euro in comparison with May 2010, with 65% now feeling well informed (+15pp). This is encouraging, but efforts need to be pursued in order to reach all Estonian residents, in particular vulnerable groups, in time with the necessary information.

 

A staff working document attached to the report looks at the state of preparations in the other Member States that have not yet introduced the euro (except UK and Denmark that have a formal opt-out from the single currency)

 

=Estonia at a glance=

 

Estonia joined the European Union in 2004 and will adopt the euro on 1 January 2011

Surface area: 45 230 km2
Population: 1 340 341(Eurostat 2009)
Joined the European Union: 1 May 2004
Currency: kroon (EEK). Euro as of 1 January 2011

 

=Euro information=

Status: As of 1 January 2011, Estonia will be a member of the euro area. The kroon joined the Exchange Rate Mechanism (ERM II) on 28 June 2004 and observed a central rate of 15.6466 to the euro with standard fluctuation margins of ±15%. On 13 July 2010 the Council gave its green light to the adoption of the euro by Estonia on 1 January 2011.

 

Fixed conversion rate: €1 = 15.6466 Estonian kroonid

 

Adoption of the euro: Estonia will adopt the euo as of 1 January 2011

 

INFO : http://baltic-review.com/2010/11/12/estonia-on-final-countdown-to-euro-adoption/

 

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