Back to Money Supply homepageThe dollar rose, in unusual circumstances. Big names in the Obama administration and at the Fed have recently shown support for a strong dollar as it has been falling (Bernanke; Summers and Geithner). But a greater lift came from the East, as traders reported Asian central banks buying the dollar, perhaps to redress their export positions versus dollar-pegged China.
The dollar’s fall has wiped out much of the recent rise in equities. Sadly the fall won’t help those owing dollars, if they are paid in dollars. The Federal Housing Administration – which insures lenders – has admitted to Congress that 20 per cent of its 2008 loans and 24 per cent of 2007 loans could face serious problems. A former Fannie Mae executive is more blunt, stating the FHA is destined for bailout. And if that sounds horribly familiar, consider banks struggling to make payments: 34 financial institutions, including AIG and CIT, failed to pay their TARP dividends in August. The number is almost double the rate at the last pay date in May, 19. This news comes just as the Fed starts testing its exit strategy.
One of the signs of long-term good news for the American economy had been consumers reducing debt. But is the consumer really deleveraging? Two datapoints suggest not. First, while balances of revolving credit (e.g. credit cards) are down, interest rates charged have risen and so the balance to be paid off is actually up. And second, non-revolving credit is up, over $11 billion: it had been decreasing and is down 4.4 per cent year-on-year but that ended this month.
And as California struggles to tempt investors with its bond issue, Venezuela also plans to sell dollar-denominated debt as part of a number of raise-debt-increase-spending measures to stimulate growth. This follows a contraction in the economy of 2.4 per cent in Q2 plus monthly inflation of 2.5 per cent in September.
The inaugural world SWF meeting in Azerbaijan ends today, Friday. Reports should be out around the 12th. Foreign assets under management by the 10 or so largest sovereign funds rose to an estimated $1,700 bn by the end of September 2009.
And Britain has overtaken the US as the world’s leading financial centre, according to the World Economic Forum. But don’t crack open the champagne just yet: the report also shows the UK scored worse than Nigeria, Panama and Bangladesh for financial stability.
Tags: bonds, consumer credit, currencies, mortgage-backed securities (MBS), SWFs
Leading economists discuss topics raised by Martin Wolf, the FT's chief economics commentator, and others.