Daily Archives: January 25, 2010

Headlines from tomorrow’s paper

Struggle not over for battered Bernanke Read more

By Jude Webber, Argentina correspondent

Will the real president of Argentina’s central bank please step forward. Read more

Simone Baribeau

According to Intratrade, pretty likely. After “shares” in Federal Reserve Chair Ben Bernanke’s confirmation dipped late last week, they’ve recovered almost to pre-Boxer/Feingold opposition levels. Here’s the graph:

Will Ben Bernanke win Senate confirmation for a second term as Fed Chairman?

Will Ben Bernanke win Senate confirmation for a second term as Fed Chairman?

Table courtesy of zero hedge:

In the ongoing battle between the central bank and the government, it appears the government has taken the advantage. Bank president Martin Redrado, 48, was prevented from entering the central bank last night and hasn’t appeared at the institution today. In his absence, vice president Miguel Pesce is in charge.

Congress will decide who gets the job, and also whether central bank reserves may be used to pay for debt. If another bank president is found but funds are not allowed to be transferred, the Fernandez camp will have gained little from the furore: Mr Redrado’s refusal to transfer the funds without Congressional approval is the reason his resignation was called for.

Toxic assets will be sold with a AAA guarantee from the US government under one of the options put forward by the Federal Deposit Insurance Company.

The FDIC has more than $36bn in toxic assets on its books, ready to sell. And apparently the corporation is seeking a decent return. Scared?

There appear to be two main differences between this plan and the one that nearly brought down capitalism: first, it’s the US government issuing the guarantee and not some special legal entity that can conveniently go bankrupt. Phew. Oh no, hang on. The second difference is that we know most of these assets are toxic, or worth less than initially thought. At least the first time round, they were bought in good faith. Read more

Hungary’s central bank decided today to lower its base rate by 25 basis points to 6 per cent. The decision was in line with market expectations and weighed brightening inflation prospects against external risks such as Greek and Irish debt. The rate was also cut by 25bp in December. The new overnight central bank deposit rate is 5 per cent and overnight collateralised loan rate is 7 per cent.

  • Repo market threatened by proposed 15bp levy – FT
  • US market now pricing in November, not September, rate rise – Big Pic
  • Loosening by stealth tomorrow at the Bank of Japan? – Money Supply
  • Swiss National Bank makes $9bn profit – Money Supply
  • Prop trading ban will not stop banks risking deposits – FT
  • “You can drive a supertanker through the loopholes” – Naked cap
  • Not just Weber and Draghi: two new names for ECB President – Money Supply
  • Should Krugman replace Bernanke? – Felix Salmon
  • Diversification from dollar pushes pensions into EM – FT
  • HK sets up fund to bargain-hunt in Gulf – FT
  • Seven arrested for $10bn UAE cenbank fraud attempt – Reuters
  • China-Taiwan trade talks to start tomorrow – FT
  • Swiss Hildebrand backs Volcker rules – WSJ
  • And chart below (NB. Current US GDP/Debt ratio is 86.4%)

 Read more

The Bank of England has published its latest quarterly report into the Asset Purchase Facility. This gives no hints on whether quantitative easing (what everyone else calls the APF) will be extended when the monetary Policy Committee meets next Thursday on 4 Feb. But it does give an indication on QE’s effectiveness.

You don’t need to read the document. It is not long, but it is also not informative. In summary: the QE programme has bought lots of government bonds – net government financing in 2009-10 is likely to be -£10bn (ie. the Bank has purchased £10bn more gilts than have been issued) :

Obviously we don’t know what would have happened had the scheme not been implemented, but there has been little obvious effect on government bond yields and that has worn off over time. Read more

Ralph Atkins

Leadership contests at central banks might never have the excitement of a political race, although the renomination of Ben Bernanke as US Federal Reserve chairman is turning into something of a cliffhanger. But the contest to succeed Jean-Claude Trichet as president of the European Central Bank appears – so far at least – boringly conventional. There are just two possible candidates mentioned: Axel Weber, president of Germany’s Bundesbank, and Mario Draghi, his Italian counterpart. Or are there? Read more

Rising gold prices and recovering financial markets have caused a 10bn CHF profit for the Swiss central bank.

Switzerland has exceptionally large gold reserves for the size of its economy, at about 1,040 tonnes, or $35bn. Indeed, the country ranked second in the world in our gold security ranking. The rising value of gold contributed about 7.3bn CHF to the profits. Foreign exchange positions made up much of the rest, at about 2bn CHF. Read more

Lending levels may be too high in aggregate, but farmers aren’t getting enough of the pie. So says the Chinese central bank, which has called for financial innovation and increased levels of rural lending.

Banks should issue more microloans to farmers to foster rural industries and urbanization, said Liu Shiyu, deputy governor of the People’s Bank of China. Rural credit co-operatives, village banks, microcredit companies and new types of financial institution should all be used to help rural development. Read more

Debate on the nationalisation of the South African central bank has been reignited after the head of the ANC submitted a document questioning the bank’s current ownership, raising fears of higher inflation.

ANC Secretary-General Gwede Mantashe asked: “Why have we been reluctant to even open the discussion on the role of the state in the banking industry? [We should also ask] why the South African Reserve Bank is one of less than five central banks in private hands in the world.”

A change to state ownership of the shareholder-owned bank could mean higher inflation. The left has complained that the bank focuses too narrowly on maintaining low inflation. They want policymakers to consider employment and growth when setting interest rates. Read more

Robin Harding

The Bank of Japan’s first monetary policy meeting of the year starts today and concludes tomorrow, Tuesday 26th, when we’ll hear about any change in policy.

With ample evidence that deflation is taking hold again, a majority of economists are looking for further ‘broadly defined quantitative easing’ from the BoJ, although not necessarily at the current meeting. Political pressure for some kind of action is also mounting.

Officials at the BoJ, however, appear to be: (a) skeptical about how much quantitative easing can do to halt deflation; and (b) reluctant to be seen to finance the fiscal deficit through the obvious step of buying more government bonds. Read more