Bernanke: Top job is to get unemployment down
By Greg Robb, MarketWatch
Federal Reserve Board Chairman Ben Bernanke said Tuesday that job creation was the most important issue facing the country. "Getting new jobs, getting unemployment down is of incredible importance," Bernanke said during a panel discussion at The Ohio State University. The pace of growth has not been fast enough to bring down the high unemployment rate, he said. Bernanke said he was especially worried by the fact that more than 40% of those who are currently unemployed have been out of work for six months or more.
http://jlne.ws/f1XZ8g
How do Michigan Retailers feel about prospects for the 2010 holiday season?
Federal Reserve Bank of Chicago Release
"Michigan retailers are looking forward to this season with enthusiasm and expect it to be the best in several years,” said James P. Hallan, MRA president and chief executive officer. “They’re coming off three months of relatively good sales and seeing some improvement in the economy.”
http://bit.ly/bRaBEN
Worry in Europe Sweeps Into More Secure Countries
By LANDON THOMAS Jr., The New York Times
The concerns in the bond markets are further straining the decade-old monetary union
http://jlne.ws/hzoMLk
Fed buys $6.81 billion in Treasurys
By Wallace Witkowski, MarketWatch
The Federal Reserve Bank of New York bought $6.81 billion in Treasury debt on Tuesday, the latest operation of the Fed's second round of quantitative easing to support lending and spending. Dealers offered to sell the Fed $23.53 billion in debt maturing from 2014 to 2016. Yields on 10-year notes /quotes/comstock/31*!ust10y (UST10Y 2.80, -0.03, -1.03%) fell 7 basis points to 2.75%
http://jlne.ws/gDK8ZX
The Urge to Splurge Is Creeping Back
Newsweek
"No interest until 2014," read the massive red sign outside Big’s Furniture in Henderson, Nev. It beckoned Diane Lewis to the store’s year-end liquidation sale. “I had to pull in,” she said as her sons frolicked on mattresses nearby. “We really need to get us a new bedroom set; their old one is kinda beat up. If we can get that financing deal, we can make it work.” As with most in this hard-hit region, the economy hasn’t been good to Lewis, whose husband just got a new job after being laid off for eight months.
http://jlne.ws/eWgu5e
U.S. body wants identifiers for financial firms
Reuters
The U.S. Office of Financial Research, created to help improve financial market data gathering, wants to establish a universal system for identifying financial firms and market transactions.
http://jlne.ws/eDLnxu
U.S. Airlines Get Citigroup's Calio to Lead Lobbying
BusinessWeek
Nicholas Calio, who led Citigroup Inc.'s efforts to shape financial regulations and served as top congressional liaison for U.S. presidents George H.W. Bush and George W. Bush, will become chief Washington lobbyist for the nation's major airlines.
http://jlne.ws/hDC97l
Standard Bank plans to spin off buyout arm
eFinancial News
Standard Bank Group, the largest bank in South Africa, is set to become the latest institution to spin off its private equity business following growing regulatory pressure concerning banks' investments in alternative assets.
http://jlne.ws/huqEvX
Investment Banking's New Frontier
Asia Sentinel
Gold is expensive. So too is palm oil, bond yields nearly nothing, bank deposits are a sure way to lose money. Major stock markets have rebounded and buyers are now bored with BRICS. The shine has even gone off the China market and its currency is going nowhere. Japan's market remains out of favor, not least with the Japanese themselves and in Europe the ragged tails, Ireland and Portugal, are wagging the dog into a Euro tizzy. But brokers must have something to sell. So what better to move on from Emerging Markets like Turkey, Colombia, Chile, Indonesia, which have become old news, to the "new frontier" - the so-called Frontier Markets.
http://jlne.ws/faNaGi
HK bankers lobbying for yuan business boost
The Standard
The local banking industry is seeking a larger yuan quota amount for cross- border trade settlement from the central government to further expand the scope of its yuan business.
http://jlne.ws/9kLhcA
US bank implicated in WikiLeaks trove
By Alan Rappeport in New York
FT.com / World
A trove of documents to be released early next year by WikiLeaks will show a big US bank engaging in "flagrant violations" and "unethical practices," according to Julian Assange, founder of the whistleblower website.
http://jlne.ws/gAYgtf
HSBC rises to the top as it is hailed a 'safe port in a storm'
Evening Standard
With financial stocks hogging the index's winners' list after the Irish bailout, HSBC jumped 10.2p to 661.3p. But Ian Gordon , Exane BNP Paribas 's banking guru, said revenues are falling across four of the lender's six regions and has lowered his rating on the stock from "neutral" to "underperform".
http://jlne.ws/dT1wCD
TD Ameritrade Expands Fixed Income Platform
Business Wire
OMAHA, Neb.--(BUSINESS WIRE)--TD Ameritrade Expands Fixed Income Platform Firm offers retail investors and independent registered investment advisors access to new issue municipal market through M.R. Beal
http://jlne.ws/hJqPGb
Barclays exploited toxic debt ratings, court told
Reuters UK Focus via Yahoo! UK & Ireland Finance
British bank Barclays was accused on Monday of selling derivatives it knew were far riskier than the triple-A credit rating they had been given.
http://jlne.ws/goLQOp
Fed's Bullard `Concerned' About Funding for New Consumer Protection Bureau
By Steve Matthews, Bloomberg
Federal Reserve Bank of St. Louis President James Bullard said the funding level for the Consumer Financial Protection Bureau to be housed within the Fed appears arbitrary and not necessarily suited to the agency's needs.
http://jlne.ws/gMdOZr
Forged Comment Letters Sent to Regulators Writing Swaps Rules
By Silla Brush and Clea Benson, Bloomberg
Forged comment letters purportedly from an H.J. Heinz Co. executive, a Burger King Co. franchise and at least five other Arkansas-based officials or businesses were sent to the Commodity Futures Trading Commission. Some of the letters to the agency, which is writing rules for derivatives trading, contain identical passages criticizing banks for their "cartel-like control" of the $583 trillion swaps market. They include signatures from a circuit court judge, a county sheriff and a mental health counselor. All were forgeries, according to interviews conducted by Bloomberg News.
http://jlne.ws/i3960r
CQG Adds US Treasury Trading Access through GovEx
Denver, CO, November 30, 2010 - CQG, Inc., the industry-leading order execution, charting, and analytics provider for global, electronically-traded securities, today announced its connection to GovEx, a matching platform offered by Currenex, a wholly owned subsidiary of State Street Corporation. GovEx offers traders a centrally-cleared, high performance trading platform for US Treasury securities, providing anonymity, diverse liquidity, and a technologically-advanced matching environment for the fixed income markets.
Selasa, 30 November 2010
Minneapolis Fed Pres Kocherlakota:What Actions Can Other Policymakers Take To Approximate The Impact Of An Interest Rate Cut?
Monetary Policy Actions and Fiscal Policy Substitutes Narayana Kocherlakota - President Federal Reserve Bank of Minneapolis
Alkire Symposium on International Business and Economics
Hamline University
St. Paul, Minnesota
November 30, 2010
Thank you very much for that generous introduction. It is a pleasure and an honor to be with you here today and to address this symposium established to commemorate the professional careers and the intellectual interests of Howard and Darrel Alkire, who have meant so much to Hamline University. It is especially an honor to give this talk knowing the prestigious line-up of speakers that precedes me, including Nobel laureate economists and prominent policymakers.
I became president of the Federal Reserve Bank of Minneapolis last October. During the preceding 22 years, I was a professor of economics at a variety of institutions. I did research in a number of areas, including public finance. My main area of interest, though, was macroeconomics. There has been a lot of conversation over the past year or two about what we have and haven’t learned from macroeconomics. For myself, I believe that one of the most important developments in the field is the use of tools from public finance to answer key macroeconomic policy questions. To my knowledge, this line of research dates back to the work of Robert Lucas and Nancy Stokey in the 1980s. It continues to be a vital area of investigation almost 30 years later—and it will play a key role in my remarks today.
I’ll begin by discussing current macroeconomic conditions and the Federal Open Market Committee’s recent actions taken in response to those conditions. That discussion will make clear that the committee took those actions because it is not able to cut its interest rate target any further. Motivated by this difficulty, I will pose and answer the following question: What actions can other policymakers take to approximate the impact of an interest rate cut? In addressing this question, I will rely on recent research being done at the Federal Reserve Bank of Minneapolis by staff researcher Juan Pablo Nicolini and several co-authors. Throughout, I’ll be speaking on behalf of myself and no other participant in FOMC meetings.
Let me start with some basic context about how monetary policy gets made in the United States. The Federal Open Market Committee meets eight times per year to determine the path of monetary policy over the next six to seven weeks. The governors of the Federal Reserve Board and the president of the Federal Reserve Bank of New York are permanent members of the committee. Four other presidents of Reserve banks are on the committee, but this group rotates annually. While they do not vote, the other presidents are invited to the FOMC meeting and contribute to the committee’s deliberations. Right now, I’m a meeting participant, but I will rotate onto the committee in 2011.
The foundation of the committee’s discussions is what is called its dual mandate. By statute, the Federal Reserve is required to follow policies that promote effectively the goals of price stability and maximum employment. The former objective of price stability is generally understood as keeping inflation in a range of around 1.5 to 2.5 percent. The second part of the mandate—maximum employment—is more of a moving target, because employment is shaped by many determinants beyond the Fed’s control: demographics, social custom, taxes, technology, and so on.
With that context, let me describe the economic situation that confronted the committee at its meeting in November. Over the first three quarters of this year, personal consumption expenditure (PCE) price inflation has averaged roughly 1 percent at an annualized rate. This rate is low relative to the FOMC’s target of 2 percent. More troublingly, the inflation rate is drifting downward. Over the preceding two-year period (from the fourth quarter of 2007 through the fourth quarter of 2009), PCE inflation averaged 1.6 percent per year. Just to be clear, the measure of PCE inflation that I’m describing includes all goods, including food and energy.
At the same time, unemployment is high: In October, it was 9.6 percent. Here, too, the trend is not comforting. The recession officially ended in June 2009, and in that month, unemployment was 9.5 percent. Unemployment has actually risen slightly during the course of the recovery.
Sufficient growth in output can steadily lower unemployment. But growth has been low in this recovery compared with most. As I mentioned, the recession officially ended in June 2009 and so has been over for five quarters. Over those five quarters, real gross domestic product (GDP) has grown at an annualized rate of 2.9 percent. More troublingly, growth has been decelerating: In the past two quarters, it has averaged 2.1 percent at an annualized rate. And here, I should note that I’m reporting data on real GDP growth that have actually been revised upward since the November meeting.
This is the economic situation that confronted the FOMC in its November meeting. Inflation and employment are both too low, and the rate of improvement in these variables is too slow. Economic growth has been low and has recently decelerated still further. I think it is safe to say that, given this situation, the FOMC would have liked to have been able to cut its target interest rate. But this option is not available. The FOMC’s target interest rate is already essentially at zero (more precisely, in a range between 0 and 25 basis points).
But the FOMC does have another policy instrument available: its balance sheet. As of the beginning of this month, the FOMC had a portfolio of roughly $2.3 trillion. Over 2 trillion of those dollars are invested in Treasury securities or government-backed securities issued by Fannie Mae, Freddie Mac, and other government-sponsored enterprises. At its November 3 meeting, the FOMC announced that it plans to buy $600 billion of long-term Treasuries in the open market by mid-2011. In exchange for those securities, it will credit the sellers’ accounts at the Fed with more reserves. This kind of action is known as quantitative easing, or QE.
The main goal of QE is to lower the long-run real interest rate. Here, by real interest rate, I’m referring to the interest rate net of expected inflation. More specifically, suppose that the interest rate on a 10-year bond is about 2.5 percent and that people expect inflation to be around 2 percent per year over the next 10 years. Then, the real interest rate is about 0.5 percent per year for the next 10 years.
A low long-term real interest rate stimulates an economy in a number of ways. It spurs consumer spending by allowing consumers to borrow and refinance more cheaply. It makes capital expenditures and hiring more profitable for corporations. Stock prices and house prices rise because those assets become relatively more attractive as investments. Households with these assets become wealthier and demand more consumption. All of these effects should lead to less unemployment and upward pressure on prices.
How does QE go about lowering long-term real interest rates? QE is a sufficiently novel monetary policy tool that different economists may well give different answers to this question. In my view, QE lowers long-term real interest rates in two distinct ways. The first is that QE is a form of nonverbal communication about the FOMC’s future plans. Here’s what I mean. The November FOMC statement says that the committee will keep the fed funds target range exceptionally low for as long as economic conditions warrant. The statement also predicts that exceptionally low fed funds rates are likely to be warranted for an “extended period” of time. In this way, the statement provides explicit communication about the FOMC’s future plans for short-term rates and so also shapes the level of current longer-term interest rates.
QE provides a significant supplement to this explicit verbal communication. The use of QE indicates that the FOMC is likely to keep its target interest rate lower for an even longer period of time. Indeed, one could readily argue that buying $600 billion of Treasuries is a much more convincing form of communication of the FOMC’s plans than any words could ever be.
Thus, QE lowers long-term real interest rates by signaling the FOMC’s intentions about future short-term rates. However, QE also lowers long-term real interest rates in a second, more direct, way. The holder of a long-term Treasury is exposed to interest rate risk, because the value of that bond fluctuates as interest rates vary. When the Fed buys $600 billion of long-term bonds, the bond portfolio of the private sector is now less exposed to this kind of risk. As a consequence, private investors will demand a lower premium for holding other bonds that are exposed to interest rate risk, and all long-term yields fall.
In this way, the change to the asset side of the Fed’s balance sheet provides stimulus to the economy. But what about the liability side of its balance sheet? QE creates more reserves in banks’ accounts with the Fed. The standard intuition is that this kind of reserve creation is inflationary. Banks can only offer checkable deposits in proportion to their reserves. Economists view checkable deposits as a form of money because, like cash, checkable deposits make many transactions easier. In this sense, bank reserves held with the Fed are licenses for banks to create a certain amount of money. By giving out more licenses, the FOMC is allowing banks to create more money. More money chasing the same amount of goods—voila, inflation.
Given some of the criticisms of the Fed that have been voiced over the past two weeks, it is important to understand that this basic logic isn’t valid in current circumstances. Banks have nearly $1 trillion of excess reserves. This means that they are not using a lot of their existing licenses to create money. QE gives them $600 billion of new licenses to create money, but I do not see why they would suddenly start to use the new ones if they weren’t using the old ones.
Some observers have expressed concerns that $1 trillion—which will shortly become over $1.5 trillion—of excess reserves represent what they term “kindling” for some future inflationary fire. I believe that these concerns are misplaced for two reasons. First, the Fed has several tools with which to combat incipient inflationary pressures. Most obviously, it can raise the interest rate on excess reserves as a form of tightening. Second, in recent public statements, Chairman Ben Bernanke has explicitly and firmly committed the FOMC to maintaining low inflation. To use his exact words, he said that he has “rejected any notion that we are going to try to raise inflation to a super-normal level.”
As I mentioned before, I do not currently vote on FOMC decisions. I did express support for the FOMC’s decision at the recent meeting. I believe that QE is a move in the right direction. However, as I have discussed on earlier occasions, I also think there are good reasons to suspect that the ultimate effects of any amount of QE are likely to be relatively modest. That’s why I would have greatly preferred for the committee to have been able to cut its target rate rather than using QE. The problem is that its target rate is already essentially at zero, and so it was not possible to cut the target rate any further.
Given this constraint on monetary policy, I believe it is important to ask if it is possible to synthesize the effects of a one-year interest rate cut of, say, 100 basis points using fiscal policy tools. In his current and past work, Minneapolis Fed staff researcher Juan Pablo Nicolini and his co-authors have answered this question in the affirmative.2 Their key insight is that there is a broad equivalence between monetary and fiscal policy. They argue that the essence of an FOMC interest rate cut is that it makes current consumption cheaper relative to future consumption. With that in mind, the fiscal authorities can use the time path of consumption taxes to accomplish this same change in relative prices.
In the remainder of my remarks, I’ll illustrate this insight by describing one particular fiscal policy plan that is equivalent to a 100-basis-point cut by the Fed. The proposal has three parts. The first part is a permanent consumption tax of 100 basis points, instituted with a one-year delay.3 The second part is a permanent decrease in labor income taxes of 100 basis points, also instituted with a one-year delay. The third part is an investment tax credit undertaken in 2011. The Nicolini et al. results demonstrate that, in a wide class of economic models, the effects of this three-part plan would be equivalent to the effects of a 100-basis-point interest rate cut.
It’s useful to explain the underlying mechanism using the kind of example that all Econ I students know and loathe—I mean, love. Suppose widgets cost $1 each in 2011. Suppose, too, that you can earn 1 percent interest over the coming year, but that inflation is also expected to be 1 percent. With that interest rate, and that inflation rate, any dollar that you save from 2011 into 2012 can also buy a widget. So, with each dollar, you face the trade-off of buying a widget today or buying a widget next year.
Next, let’s understand how an interest rate cut affects this baseline trade-off. Suppose the Fed were able to cut its target interest rate by 100 basis points, without affecting expected inflation all that much. The bank would pass that interest rate cut along, and that means that your bank interest rate would fall from 1 percent to zero. Widgets still cost $1 in 2011, and they still cost $1.01 in 2012. But with the interest rate of zero, you would now have to save $1.01 to be able to buy a widget in 2012. The cut in the interest rate has made buying widgets in 2011 cheaper relative to buying widgets in 2012.
Thus, if the Fed were able to cut its target interest rate, saving would become less attractive and borrowing more attractive. Consumers would demand more widgets today. Firms would hire workers to produce more widgets today. Unemployment would decline.
But now let’s go back to the benchmark case without the interest rate cut. Recall that expected inflation is 1 percent and that your bank is paying you an interest rate of 1 percent. In that context, think about the three-pronged fiscal policy change that I described earlier. The first part is that the fiscal authorities institute a 1 percent tax on consumption goods that starts in 2012 and lasts for the foreseeable future. Widgets still cost $1 in 2011. Inflation is 1 percent and the tax is 1 percent, and so widgets cost $1.02 in 2012. Given the interest rate of 1 percent, you must save $1.01 in 2011 to get a widget in 2012. Just as with the interest rate cut, widgets have become 1 percent cheaper today relative to the future.
This change in relative prices means that the increase in the consumption tax will stimulate consumption demand in 2011. Why, then, do we need a labor income tax reduction in 2012? The problem is that a consumption tax that begins in 2012 distorts labor supply decisions in a way that interest rate cuts don’t. Consider a worker who makes $20 an hour in 2012 after the various taxes on labor income. If the consumption tax goes up, that worker can buy fewer widgets with each hour of work. Hence, the consumption tax distorts that worker’s decision about how much labor to supply to the market.
That’s why we need the second part of the plan, under which the fiscal authorities lower taxes on labor income by one percentage point beginning in 2012. With this tax decrease, the worker makes 1 percent more per hour after taxes. The increase in after-tax wages exactly offsets the decrease in purchasing power generated by the consumption tax, and a worker can again buy 20 widgets with each hour of work. As a result, the new plan makes consumption goods cheaper in 2011, but does not provide any additional distortion to labor supply decisions.
At this point, I’ve talked through the first two parts of the proposal—the permanent increase in consumption taxes and the permanent decrease in labor income taxes. Why do we need a third tax change? Unlike an interest rate cut, the consumption tax that begins in 2012 will deter investment in 2011. The third prong of the proposal is that the fiscal authority should correct this problem by offering an appropriately sized temporary investment tax credit in 2011. The key is that the tax credit need only apply in 2011. In 2012 and thereafter, there is no disincentive effect on investment because the consumption tax is constant.
To summarize, I have described how to construct a three-pronged fiscal policy that is designed to have the same economic effects as a 100-basis-point cut by the Fed. The 1 percent permanent consumption tax that begins in 2012 stimulates consumption demand in 2011. The permanent reduction in labor income taxes ensures that this new consumption tax does not deter labor supply. Finally, the investment tax credit makes sure that the new consumption tax does not deter investment in 2011.
I’ll make two additional comments about this plan. First, how much would this three-pronged change in taxes cost the American taxpayer? The exact answer to this question would depend on a host of details. But let me offer a very rough calculation. Annual consumption is about $10 trillion, and annual labor income is about $8 trillion. I’ve sketched a plan that involves increasing the tax rate on consumption by 1 percentage point and lowering labor income taxes by 1 percentage point. So, the first two parts of the plan would add about $20 billion per year to government revenue beginning in 2012.
The plan also involves an appropriately sized investment tax credit. Private gross investment is about $2 trillion. To offset the effect of the consumption tax in 2012, the fiscal authority needs to provide a 1 percent subsidy to this entire amount. Hence, the investment tax credit involves a one-time cost in 2012 of $20 billion. These calculations, while obviously very rough, do indicate that the plan has the potential to be fiscally responsible.4
Second, I’ve not discussed distributional considerations. Raising consumption taxes by 1 percentage point and lowering labor income taxes by 1 percentage point for all Americans would tend to redistribute the burden of taxes toward lower-income citizens. For this reason, I believe that it would be desirable to redesign the labor income tax reduction to make it more progressive.
I want to be clear that there may be other types of fiscal policy interventions that would be helpful in the current situation. I have deliberately focused on a rather narrow aspect of fiscal policy: How can it be used to mimic monetary policy? I’ve done so for a couple of reasons. First, I’m a monetary policymaker, not a fiscal policymaker. Second, as has become clear over the past three years, the efficacy of many kinds of fiscal policy interventions is still very much an open question among macroeconomists. There is considerably more professional consensus about the effectiveness of monetary policy. In the case of my three-pronged fiscal intervention, it is specifically designed to be effective, as long as monetary accommodation itself would be effective.
From an intellectual point of view, the analysis demonstrates the remarkable power of public finance in addressing important macroeconomic questions. This last lesson is hardly new. Over the past 30 years, macroeconomists have used the tools and methods of public finance to address a host of important questions, ranging from optimal stabilization policy to optimal unemployment insurance. I’m proud to say that a great deal of that work has been done at the Federal Reserve Bank of Minneapolis.
Thanks for your attention. I’ll be happy to take your questions.
1 I thank Ron Feldman, Terry Fitzgerald, and Juan Pablo Nicolini for their comments.
2 See Correia, Isabel, Juan Pablo Nicolini, and Pedro Teles, “Optimal Fiscal and Monetary Policy: Equivalence Results,” Journal of Political Economy 116 (February 2008), pp. 141-70. (Also available online at http://www.minneapolisfed.org/research/sr/SR403.pdf.) See also Correia, Isabel, Emmanuel Farhi, Juan Pablo Nicolini, and Pedro Teles, “Policy at the Zero Bound,” working paper (October 2010), online at http://economics.uchicago.edu/ZeroBoundChicagoNov2010-1_nicolini.pdf.
3 My scheme makes current consumption cheaper by imposing a permanent tax on future consumption. In contrast, in late 2008, Robert Hall and Susan Woodward proposed making consumption goods cheaper in 2009 than in future years by eliminating all state sales taxes for one year. They suggested that this reduction could be financed by the federal government. (See http://woodwardhall.wordpress.com/2008/12/).
4 I’ve focused on a one-year interest rate cut. How can the fiscal authorities mimic the impact of a two-year interest rate cut? The rule is that the yearly interest rate equals the size of the change in the consumption tax rate. In particular, suppose that the fiscal authorities acted in 2010 to implement a 1 percent tax on consumption in 2012, with a subsequent more permanent 2 percent tax that begins in 2013. This path of taxes, combined with the appropriate labor income tax reductions and investment tax credits, functions like a two-year interest rate cut that begins in 2011.
Alkire Symposium on International Business and Economics
Hamline University
St. Paul, Minnesota
November 30, 2010
Thank you very much for that generous introduction. It is a pleasure and an honor to be with you here today and to address this symposium established to commemorate the professional careers and the intellectual interests of Howard and Darrel Alkire, who have meant so much to Hamline University. It is especially an honor to give this talk knowing the prestigious line-up of speakers that precedes me, including Nobel laureate economists and prominent policymakers.
I became president of the Federal Reserve Bank of Minneapolis last October. During the preceding 22 years, I was a professor of economics at a variety of institutions. I did research in a number of areas, including public finance. My main area of interest, though, was macroeconomics. There has been a lot of conversation over the past year or two about what we have and haven’t learned from macroeconomics. For myself, I believe that one of the most important developments in the field is the use of tools from public finance to answer key macroeconomic policy questions. To my knowledge, this line of research dates back to the work of Robert Lucas and Nancy Stokey in the 1980s. It continues to be a vital area of investigation almost 30 years later—and it will play a key role in my remarks today.
I’ll begin by discussing current macroeconomic conditions and the Federal Open Market Committee’s recent actions taken in response to those conditions. That discussion will make clear that the committee took those actions because it is not able to cut its interest rate target any further. Motivated by this difficulty, I will pose and answer the following question: What actions can other policymakers take to approximate the impact of an interest rate cut? In addressing this question, I will rely on recent research being done at the Federal Reserve Bank of Minneapolis by staff researcher Juan Pablo Nicolini and several co-authors. Throughout, I’ll be speaking on behalf of myself and no other participant in FOMC meetings.
Let me start with some basic context about how monetary policy gets made in the United States. The Federal Open Market Committee meets eight times per year to determine the path of monetary policy over the next six to seven weeks. The governors of the Federal Reserve Board and the president of the Federal Reserve Bank of New York are permanent members of the committee. Four other presidents of Reserve banks are on the committee, but this group rotates annually. While they do not vote, the other presidents are invited to the FOMC meeting and contribute to the committee’s deliberations. Right now, I’m a meeting participant, but I will rotate onto the committee in 2011.
The foundation of the committee’s discussions is what is called its dual mandate. By statute, the Federal Reserve is required to follow policies that promote effectively the goals of price stability and maximum employment. The former objective of price stability is generally understood as keeping inflation in a range of around 1.5 to 2.5 percent. The second part of the mandate—maximum employment—is more of a moving target, because employment is shaped by many determinants beyond the Fed’s control: demographics, social custom, taxes, technology, and so on.
With that context, let me describe the economic situation that confronted the committee at its meeting in November. Over the first three quarters of this year, personal consumption expenditure (PCE) price inflation has averaged roughly 1 percent at an annualized rate. This rate is low relative to the FOMC’s target of 2 percent. More troublingly, the inflation rate is drifting downward. Over the preceding two-year period (from the fourth quarter of 2007 through the fourth quarter of 2009), PCE inflation averaged 1.6 percent per year. Just to be clear, the measure of PCE inflation that I’m describing includes all goods, including food and energy.
At the same time, unemployment is high: In October, it was 9.6 percent. Here, too, the trend is not comforting. The recession officially ended in June 2009, and in that month, unemployment was 9.5 percent. Unemployment has actually risen slightly during the course of the recovery.
Sufficient growth in output can steadily lower unemployment. But growth has been low in this recovery compared with most. As I mentioned, the recession officially ended in June 2009 and so has been over for five quarters. Over those five quarters, real gross domestic product (GDP) has grown at an annualized rate of 2.9 percent. More troublingly, growth has been decelerating: In the past two quarters, it has averaged 2.1 percent at an annualized rate. And here, I should note that I’m reporting data on real GDP growth that have actually been revised upward since the November meeting.
This is the economic situation that confronted the FOMC in its November meeting. Inflation and employment are both too low, and the rate of improvement in these variables is too slow. Economic growth has been low and has recently decelerated still further. I think it is safe to say that, given this situation, the FOMC would have liked to have been able to cut its target interest rate. But this option is not available. The FOMC’s target interest rate is already essentially at zero (more precisely, in a range between 0 and 25 basis points).
But the FOMC does have another policy instrument available: its balance sheet. As of the beginning of this month, the FOMC had a portfolio of roughly $2.3 trillion. Over 2 trillion of those dollars are invested in Treasury securities or government-backed securities issued by Fannie Mae, Freddie Mac, and other government-sponsored enterprises. At its November 3 meeting, the FOMC announced that it plans to buy $600 billion of long-term Treasuries in the open market by mid-2011. In exchange for those securities, it will credit the sellers’ accounts at the Fed with more reserves. This kind of action is known as quantitative easing, or QE.
The main goal of QE is to lower the long-run real interest rate. Here, by real interest rate, I’m referring to the interest rate net of expected inflation. More specifically, suppose that the interest rate on a 10-year bond is about 2.5 percent and that people expect inflation to be around 2 percent per year over the next 10 years. Then, the real interest rate is about 0.5 percent per year for the next 10 years.
A low long-term real interest rate stimulates an economy in a number of ways. It spurs consumer spending by allowing consumers to borrow and refinance more cheaply. It makes capital expenditures and hiring more profitable for corporations. Stock prices and house prices rise because those assets become relatively more attractive as investments. Households with these assets become wealthier and demand more consumption. All of these effects should lead to less unemployment and upward pressure on prices.
How does QE go about lowering long-term real interest rates? QE is a sufficiently novel monetary policy tool that different economists may well give different answers to this question. In my view, QE lowers long-term real interest rates in two distinct ways. The first is that QE is a form of nonverbal communication about the FOMC’s future plans. Here’s what I mean. The November FOMC statement says that the committee will keep the fed funds target range exceptionally low for as long as economic conditions warrant. The statement also predicts that exceptionally low fed funds rates are likely to be warranted for an “extended period” of time. In this way, the statement provides explicit communication about the FOMC’s future plans for short-term rates and so also shapes the level of current longer-term interest rates.
QE provides a significant supplement to this explicit verbal communication. The use of QE indicates that the FOMC is likely to keep its target interest rate lower for an even longer period of time. Indeed, one could readily argue that buying $600 billion of Treasuries is a much more convincing form of communication of the FOMC’s plans than any words could ever be.
Thus, QE lowers long-term real interest rates by signaling the FOMC’s intentions about future short-term rates. However, QE also lowers long-term real interest rates in a second, more direct, way. The holder of a long-term Treasury is exposed to interest rate risk, because the value of that bond fluctuates as interest rates vary. When the Fed buys $600 billion of long-term bonds, the bond portfolio of the private sector is now less exposed to this kind of risk. As a consequence, private investors will demand a lower premium for holding other bonds that are exposed to interest rate risk, and all long-term yields fall.
In this way, the change to the asset side of the Fed’s balance sheet provides stimulus to the economy. But what about the liability side of its balance sheet? QE creates more reserves in banks’ accounts with the Fed. The standard intuition is that this kind of reserve creation is inflationary. Banks can only offer checkable deposits in proportion to their reserves. Economists view checkable deposits as a form of money because, like cash, checkable deposits make many transactions easier. In this sense, bank reserves held with the Fed are licenses for banks to create a certain amount of money. By giving out more licenses, the FOMC is allowing banks to create more money. More money chasing the same amount of goods—voila, inflation.
Given some of the criticisms of the Fed that have been voiced over the past two weeks, it is important to understand that this basic logic isn’t valid in current circumstances. Banks have nearly $1 trillion of excess reserves. This means that they are not using a lot of their existing licenses to create money. QE gives them $600 billion of new licenses to create money, but I do not see why they would suddenly start to use the new ones if they weren’t using the old ones.
Some observers have expressed concerns that $1 trillion—which will shortly become over $1.5 trillion—of excess reserves represent what they term “kindling” for some future inflationary fire. I believe that these concerns are misplaced for two reasons. First, the Fed has several tools with which to combat incipient inflationary pressures. Most obviously, it can raise the interest rate on excess reserves as a form of tightening. Second, in recent public statements, Chairman Ben Bernanke has explicitly and firmly committed the FOMC to maintaining low inflation. To use his exact words, he said that he has “rejected any notion that we are going to try to raise inflation to a super-normal level.”
As I mentioned before, I do not currently vote on FOMC decisions. I did express support for the FOMC’s decision at the recent meeting. I believe that QE is a move in the right direction. However, as I have discussed on earlier occasions, I also think there are good reasons to suspect that the ultimate effects of any amount of QE are likely to be relatively modest. That’s why I would have greatly preferred for the committee to have been able to cut its target rate rather than using QE. The problem is that its target rate is already essentially at zero, and so it was not possible to cut the target rate any further.
Given this constraint on monetary policy, I believe it is important to ask if it is possible to synthesize the effects of a one-year interest rate cut of, say, 100 basis points using fiscal policy tools. In his current and past work, Minneapolis Fed staff researcher Juan Pablo Nicolini and his co-authors have answered this question in the affirmative.2 Their key insight is that there is a broad equivalence between monetary and fiscal policy. They argue that the essence of an FOMC interest rate cut is that it makes current consumption cheaper relative to future consumption. With that in mind, the fiscal authorities can use the time path of consumption taxes to accomplish this same change in relative prices.
In the remainder of my remarks, I’ll illustrate this insight by describing one particular fiscal policy plan that is equivalent to a 100-basis-point cut by the Fed. The proposal has three parts. The first part is a permanent consumption tax of 100 basis points, instituted with a one-year delay.3 The second part is a permanent decrease in labor income taxes of 100 basis points, also instituted with a one-year delay. The third part is an investment tax credit undertaken in 2011. The Nicolini et al. results demonstrate that, in a wide class of economic models, the effects of this three-part plan would be equivalent to the effects of a 100-basis-point interest rate cut.
It’s useful to explain the underlying mechanism using the kind of example that all Econ I students know and loathe—I mean, love. Suppose widgets cost $1 each in 2011. Suppose, too, that you can earn 1 percent interest over the coming year, but that inflation is also expected to be 1 percent. With that interest rate, and that inflation rate, any dollar that you save from 2011 into 2012 can also buy a widget. So, with each dollar, you face the trade-off of buying a widget today or buying a widget next year.
Next, let’s understand how an interest rate cut affects this baseline trade-off. Suppose the Fed were able to cut its target interest rate by 100 basis points, without affecting expected inflation all that much. The bank would pass that interest rate cut along, and that means that your bank interest rate would fall from 1 percent to zero. Widgets still cost $1 in 2011, and they still cost $1.01 in 2012. But with the interest rate of zero, you would now have to save $1.01 to be able to buy a widget in 2012. The cut in the interest rate has made buying widgets in 2011 cheaper relative to buying widgets in 2012.
Thus, if the Fed were able to cut its target interest rate, saving would become less attractive and borrowing more attractive. Consumers would demand more widgets today. Firms would hire workers to produce more widgets today. Unemployment would decline.
But now let’s go back to the benchmark case without the interest rate cut. Recall that expected inflation is 1 percent and that your bank is paying you an interest rate of 1 percent. In that context, think about the three-pronged fiscal policy change that I described earlier. The first part is that the fiscal authorities institute a 1 percent tax on consumption goods that starts in 2012 and lasts for the foreseeable future. Widgets still cost $1 in 2011. Inflation is 1 percent and the tax is 1 percent, and so widgets cost $1.02 in 2012. Given the interest rate of 1 percent, you must save $1.01 in 2011 to get a widget in 2012. Just as with the interest rate cut, widgets have become 1 percent cheaper today relative to the future.
This change in relative prices means that the increase in the consumption tax will stimulate consumption demand in 2011. Why, then, do we need a labor income tax reduction in 2012? The problem is that a consumption tax that begins in 2012 distorts labor supply decisions in a way that interest rate cuts don’t. Consider a worker who makes $20 an hour in 2012 after the various taxes on labor income. If the consumption tax goes up, that worker can buy fewer widgets with each hour of work. Hence, the consumption tax distorts that worker’s decision about how much labor to supply to the market.
That’s why we need the second part of the plan, under which the fiscal authorities lower taxes on labor income by one percentage point beginning in 2012. With this tax decrease, the worker makes 1 percent more per hour after taxes. The increase in after-tax wages exactly offsets the decrease in purchasing power generated by the consumption tax, and a worker can again buy 20 widgets with each hour of work. As a result, the new plan makes consumption goods cheaper in 2011, but does not provide any additional distortion to labor supply decisions.
At this point, I’ve talked through the first two parts of the proposal—the permanent increase in consumption taxes and the permanent decrease in labor income taxes. Why do we need a third tax change? Unlike an interest rate cut, the consumption tax that begins in 2012 will deter investment in 2011. The third prong of the proposal is that the fiscal authority should correct this problem by offering an appropriately sized temporary investment tax credit in 2011. The key is that the tax credit need only apply in 2011. In 2012 and thereafter, there is no disincentive effect on investment because the consumption tax is constant.
To summarize, I have described how to construct a three-pronged fiscal policy that is designed to have the same economic effects as a 100-basis-point cut by the Fed. The 1 percent permanent consumption tax that begins in 2012 stimulates consumption demand in 2011. The permanent reduction in labor income taxes ensures that this new consumption tax does not deter labor supply. Finally, the investment tax credit makes sure that the new consumption tax does not deter investment in 2011.
I’ll make two additional comments about this plan. First, how much would this three-pronged change in taxes cost the American taxpayer? The exact answer to this question would depend on a host of details. But let me offer a very rough calculation. Annual consumption is about $10 trillion, and annual labor income is about $8 trillion. I’ve sketched a plan that involves increasing the tax rate on consumption by 1 percentage point and lowering labor income taxes by 1 percentage point. So, the first two parts of the plan would add about $20 billion per year to government revenue beginning in 2012.
The plan also involves an appropriately sized investment tax credit. Private gross investment is about $2 trillion. To offset the effect of the consumption tax in 2012, the fiscal authority needs to provide a 1 percent subsidy to this entire amount. Hence, the investment tax credit involves a one-time cost in 2012 of $20 billion. These calculations, while obviously very rough, do indicate that the plan has the potential to be fiscally responsible.4
Second, I’ve not discussed distributional considerations. Raising consumption taxes by 1 percentage point and lowering labor income taxes by 1 percentage point for all Americans would tend to redistribute the burden of taxes toward lower-income citizens. For this reason, I believe that it would be desirable to redesign the labor income tax reduction to make it more progressive.
I want to be clear that there may be other types of fiscal policy interventions that would be helpful in the current situation. I have deliberately focused on a rather narrow aspect of fiscal policy: How can it be used to mimic monetary policy? I’ve done so for a couple of reasons. First, I’m a monetary policymaker, not a fiscal policymaker. Second, as has become clear over the past three years, the efficacy of many kinds of fiscal policy interventions is still very much an open question among macroeconomists. There is considerably more professional consensus about the effectiveness of monetary policy. In the case of my three-pronged fiscal intervention, it is specifically designed to be effective, as long as monetary accommodation itself would be effective.
From an intellectual point of view, the analysis demonstrates the remarkable power of public finance in addressing important macroeconomic questions. This last lesson is hardly new. Over the past 30 years, macroeconomists have used the tools and methods of public finance to address a host of important questions, ranging from optimal stabilization policy to optimal unemployment insurance. I’m proud to say that a great deal of that work has been done at the Federal Reserve Bank of Minneapolis.
Thanks for your attention. I’ll be happy to take your questions.
1 I thank Ron Feldman, Terry Fitzgerald, and Juan Pablo Nicolini for their comments.
2 See Correia, Isabel, Juan Pablo Nicolini, and Pedro Teles, “Optimal Fiscal and Monetary Policy: Equivalence Results,” Journal of Political Economy 116 (February 2008), pp. 141-70. (Also available online at http://www.minneapolisfed.org/research/sr/SR403.pdf.) See also Correia, Isabel, Emmanuel Farhi, Juan Pablo Nicolini, and Pedro Teles, “Policy at the Zero Bound,” working paper (October 2010), online at http://economics.uchicago.edu/ZeroBoundChicagoNov2010-1_nicolini.pdf.
3 My scheme makes current consumption cheaper by imposing a permanent tax on future consumption. In contrast, in late 2008, Robert Hall and Susan Woodward proposed making consumption goods cheaper in 2009 than in future years by eliminating all state sales taxes for one year. They suggested that this reduction could be financed by the federal government. (See http://woodwardhall.wordpress.com/2008/12/).
4 I’ve focused on a one-year interest rate cut. How can the fiscal authorities mimic the impact of a two-year interest rate cut? The rule is that the yearly interest rate equals the size of the change in the consumption tax rate. In particular, suppose that the fiscal authorities acted in 2010 to implement a 1 percent tax on consumption in 2012, with a subsequent more permanent 2 percent tax that begins in 2013. This path of taxes, combined with the appropriate labor income tax reductions and investment tax credits, functions like a two-year interest rate cut that begins in 2011.
Senin, 29 November 2010
Top Interest Rate Headlines 11-29-10: Wall Street Shrinks From Credit Default Swaps Before Rules Hit
Wall Street Shrinks From Credit Default Swaps Before Rules Hit
Shannon D. Harrington and Christine Harper, Bloomberg
Trading in credit-default swaps, Wall Street’s fastest-growing business before the credit crisis, has tumbled 40 to 60 percent from three years ago as banks prepare for new regulation of derivatives.
http://jlne.ws/e47cp9
Barclays exploited toxic debt ratings, court told
By Nia Willams, Reuters
British bank Barclays (BARC.L) was accused on Monday of selling derivatives it knew were far riskier than the triple-A credit rating they had been given.
http://jlne.ws/hc2gs6
Treasury to Offer $25B 56-Day Cash Management Bills
By Gary Siegel, The Bond Buyer
The Treasury Department said it will auction $25 billion 56-day cash management bills on Wednesday, December 1.
http://jlne.ws/dFZJqV
Europe Backs Irish Rescue and New Rules on Bailouts
By STEPHEN CASTLE and LIZ ALDERMAN, The New York Times
Fighting to prevent an accelerating debt crisis from engulfing Portugal and Spain, Europe’s finance ministers approved an 85 billion euro bailout package for Ireland, while also agreeing for the first time to hold private investors accountable for losses in future crises, beginning in 2013.
http://jlne.ws/e08odb
Inside Treasury's nerve center
By Brady Dennis, The Washington Post
Fighting to prevent an accelerating debt crisis from engulfing Portugal and Spain, Europe’s finance ministers approved an 85 billion euro bailout package for Ireland, while also agreeing for the first time to hold private investors accountable for losses in future crises, beginning in 2013.
http://jlne.ws/i7kCcw
Fresh M&A deals bring happy Thanksgiving for bankers
Liam Vaughan, Financial News
Mergers and acquisitions bankers had much to celebrate over Thanksgiving, despite the volatile markets and it being a historically quiet time of year for the industry, after a week of high-profile announced and rumoured deals. Household names including online retailer Ocado, music publishing group Chrysalis and food company Del Monte were all linked to M&A deals in recent days, pointing to a busy Christmas period ahead for advisers. European M&A volumes on November 26 were 40% up on the same point in November last year at $51.9bn, according to Dealogic.
http://jlne.ws/hQamT0
Anglo Irish Bank's wind down will take 'years'
BBC
A strategy to wind down Anglo Irish Bank's (AIB) loan book should be ready by the end of January, the Republic of Ireland's central bank has said.
http://jlne.ws/dYmgVL
EU Bailout Boost Fades
BY MARK BROWN AND KATIE MARTIN, WSJ.com
The Irish rescue package announced over the weekend failed to soothe currency- and bond-market worries that sovereign-debt problems might spread within the euro zone, pushing the euro lower and raising yields on the debt of fiscally weaker euro-zone countries.
http://jlne.ws/esXhcl
Shannon D. Harrington and Christine Harper, Bloomberg
Trading in credit-default swaps, Wall Street’s fastest-growing business before the credit crisis, has tumbled 40 to 60 percent from three years ago as banks prepare for new regulation of derivatives.
http://jlne.ws/e47cp9
Barclays exploited toxic debt ratings, court told
By Nia Willams, Reuters
British bank Barclays (BARC.L) was accused on Monday of selling derivatives it knew were far riskier than the triple-A credit rating they had been given.
http://jlne.ws/hc2gs6
Treasury to Offer $25B 56-Day Cash Management Bills
By Gary Siegel, The Bond Buyer
The Treasury Department said it will auction $25 billion 56-day cash management bills on Wednesday, December 1.
http://jlne.ws/dFZJqV
Europe Backs Irish Rescue and New Rules on Bailouts
By STEPHEN CASTLE and LIZ ALDERMAN, The New York Times
Fighting to prevent an accelerating debt crisis from engulfing Portugal and Spain, Europe’s finance ministers approved an 85 billion euro bailout package for Ireland, while also agreeing for the first time to hold private investors accountable for losses in future crises, beginning in 2013.
http://jlne.ws/e08odb
Inside Treasury's nerve center
By Brady Dennis, The Washington Post
Fighting to prevent an accelerating debt crisis from engulfing Portugal and Spain, Europe’s finance ministers approved an 85 billion euro bailout package for Ireland, while also agreeing for the first time to hold private investors accountable for losses in future crises, beginning in 2013.
http://jlne.ws/i7kCcw
Fresh M&A deals bring happy Thanksgiving for bankers
Liam Vaughan, Financial News
Mergers and acquisitions bankers had much to celebrate over Thanksgiving, despite the volatile markets and it being a historically quiet time of year for the industry, after a week of high-profile announced and rumoured deals. Household names including online retailer Ocado, music publishing group Chrysalis and food company Del Monte were all linked to M&A deals in recent days, pointing to a busy Christmas period ahead for advisers. European M&A volumes on November 26 were 40% up on the same point in November last year at $51.9bn, according to Dealogic.
http://jlne.ws/hQamT0
Anglo Irish Bank's wind down will take 'years'
BBC
A strategy to wind down Anglo Irish Bank's (AIB) loan book should be ready by the end of January, the Republic of Ireland's central bank has said.
http://jlne.ws/dYmgVL
EU Bailout Boost Fades
BY MARK BROWN AND KATIE MARTIN, WSJ.com
The Irish rescue package announced over the weekend failed to soothe currency- and bond-market worries that sovereign-debt problems might spread within the euro zone, pushing the euro lower and raising yields on the debt of fiscally weaker euro-zone countries.
http://jlne.ws/esXhcl
HM Treasury Chancellor's Autumn Forecast Statement
HM Treasury Chancellor's autumn forecast statement
November 29, 2010
The HM Treasury Chancellor's statement responds to the Office for Budget Responsibility's 'Egnomic and fiscal outlook', published at 1pm on 29 November 2010. In his statement, the Chancellor announces a Growth review and a plan for corporate tax reform
[Statement begins]
Mr Speaker, I would like to make a statement regarding the Office for Budget Responsibility’s first Autumn Forecast.
I will also inform the House about further measures that the Government is taking to support economic growth, including the new Growth Review launched today and a far-reaching programme of reforms to our corporate tax system.
And following yesterday’s announcement by European finance ministers I would like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.
First, the OBR’s Autumn Forecast.
Copies of their report were made available in the Vote Office earlier today.
Mr Speaker, we should take a moment to recognise the significance of this occasion – and the practical demonstration of this Government’s commitment to transparency and independent forecasting.
Today is the first time that members of this House will engage in debate about an autumn forecast produced by the independent Office for Budget Responsibility, rather than conjured up by the Chancellor of the Exchequer – and available to read two hours before this statement.
This is also the first forecast by the new independent Chair of the OBR, Robert Chote, with the other members of the Budget Responsibility Committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Select Committee members from both sides of this House.
The country can have full confidence in the independence of these numbers.
The OBR report published today includes some 150 pages of information, an unprecedented level of detail and transparency, much of it of the kind available to previous governments but never published.
So I would like to thank the Budget Responsibility Committee and the staff of the OBR for their hard work in putting together this autumn forecast, and I hope we now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament.
While today’s figures are of course independent, these are still just forecasts, and we must treat them with the degree of caution one should treat any forecast.
Indeed, the OBR are explicit about this, illustrating the uncertainty surrounding any economic forecasts with the use of fan-charts, rather than claiming the infallible certainty my predecessors asserted when they provided their forecasts.
Indeed the only thing that was infallible and certain was that those political forecasts were wrong.
With that caution in mind, Mr Speaker, let me turn to the forecast.
After the deepest recession since the war, the greatest budget deficit in our peacetime history, and the biggest banking crisis of our lifetimes, recovery was always going to be more challenging than after previous recessions.
But the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track.
The economy is growing. More jobs are being created. The deficit is falling.
Their central forecast is for sustainable growth of over 2% for each of the next five years and employment rising in each and every year.
And at a time when markets are gripped by fears about government finances across Europe, today we see that the Government was absolutely right to take the decisive action to take Britain out of the financial danger zone.
Britain is on course both to grow the economy and balance the books – something some people repeatedly said would not happen.
Mr Speaker, let me take the House through the detail of the forecast.
The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions.
I would also like to point out that they are also very similar to the European Commission forecast for the UK, which is also published today.
They forecast that Britain will grow faster over the next two years than Germany, France, Japan the United States of America and the average for the eurozone and the EU.
The OBR forecast real GDP growth of:
* 1.8% this year;
* 2.1% next year;
* 2.6% in 2012;
* Then 2.9% the year after that;
* Then 2.8% in 2014;
* And 2.7% in 2015.
Growth this year is now expected to be considerably higher than was forecast in June.
In the OBR’s judgement some of this improvement is likely to be permanent, and some of it a temporary impact of stock building.
As a result they forecast that the rate of growth next year will be 0.2 percentage points below the forecast the OBR made in June.
They also predict above-trend growth for the four years after that.
The level of GDP – or the overall size of our economy – is forecast to be around ½ a per cent higher next year than was forecast in June, and indeed higher throughout the whole forecast period.
Mr Speaker, some have made predictions of a so-called “double dip” recession.
While the OBR point out that “that growth has been volatile as this is a common characteristic of post recession recoveries”, their central view is that there will be no double-dip recession.
Their forecast is for growth next year of more than 2%, and they expect that the slowest quarter of growth, in the first quarter of next year, will be 0.3%, rising back up to 0.7% by the last quarter of next year.
They also forecast that CPI inflation will fall from 3.2% in 2010 to 1.9% in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.
Crucially, Mr Speaker, the OBR forecast a gradual rebalancing of the economy as we move away from an economy built on debt to an economy where we invest and export.
Again, something some people said would not happen.
They expect more demand to come from business investment, which is set to grow by over 8% for each of the next four years, as well as exports, which are expected to grow on average by over 6% per year.
This new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficits.
Bringing to an end the unsustainable situation which saw families save less and less year after year so that they ended up, in the words of the OBR report today, “effectively borrowing money to purchase increasingly expensive houses”.
Mr Speaker, the OBR also publish today a full forecast for the labour market.
Something, I would like to point out, previous chancellors chose not to publish.
Employment is forecast to grow in every year of this Parliament.
Total employment is expected to rise from 29.0 million to 30.1 million – that is over 1million additional new jobs.
On unemployment, thanks to faster than expected growth in the economy, the OBR now expect the rate to be slightly lower this year at 7.9 per cent instead of 8.1 per cent.
And their forecast for the unemployment rate for next year is unchanged from the June Budget at 8.0 per cent.
For future years the OBR predict a gradual decrease in unemployment, with the rate falling every year.
By the end of the Parliament the OBR forecast it will fall to just above 6% – that is a about half a million fewer unemployed people than at the beginning of this Parliament.
The trend in the claimant count is similar to that for the internationally recognised labour force survey measure of unemployment, however the level is expected to be higher.
The OBR explain that this revision is mainly due to a change in the way that flows from Employment and Support Allowance on to Job Seeker’s Allowance as a result of the new Work Capability Assessment are modelled.
In other words more people are assumed to be flowing off ESA and on to JSA
This is a key part of our reforms to create a welfare system that encourages people to seek work and reduces costs for the taxpayer – in short, we will stop hiding people who can work in the incapacity statistics.
Crucially, in each year fewer people are expected to be on both of these out-of-work benefits combined than in the June forecast.
I can also tell the House that, following the Spending Review, the OBR have now recalculated their estimate of the reduction in headcount in the public sector.
In June the OBR forecast a reduction in headcount of 490,000 over the next four years.
In their latest forecast this estimate has come down to 330,000, a reduction of 160,000.
The bulk of this revision results from the action we have taken to cut welfare bills rather than cut public services.
Our difficult choices on child benefit, housing benefit and other benefits – each of which opposed by the party opposite – mean that fewer posts will be lost across the public sector.
Those headcount reductions that still need to take place will happen over four years, not overnight.
And the OBR forecast is that private sector job creation will far outweigh the reduction in public sector employment.
As they say, “a period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s” when total employment increased by 1.3 million over six years while general government employment fell by around ½ a million.
But the most important point is this – the lesson of what is happening all around us in Europe is that unless we deal decisively with this record budget deficit then many thousands more jobs will be at risk – in both the private and the public sector.
Mr Speaker, let me summarise the forecast for the public finances – which shows that Britain is decisively dealing with its debts.
Borrowing this year is expected to be £1billion less than was forecast in June.
The OBR forecast that public sector net borrowing will fall from £148.5billion this year to just £18billion in 2015-16.
Government debt as a share of GDP is projected to peak just below 70% in 2013-14, and then fall to 67% by 2015-16.
So the debt ratio is now expected to peak at a lower point compared to June – just below 70% instead of just above it.
On the OBR’s central forecast we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15.
And the same is true for our target to get debt falling as a percentage of GDP.
Indeed, to use the OBR’s own words, “the Government has a slightly wider margin for error in meeting the mandate than appeared likely in June”.
For the first time the OBR have also tested the resilience of the fiscal mandate to two alternative scenarios for the economy that critics have put forward.
In both cases the mandate is met.
Mr Speaker, it is clear that our decisive actions have proved to the world that Britain can live within her means.
This Government has taken Britain out of the financial danger zone and set our economy on the path to recovery.
That is not only the judgement of the OBR.
It is the judgement of the IMF, the OECD, the European Commission, the Bank of England and all the major business organisations in this country.
And already our efforts are paying off.
Today’s forecasts show that the cost of servicing the government’s debt has come down.
Compared to the June forecast, the OBR predict that we will save £19 billion in interest payments between now and the end of the forecast period.
That is £19billion that will no longer be paid by British taxpayers to private bond-holders and foreign governments.
That is £19billion that would have been wasted and will be saved instead.
Mr Speaker, this is an uncertain world but the British recovery is on track.
Employment is growing.
One million more jobs are being created.
The deficit is set to fall.
The plan is working.
So we will stick to the course.
That is the only way to help confidence to flourish and growth to return.
And I urge those who seriously suggest that, when they see what is happening to our neighbours, I should abandon the decisive plan we are following, and borrow more and spend more, to think again.
What they propose would be disastrous for the British economy.
It would put us back in the international firing line we have worked so hard to escape from.
It would mean higher deficits and jobs lost. And we should reject that path.
Mr Speaker, stability is a necessary pre-condition for growth – but it is not enough.
Our economy’s competitiveness has been in decline for over a decade, undermining its ability to create jobs and grow.
That is why:
* We have already announced four annual reductions in corporation tax,
* Axing the jobs tax,
* Cutting the small companies rate,
* Expanding loan guarantees,
* Simplifying health and safety laws,
* Investing in science and apprenticeships,
* And promoting exports through major trade missions.
Let me set out some of the other things that my RHF the Business Secretary and I are announcing today to support growth and a rebalancing of our economy.
At the Budget, I set out a plan to reduce the main rate of corporation tax to 24 per cent, its lowest ever rate, demonstrating our commitment to tax competitiveness.
I can now tell the House that today we are publishing the most significant programme of corporate tax reforms for a generation, for consultation with the business community.
We propose to make the UK an even more attractive location for international business and investment, by reforming our outdated and complex rules for Controlled Foreign Companies.
We have seen a steady stream of companies that have left the UK in recent years.
This Government, unlike the last one, is not content to sit by and watch our competitiveness leach away and our corporate tax base undermined.
Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property.
For a long time we have argued that we should increase the incentives to innovate and develop new products in this country.
So to encourage high-tech businesses to invest in the UK and create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10 per cent corporate tax rate on profits from newly commercialised patents.
We have been consulting with the business community.
And I can tell the House that as a result of this measure, GlaxoSmithKline will today announce a new £500m investment programme in the UK, to:
* Manufacture a newly developed respiratory device at Ware in Hertfordshire;
* Launch a new £50m Venture Capital Fund to invest in healthcare research;
* Construct a new facility at the University of Nottingham to develop ‘green chemistry’ technology;
* And build Glaxo’s next biopharmaceutical plant in this country – with sites in Northern England and Scotland being considered.
In total they estimate that 1,000 new jobs will be created in the UK over the lifetime of these projects.
Mr Speaker, today we also launch a cross-government Growth Review.
This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support new growth opportunities.
Too often the natural inclination of Government is in the opposite direction, creating new regulations, putting up new barriers, making life more difficult for entrepreneurs and innovators.
We are starting to turn the super-tanker around.
Together with the Business Department, the Treasury will lead an intensive programme of work, involving all parts of Government and using evidence provided by the business community, reporting by next year’s Budget.
We will identify cross-cutting reform priorities that can benefit the whole economy. Specific priority will be given to:
* Improvements to the planning system and employment law;
* More support for exporters and inward investors;
* And reforms to the competition regime;
At the same time we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities.
Some of the resulting changes will be substantive on their own, others will in very specific ways help particular industries.
Some may be controversial if they confront vested interests.
But brick by brick we will remove the barriers that are holding Britain back.
Finally, Mr Speaker, I would like to update the House on the international assistance package for Ireland.
I attended the Europeans meetings in Brussels yesterday.
We agreed a three-year package for Ireland worth €85billion, which “is warranted to safeguard financial stability in the euro area and the EU as a whole”.
Of that €35billion will be used to support their banking sector, with €10billion going towards immediate bank recapitalisation.
And €50billion will be used for sovereign debt support.
Ireland themselves will contribute €17.5billion towards the total package.
And the remaining €67.5billion will be split, with one third coming from the IMF, one third from the European Financial Stability Mechanism and one third from bilateral loans and the eurozone facility.
The terms of the IMF loan will be determined over the coming weeks.
In principle our bilateral loan is for £3¼billion – and we will expect the loan to be denominated in sterling.
The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone.
This loan to Ireland is in Britain’s national interest.
It will help one of our closest economic partners manage through these difficult conditions.
I should also tell the House that the eurozone finance ministers, without me present, discussed a permanent financial stability facility.
I have made it clear in the subsequent ECOFIN meeting that the UK will not be part of that.
The President of the Eurogroup made it clear that the UK will not be part of the permanent bail-out mechanism, and that the European Financial Stability Mechanism, agreed under the previous Government in May, and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
Mr Speaker, when we came into office Britain was in the financial danger zone.
Our economy was unstable, our public finances out of control, our country on the international watch-list to avoid.
We took decisive action.
Now the independent Office for Budget Responsibility have confirmed that the British recovery is on track, our public finances are under control, a million jobs are set to created, and our economy is rebalancing.
Today we take further measures to secure growth and create prosperity.
We do so based on the foundation of stability we have now secured.
Britain is on the mend.
And I commend this statement to the House.
[Statement ends]
November 29, 2010
The HM Treasury Chancellor's statement responds to the Office for Budget Responsibility's 'Egnomic and fiscal outlook', published at 1pm on 29 November 2010. In his statement, the Chancellor announces a Growth review and a plan for corporate tax reform
[Statement begins]
Mr Speaker, I would like to make a statement regarding the Office for Budget Responsibility’s first Autumn Forecast.
I will also inform the House about further measures that the Government is taking to support economic growth, including the new Growth Review launched today and a far-reaching programme of reforms to our corporate tax system.
And following yesterday’s announcement by European finance ministers I would like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.
First, the OBR’s Autumn Forecast.
Copies of their report were made available in the Vote Office earlier today.
Mr Speaker, we should take a moment to recognise the significance of this occasion – and the practical demonstration of this Government’s commitment to transparency and independent forecasting.
Today is the first time that members of this House will engage in debate about an autumn forecast produced by the independent Office for Budget Responsibility, rather than conjured up by the Chancellor of the Exchequer – and available to read two hours before this statement.
This is also the first forecast by the new independent Chair of the OBR, Robert Chote, with the other members of the Budget Responsibility Committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Select Committee members from both sides of this House.
The country can have full confidence in the independence of these numbers.
The OBR report published today includes some 150 pages of information, an unprecedented level of detail and transparency, much of it of the kind available to previous governments but never published.
So I would like to thank the Budget Responsibility Committee and the staff of the OBR for their hard work in putting together this autumn forecast, and I hope we now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament.
While today’s figures are of course independent, these are still just forecasts, and we must treat them with the degree of caution one should treat any forecast.
Indeed, the OBR are explicit about this, illustrating the uncertainty surrounding any economic forecasts with the use of fan-charts, rather than claiming the infallible certainty my predecessors asserted when they provided their forecasts.
Indeed the only thing that was infallible and certain was that those political forecasts were wrong.
With that caution in mind, Mr Speaker, let me turn to the forecast.
After the deepest recession since the war, the greatest budget deficit in our peacetime history, and the biggest banking crisis of our lifetimes, recovery was always going to be more challenging than after previous recessions.
But the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track.
The economy is growing. More jobs are being created. The deficit is falling.
Their central forecast is for sustainable growth of over 2% for each of the next five years and employment rising in each and every year.
And at a time when markets are gripped by fears about government finances across Europe, today we see that the Government was absolutely right to take the decisive action to take Britain out of the financial danger zone.
Britain is on course both to grow the economy and balance the books – something some people repeatedly said would not happen.
Mr Speaker, let me take the House through the detail of the forecast.
The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions.
I would also like to point out that they are also very similar to the European Commission forecast for the UK, which is also published today.
They forecast that Britain will grow faster over the next two years than Germany, France, Japan the United States of America and the average for the eurozone and the EU.
The OBR forecast real GDP growth of:
* 1.8% this year;
* 2.1% next year;
* 2.6% in 2012;
* Then 2.9% the year after that;
* Then 2.8% in 2014;
* And 2.7% in 2015.
Growth this year is now expected to be considerably higher than was forecast in June.
In the OBR’s judgement some of this improvement is likely to be permanent, and some of it a temporary impact of stock building.
As a result they forecast that the rate of growth next year will be 0.2 percentage points below the forecast the OBR made in June.
They also predict above-trend growth for the four years after that.
The level of GDP – or the overall size of our economy – is forecast to be around ½ a per cent higher next year than was forecast in June, and indeed higher throughout the whole forecast period.
Mr Speaker, some have made predictions of a so-called “double dip” recession.
While the OBR point out that “that growth has been volatile as this is a common characteristic of post recession recoveries”, their central view is that there will be no double-dip recession.
Their forecast is for growth next year of more than 2%, and they expect that the slowest quarter of growth, in the first quarter of next year, will be 0.3%, rising back up to 0.7% by the last quarter of next year.
They also forecast that CPI inflation will fall from 3.2% in 2010 to 1.9% in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.
Crucially, Mr Speaker, the OBR forecast a gradual rebalancing of the economy as we move away from an economy built on debt to an economy where we invest and export.
Again, something some people said would not happen.
They expect more demand to come from business investment, which is set to grow by over 8% for each of the next four years, as well as exports, which are expected to grow on average by over 6% per year.
This new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficits.
Bringing to an end the unsustainable situation which saw families save less and less year after year so that they ended up, in the words of the OBR report today, “effectively borrowing money to purchase increasingly expensive houses”.
Mr Speaker, the OBR also publish today a full forecast for the labour market.
Something, I would like to point out, previous chancellors chose not to publish.
Employment is forecast to grow in every year of this Parliament.
Total employment is expected to rise from 29.0 million to 30.1 million – that is over 1million additional new jobs.
On unemployment, thanks to faster than expected growth in the economy, the OBR now expect the rate to be slightly lower this year at 7.9 per cent instead of 8.1 per cent.
And their forecast for the unemployment rate for next year is unchanged from the June Budget at 8.0 per cent.
For future years the OBR predict a gradual decrease in unemployment, with the rate falling every year.
By the end of the Parliament the OBR forecast it will fall to just above 6% – that is a about half a million fewer unemployed people than at the beginning of this Parliament.
The trend in the claimant count is similar to that for the internationally recognised labour force survey measure of unemployment, however the level is expected to be higher.
The OBR explain that this revision is mainly due to a change in the way that flows from Employment and Support Allowance on to Job Seeker’s Allowance as a result of the new Work Capability Assessment are modelled.
In other words more people are assumed to be flowing off ESA and on to JSA
This is a key part of our reforms to create a welfare system that encourages people to seek work and reduces costs for the taxpayer – in short, we will stop hiding people who can work in the incapacity statistics.
Crucially, in each year fewer people are expected to be on both of these out-of-work benefits combined than in the June forecast.
I can also tell the House that, following the Spending Review, the OBR have now recalculated their estimate of the reduction in headcount in the public sector.
In June the OBR forecast a reduction in headcount of 490,000 over the next four years.
In their latest forecast this estimate has come down to 330,000, a reduction of 160,000.
The bulk of this revision results from the action we have taken to cut welfare bills rather than cut public services.
Our difficult choices on child benefit, housing benefit and other benefits – each of which opposed by the party opposite – mean that fewer posts will be lost across the public sector.
Those headcount reductions that still need to take place will happen over four years, not overnight.
And the OBR forecast is that private sector job creation will far outweigh the reduction in public sector employment.
As they say, “a period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s” when total employment increased by 1.3 million over six years while general government employment fell by around ½ a million.
But the most important point is this – the lesson of what is happening all around us in Europe is that unless we deal decisively with this record budget deficit then many thousands more jobs will be at risk – in both the private and the public sector.
Mr Speaker, let me summarise the forecast for the public finances – which shows that Britain is decisively dealing with its debts.
Borrowing this year is expected to be £1billion less than was forecast in June.
The OBR forecast that public sector net borrowing will fall from £148.5billion this year to just £18billion in 2015-16.
Government debt as a share of GDP is projected to peak just below 70% in 2013-14, and then fall to 67% by 2015-16.
So the debt ratio is now expected to peak at a lower point compared to June – just below 70% instead of just above it.
On the OBR’s central forecast we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15.
And the same is true for our target to get debt falling as a percentage of GDP.
Indeed, to use the OBR’s own words, “the Government has a slightly wider margin for error in meeting the mandate than appeared likely in June”.
For the first time the OBR have also tested the resilience of the fiscal mandate to two alternative scenarios for the economy that critics have put forward.
In both cases the mandate is met.
Mr Speaker, it is clear that our decisive actions have proved to the world that Britain can live within her means.
This Government has taken Britain out of the financial danger zone and set our economy on the path to recovery.
That is not only the judgement of the OBR.
It is the judgement of the IMF, the OECD, the European Commission, the Bank of England and all the major business organisations in this country.
And already our efforts are paying off.
Today’s forecasts show that the cost of servicing the government’s debt has come down.
Compared to the June forecast, the OBR predict that we will save £19 billion in interest payments between now and the end of the forecast period.
That is £19billion that will no longer be paid by British taxpayers to private bond-holders and foreign governments.
That is £19billion that would have been wasted and will be saved instead.
Mr Speaker, this is an uncertain world but the British recovery is on track.
Employment is growing.
One million more jobs are being created.
The deficit is set to fall.
The plan is working.
So we will stick to the course.
That is the only way to help confidence to flourish and growth to return.
And I urge those who seriously suggest that, when they see what is happening to our neighbours, I should abandon the decisive plan we are following, and borrow more and spend more, to think again.
What they propose would be disastrous for the British economy.
It would put us back in the international firing line we have worked so hard to escape from.
It would mean higher deficits and jobs lost. And we should reject that path.
Mr Speaker, stability is a necessary pre-condition for growth – but it is not enough.
Our economy’s competitiveness has been in decline for over a decade, undermining its ability to create jobs and grow.
That is why:
* We have already announced four annual reductions in corporation tax,
* Axing the jobs tax,
* Cutting the small companies rate,
* Expanding loan guarantees,
* Simplifying health and safety laws,
* Investing in science and apprenticeships,
* And promoting exports through major trade missions.
Let me set out some of the other things that my RHF the Business Secretary and I are announcing today to support growth and a rebalancing of our economy.
At the Budget, I set out a plan to reduce the main rate of corporation tax to 24 per cent, its lowest ever rate, demonstrating our commitment to tax competitiveness.
I can now tell the House that today we are publishing the most significant programme of corporate tax reforms for a generation, for consultation with the business community.
We propose to make the UK an even more attractive location for international business and investment, by reforming our outdated and complex rules for Controlled Foreign Companies.
We have seen a steady stream of companies that have left the UK in recent years.
This Government, unlike the last one, is not content to sit by and watch our competitiveness leach away and our corporate tax base undermined.
Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property.
For a long time we have argued that we should increase the incentives to innovate and develop new products in this country.
So to encourage high-tech businesses to invest in the UK and create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10 per cent corporate tax rate on profits from newly commercialised patents.
We have been consulting with the business community.
And I can tell the House that as a result of this measure, GlaxoSmithKline will today announce a new £500m investment programme in the UK, to:
* Manufacture a newly developed respiratory device at Ware in Hertfordshire;
* Launch a new £50m Venture Capital Fund to invest in healthcare research;
* Construct a new facility at the University of Nottingham to develop ‘green chemistry’ technology;
* And build Glaxo’s next biopharmaceutical plant in this country – with sites in Northern England and Scotland being considered.
In total they estimate that 1,000 new jobs will be created in the UK over the lifetime of these projects.
Mr Speaker, today we also launch a cross-government Growth Review.
This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support new growth opportunities.
Too often the natural inclination of Government is in the opposite direction, creating new regulations, putting up new barriers, making life more difficult for entrepreneurs and innovators.
We are starting to turn the super-tanker around.
Together with the Business Department, the Treasury will lead an intensive programme of work, involving all parts of Government and using evidence provided by the business community, reporting by next year’s Budget.
We will identify cross-cutting reform priorities that can benefit the whole economy. Specific priority will be given to:
* Improvements to the planning system and employment law;
* More support for exporters and inward investors;
* And reforms to the competition regime;
At the same time we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities.
Some of the resulting changes will be substantive on their own, others will in very specific ways help particular industries.
Some may be controversial if they confront vested interests.
But brick by brick we will remove the barriers that are holding Britain back.
Finally, Mr Speaker, I would like to update the House on the international assistance package for Ireland.
I attended the Europeans meetings in Brussels yesterday.
We agreed a three-year package for Ireland worth €85billion, which “is warranted to safeguard financial stability in the euro area and the EU as a whole”.
Of that €35billion will be used to support their banking sector, with €10billion going towards immediate bank recapitalisation.
And €50billion will be used for sovereign debt support.
Ireland themselves will contribute €17.5billion towards the total package.
And the remaining €67.5billion will be split, with one third coming from the IMF, one third from the European Financial Stability Mechanism and one third from bilateral loans and the eurozone facility.
The terms of the IMF loan will be determined over the coming weeks.
In principle our bilateral loan is for £3¼billion – and we will expect the loan to be denominated in sterling.
The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone.
This loan to Ireland is in Britain’s national interest.
It will help one of our closest economic partners manage through these difficult conditions.
I should also tell the House that the eurozone finance ministers, without me present, discussed a permanent financial stability facility.
I have made it clear in the subsequent ECOFIN meeting that the UK will not be part of that.
The President of the Eurogroup made it clear that the UK will not be part of the permanent bail-out mechanism, and that the European Financial Stability Mechanism, agreed under the previous Government in May, and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
Mr Speaker, when we came into office Britain was in the financial danger zone.
Our economy was unstable, our public finances out of control, our country on the international watch-list to avoid.
We took decisive action.
Now the independent Office for Budget Responsibility have confirmed that the British recovery is on track, our public finances are under control, a million jobs are set to created, and our economy is rebalancing.
Today we take further measures to secure growth and create prosperity.
We do so based on the foundation of stability we have now secured.
Britain is on the mend.
And I commend this statement to the House.
[Statement ends]
Jumat, 26 November 2010
Top Interest Rate Headlines 11-26-10: Ireland Races to Secure Weekend Aid Deal Amid Bank Concern
Ireland Races to Secure Weekend Aid Deal Amid Bank Concern
By Simon Kennedy and Dara Doyle, Bloomberg
Irish officials raced to complete a deal for an international aid package before financial markets reopen next week with talks centering on the status of bondholders in Ireland’s largest banks.
http://jlne.ws/h50mwq
Spanish Bonds Head for Weekly Drop as Europe Sovereign Debt Crisis Deepens
By Paul Dobson, Bloomberg
Spanish government bonds posted a weekly drop amid speculation that Europe’s debt crisis will hurt more economies, sapping demand for securities from high-deficit nations.
http://jlne.ws/fy8lWo
Portugal denies facing bail-out pressure
By Peter Wise in Lisbon - Financial Times
Portugal has denied as "totally false" reports that it is under pressure from the European Central Bank and other eurozone governments to request an international financial bail-out.
http://jlne.ws/hNfecP
Bonds round-up: Irish yields rise again
Sharecast Finance News via Yahoo! UK & Ireland Finance
Clearing house LCH Clearnet's has demanded larger deposits to trade in Irish bonds and this has knocked prices and pushed the yield on ten-year bonds back above 9%.
http://jlne.ws/fE0snl
Banks Push U.S. Treasury to Exempt Foreign Exchange Swaps from Dodd-Frank
Bloomberg
The biggest Wall Street banks are pushing the U.S. Treasury Department to exclude foreign exchange derivatives from new regulations, a move that would leave a $42 trillion market largely outside of federal oversight.
http://jlne.ws/evIJxt
Citi looks to Europe retail revival
By Patrick Jenkins, Banking Editor - Financial Times
Citigroup is planning to resuscitate its retail presence in Europe as the bank, one of the biggest victims of the global financial crisis, seeks to move beyond a period of enforced shrinkage and back into a mode of targeted growth.
http://jlne.ws/faTPSs
HSBC focuses on Asia with Thurston appointment
By Patrick Jenkins, Banking Editor - Financial Times
Stuart Gulliver, the incoming chief executive of HSBC, has announced a first phase of top management changes, signalling a sharpened focus for the bank on wealth management, particularly in Asia, and a keenness to shake up the group's traditional structures.
http://jlne.ws/hfZdz8
DME Oman linked swap and option contracts to be launched by CME group
Zawya
Dubai - November 25, 2010: The Dubai Mercantile Exchange Dubai Mercantile Exchange ( DME DME ) today confirmed the upcoming launch of a suite of DME DME Oman-linked swap and option contracts in early December.
http://jlne.ws/fR2YD7
By Simon Kennedy and Dara Doyle, Bloomberg
Irish officials raced to complete a deal for an international aid package before financial markets reopen next week with talks centering on the status of bondholders in Ireland’s largest banks.
http://jlne.ws/h50mwq
Spanish Bonds Head for Weekly Drop as Europe Sovereign Debt Crisis Deepens
By Paul Dobson, Bloomberg
Spanish government bonds posted a weekly drop amid speculation that Europe’s debt crisis will hurt more economies, sapping demand for securities from high-deficit nations.
http://jlne.ws/fy8lWo
Portugal denies facing bail-out pressure
By Peter Wise in Lisbon - Financial Times
Portugal has denied as "totally false" reports that it is under pressure from the European Central Bank and other eurozone governments to request an international financial bail-out.
http://jlne.ws/hNfecP
Bonds round-up: Irish yields rise again
Sharecast Finance News via Yahoo! UK & Ireland Finance
Clearing house LCH Clearnet's has demanded larger deposits to trade in Irish bonds and this has knocked prices and pushed the yield on ten-year bonds back above 9%.
http://jlne.ws/fE0snl
Banks Push U.S. Treasury to Exempt Foreign Exchange Swaps from Dodd-Frank
Bloomberg
The biggest Wall Street banks are pushing the U.S. Treasury Department to exclude foreign exchange derivatives from new regulations, a move that would leave a $42 trillion market largely outside of federal oversight.
http://jlne.ws/evIJxt
Citi looks to Europe retail revival
By Patrick Jenkins, Banking Editor - Financial Times
Citigroup is planning to resuscitate its retail presence in Europe as the bank, one of the biggest victims of the global financial crisis, seeks to move beyond a period of enforced shrinkage and back into a mode of targeted growth.
http://jlne.ws/faTPSs
HSBC focuses on Asia with Thurston appointment
By Patrick Jenkins, Banking Editor - Financial Times
Stuart Gulliver, the incoming chief executive of HSBC, has announced a first phase of top management changes, signalling a sharpened focus for the bank on wealth management, particularly in Asia, and a keenness to shake up the group's traditional structures.
http://jlne.ws/hfZdz8
DME Oman linked swap and option contracts to be launched by CME group
Zawya
Dubai - November 25, 2010: The Dubai Mercantile Exchange Dubai Mercantile Exchange ( DME DME ) today confirmed the upcoming launch of a suite of DME DME Oman-linked swap and option contracts in early December.
http://jlne.ws/fR2YD7
Rabu, 24 November 2010
Top Interest Rate Headlines 11-24-10: Spain Defends Its Banking Sector
Spain Defends Its Banking Sector
BY SARA SCHAEFER MUÑOZ AND JONATHAN HOUSE, WSJ.com
Spanish officials are mounting an aggressive campaign to dismiss fears that Europe's fiscal woes—which have already leapt from Greece to Ireland and may soon spread to Portugal—will reach their shores.
http://jlne.ws/hnwEBY
Ireland Outlines Austerity Measures
By NEIL SHAH, WSJ.com
In a belated attempt to convince investors it can tackle its debts, Ireland's government detailed a raft of new measures on Wednesday that will raise sales taxes, lower the minimum wage and slash government payrolls—but could also push the country deeper into economic crisis.
http://jlne.ws/gFuAUV
Spain Defends Its Banking Sector
WSJ.com, BY SARA SCHAEFER MUÑOZ AND JONATHAN HOUSE
Spanish officials are mounting an aggressive campaign to dismiss fears that Europe's fiscal woes—which have already leapt from Greece to Ireland and may soon spread to Portugal—will reach their shores.
http://jlne.ws/hnwEBY
Bankers Rigging Municipal Contract Bids Admit to Cover-Up Lies
By William Selway and Martin Z. Braun, Bloomberg
In an 11th-floor federal courtroom in Manhattan on a gray September afternoon, a banker stood with a somber face and admitted to rigging bids for contracts to invest bond proceeds and then lying about it -- as part of the biggest criminal conspiracy in the history of the 198-year-old municipal finance market.
http://jlne.ws/gAAZxo
Money managers asked for paperwork
By Alan Rappeport and Dan McCrum in New York, Financial Times
Money managers at SAC Capital Advisors, Citadel, Janus Capital and Wellington Management have received requests for documents from federal investigators examining insider trading practices on Wall Street.
http://jlne.ws/feeYzs
BY SARA SCHAEFER MUÑOZ AND JONATHAN HOUSE, WSJ.com
Spanish officials are mounting an aggressive campaign to dismiss fears that Europe's fiscal woes—which have already leapt from Greece to Ireland and may soon spread to Portugal—will reach their shores.
http://jlne.ws/hnwEBY
Ireland Outlines Austerity Measures
By NEIL SHAH, WSJ.com
In a belated attempt to convince investors it can tackle its debts, Ireland's government detailed a raft of new measures on Wednesday that will raise sales taxes, lower the minimum wage and slash government payrolls—but could also push the country deeper into economic crisis.
http://jlne.ws/gFuAUV
Spain Defends Its Banking Sector
WSJ.com, BY SARA SCHAEFER MUÑOZ AND JONATHAN HOUSE
Spanish officials are mounting an aggressive campaign to dismiss fears that Europe's fiscal woes—which have already leapt from Greece to Ireland and may soon spread to Portugal—will reach their shores.
http://jlne.ws/hnwEBY
Bankers Rigging Municipal Contract Bids Admit to Cover-Up Lies
By William Selway and Martin Z. Braun, Bloomberg
In an 11th-floor federal courtroom in Manhattan on a gray September afternoon, a banker stood with a somber face and admitted to rigging bids for contracts to invest bond proceeds and then lying about it -- as part of the biggest criminal conspiracy in the history of the 198-year-old municipal finance market.
http://jlne.ws/gAAZxo
Money managers asked for paperwork
By Alan Rappeport and Dan McCrum in New York, Financial Times
Money managers at SAC Capital Advisors, Citadel, Janus Capital and Wellington Management have received requests for documents from federal investigators examining insider trading practices on Wall Street.
http://jlne.ws/feeYzs
Senin, 22 November 2010
Top Interest Rate Headlines 11-22-10: Whitney Announces Plans to Apply for NRSRO Status
Whitney Announces Plans to Apply for NRSRO Status
http://jlne.ws/9ePCF3
Basel III Rules Will Leave Top U.S. Banks With A $100 Billion Shortfall
The Huffington Post
LONDON: The new Basel III banking rules will leave the biggest U.S. banks short of between $100 billion and $150 billion in equity capital, with 90 per cent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital.
http://jlne.ws/aOxOI5
UBS makes 1,000 hires as it continues to rebuild business
eFinancial News
UBS has lifted the lid on its aggressive hiring strategy, revealing to investors it has added almost 1,000 bankers and traders at its investment bank so far this year.
http://jlne.ws/9SGf14
High-profile spat ends
The Age
Bookmaker turned options trader David Waterhouse has resolved his bitter corporate spat with Bank of America Merrill Lynch.
http://jlne.ws/cM0Kwn
LBIE ruling
eFinancial News
The UK High Court on Friday allowed Lehman Brothers International Europe's administrators on Friday to retain $1bn (€731m) plus of assets, which were subjected to the standard rascals process.
http://jlne.ws/bxomrT
Lehman Reaches Accord with Perpetual in `Saphir' Derivatives Court Battle
Bloomberg
Bankrupt Lehman Brothers Holdings Inc. reached a settlement in a derivatives dispute with billions of dollars at stake that divided courts in the U.S. and the U.K.
http://jlne.ws/bo2AQX
Wells Fargo Pays Citigroup $100 Million Over Wachovia
BusinessWeek
Wells Fargo & Co. agreed to pay $100 million for scuttling Citigroup Inc.'s takeover of Wachovia Corp. with a higher bid during the depths of the financial crisis.
http://jlne.ws/a4ucQN
http://jlne.ws/9ePCF3
Basel III Rules Will Leave Top U.S. Banks With A $100 Billion Shortfall
The Huffington Post
LONDON: The new Basel III banking rules will leave the biggest U.S. banks short of between $100 billion and $150 billion in equity capital, with 90 per cent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital.
http://jlne.ws/aOxOI5
UBS makes 1,000 hires as it continues to rebuild business
eFinancial News
UBS has lifted the lid on its aggressive hiring strategy, revealing to investors it has added almost 1,000 bankers and traders at its investment bank so far this year.
http://jlne.ws/9SGf14
High-profile spat ends
The Age
Bookmaker turned options trader David Waterhouse has resolved his bitter corporate spat with Bank of America Merrill Lynch.
http://jlne.ws/cM0Kwn
LBIE ruling
eFinancial News
The UK High Court on Friday allowed Lehman Brothers International Europe's administrators on Friday to retain $1bn (€731m) plus of assets, which were subjected to the standard rascals process.
http://jlne.ws/bxomrT
Lehman Reaches Accord with Perpetual in `Saphir' Derivatives Court Battle
Bloomberg
Bankrupt Lehman Brothers Holdings Inc. reached a settlement in a derivatives dispute with billions of dollars at stake that divided courts in the U.S. and the U.K.
http://jlne.ws/bo2AQX
Wells Fargo Pays Citigroup $100 Million Over Wachovia
BusinessWeek
Wells Fargo & Co. agreed to pay $100 million for scuttling Citigroup Inc.'s takeover of Wachovia Corp. with a higher bid during the depths of the financial crisis.
http://jlne.ws/a4ucQN
Government Bond Markets Global Outlook, Fisher Capital Management Seoul: Any Existing Exposure To Bonds Should Be Further Reduced In Favor Of US & Euro Equities
Press Release
Government Bond Markets Global Outlook Fisher Capital Management Seoul
– Conditions in the government bond markets have remained very difficult over the past month, and there have been further falls in some of the minor markets, especially in the euro-zone, because of continuing fears about sovereign debt defaults. The agreement reached by the member countries of the euro-zone to combine with the IMF to provide any necessary support to enable Greece to refinance its maturing debts and avoid a default has had a poor response in the markets; but at least Greece has been able to make further bond issues; and the gilt edged market has coped fairly well so far with a disappointing Budget statement that has left any real attempt to resolve the serious UK debt problems until after the general election. But the sudden weakness in the world bond markets after a series of disappointing auctions has once again increased the tensions.
Our position remains unchanged; any existing exposure to bonds should be further reduced in favor of US & Euro equities.
The global economic recovery is developing slowly, and so short-term interest rates are likely to remain at low levels for a considerable period. It is also possible that the “fudged” agreement amongst member countries of the euro-zone will provide an opportunity for the introduction of the necessary austerity measures; and that a new government will finally begin to address the debt problems in the UK. But the risks in the situation are still increasing, sovereign debt defaults may still occur, and the single currency system in the euro-zone may not be sustainable in its present form. Higher bond yields therefore appear unavoidable; prospects for all the bond markets are unattractive.
Developments in the bond market over the past month have clearly illustrated the need for caution. The US economy continues to recover. The Fed has left short term interest rates unchanged, and has indicated that they will remain “at exceptionally low levels for an extended period.”This tended to enhance the “safe haven” status of the US equity market for most of the past month, as conditions continued to deteriorate in other bond markets.
Government Bond Markets Global Outlook Fisher Capital Management Seoul
– Conditions in the government bond markets have remained very difficult over the past month, and there have been further falls in some of the minor markets, especially in the euro-zone, because of continuing fears about sovereign debt defaults. The agreement reached by the member countries of the euro-zone to combine with the IMF to provide any necessary support to enable Greece to refinance its maturing debts and avoid a default has had a poor response in the markets; but at least Greece has been able to make further bond issues; and the gilt edged market has coped fairly well so far with a disappointing Budget statement that has left any real attempt to resolve the serious UK debt problems until after the general election. But the sudden weakness in the world bond markets after a series of disappointing auctions has once again increased the tensions.
Our position remains unchanged; any existing exposure to bonds should be further reduced in favor of US & Euro equities.
The global economic recovery is developing slowly, and so short-term interest rates are likely to remain at low levels for a considerable period. It is also possible that the “fudged” agreement amongst member countries of the euro-zone will provide an opportunity for the introduction of the necessary austerity measures; and that a new government will finally begin to address the debt problems in the UK. But the risks in the situation are still increasing, sovereign debt defaults may still occur, and the single currency system in the euro-zone may not be sustainable in its present form. Higher bond yields therefore appear unavoidable; prospects for all the bond markets are unattractive.
Developments in the bond market over the past month have clearly illustrated the need for caution. The US economy continues to recover. The Fed has left short term interest rates unchanged, and has indicated that they will remain “at exceptionally low levels for an extended period.”This tended to enhance the “safe haven” status of the US equity market for most of the past month, as conditions continued to deteriorate in other bond markets.
Jumat, 19 November 2010
Top Interest Rate Headlines 11-19-10: Echoing Obama, Bernanke Presses China on Imbalances
Echoing Obama, Bernanke Presses China on Imbalances
By JACK EWING and SEWELL CHAN, Newe York Times
Ben S. Bernanke, the Federal Reserve chairman, argued Friday that currency undervaluation by China and other emerging markets was at the root of “persistent imbalances” in trade that “represent a growing financial and economic risk.”
http://jlne.ws/a1a5s8
China to raise bank reserve requirement ratio
BEIJING (AFP) - China's central bank said on Friday it would raise the amount of money that lenders must keep in reserve as officials step up efforts to contain rising inflation and soaring housing costs.
http://jlne.ws/cAMJfL
CDS Have Edge on Taxables
By Dan Seymour
Anyone considering buying a taxable municipal bond might want to get a quote on some municipal credit-default swaps first. Chances are, the CDS is a higher-yielding way to play the municipal market.
http://jlne.ws/bf4dYh
Lippmann Focuses Hedge Fund Buying on Subprime Debt
BusinessWeek
Greg Lippmann, the former Deutsche Bank AG trader who gained fame for his bets against subprime- mortgage securities, focused his hedge fund's buying on the debt in its first month.
http://jlne.ws/aqtroG
No joke, Will Ferrell fined as Finra case flops
New York Post
Funnymen Will Ferrell and Larry David were laughed off the stage recently by Wall Street's self-policing arm, the Financial Industry Regulatory Authority, for their slapstick effort to sue brokerage firm JPMorgan Securities. Movie star Ferrell, and David, of "Seinfeld" and "Curb Your Enthusiasm," lost an $18 million arbitration case...
http://jlne.ws/9WvGLU
Top Barclays bank analyst heads for French Broker
eFinancial News
Tom Rayner, Barclays' highly-regarded UK banks analyst, has quit for French broker Exane BNP Paribas, in a team build headhunters say could cost more than L6m.
http://jlne.ws/bkGLRD
NYSE Euronext Plans to Clear OTC Equity Derivatives, Jones Says
By Nandini Sukumar
NYSE Euronext, the world's largest stock exchange, is examining "opportunities" to clear over- the-counter equity derivatives, as regulators push banks to process more trades through clearinghouses to reduce risk.
Bloomberg
http://jlne.ws/9qJcGo
Lawmakers hit banks, regulators on foreclosures
By Dave Clarke and Corbett B. Daly
WASHINGTON (Reuters) - Lawmakers hauled the top U.S. mortgage lenders and their regulators to Capitol Hill on Thursday to chastise them for widespread flaws in foreclosure documents, but failed to extract any promises of fines or fresh loan modification programs.
http://jlne.ws/bz6fzn
Bernanke hits back at critics of bond-buying plan
By JEANNINE AVERSA, AP Economics Writer
WASHINGTON - Federal Reserve Chairman Ben Bernanke has sought to defuse criticism of the Fed's $600 billion bond-purchase plan by arguing that it's needed to boost the economy and reduce unemployment. But he warned that the Fed's program can't succeed on its own.
http://jlne.ws/dei4au
U.S. Regulators Consider 15-Minute Delay in Swaps Block Trades
By Silla Brush and Matthew Leising
The U.S. Commodity Futures Trading Commission is proposing a 15-minute delay for reporting prices of block trades of standardized swaps on exchanges or so-called swap execution facilities.
Bloomberg
http://jlne.ws/cTtysU
Meredith Whitney Seeks to Launch New Credit Rating Agency
By MELLY ALAZRAKI
Meredith Whitney rose to fame as one of the few people who predicted the financial crisis ahead of time, with her bearish calls on banks and warnings about the dangers to the economy from the housing bubble. As such, she's probably one of the more-qualified people to head a credit agency -- and now she plans to start one, the Financial Times reports.
http://jlne.ws/9WI0eW
By JACK EWING and SEWELL CHAN, Newe York Times
Ben S. Bernanke, the Federal Reserve chairman, argued Friday that currency undervaluation by China and other emerging markets was at the root of “persistent imbalances” in trade that “represent a growing financial and economic risk.”
http://jlne.ws/a1a5s8
China to raise bank reserve requirement ratio
BEIJING (AFP) - China's central bank said on Friday it would raise the amount of money that lenders must keep in reserve as officials step up efforts to contain rising inflation and soaring housing costs.
http://jlne.ws/cAMJfL
CDS Have Edge on Taxables
By Dan Seymour
Anyone considering buying a taxable municipal bond might want to get a quote on some municipal credit-default swaps first. Chances are, the CDS is a higher-yielding way to play the municipal market.
http://jlne.ws/bf4dYh
Lippmann Focuses Hedge Fund Buying on Subprime Debt
BusinessWeek
Greg Lippmann, the former Deutsche Bank AG trader who gained fame for his bets against subprime- mortgage securities, focused his hedge fund's buying on the debt in its first month.
http://jlne.ws/aqtroG
No joke, Will Ferrell fined as Finra case flops
New York Post
Funnymen Will Ferrell and Larry David were laughed off the stage recently by Wall Street's self-policing arm, the Financial Industry Regulatory Authority, for their slapstick effort to sue brokerage firm JPMorgan Securities. Movie star Ferrell, and David, of "Seinfeld" and "Curb Your Enthusiasm," lost an $18 million arbitration case...
http://jlne.ws/9WvGLU
Top Barclays bank analyst heads for French Broker
eFinancial News
Tom Rayner, Barclays' highly-regarded UK banks analyst, has quit for French broker Exane BNP Paribas, in a team build headhunters say could cost more than L6m.
http://jlne.ws/bkGLRD
NYSE Euronext Plans to Clear OTC Equity Derivatives, Jones Says
By Nandini Sukumar
NYSE Euronext, the world's largest stock exchange, is examining "opportunities" to clear over- the-counter equity derivatives, as regulators push banks to process more trades through clearinghouses to reduce risk.
Bloomberg
http://jlne.ws/9qJcGo
Lawmakers hit banks, regulators on foreclosures
By Dave Clarke and Corbett B. Daly
WASHINGTON (Reuters) - Lawmakers hauled the top U.S. mortgage lenders and their regulators to Capitol Hill on Thursday to chastise them for widespread flaws in foreclosure documents, but failed to extract any promises of fines or fresh loan modification programs.
http://jlne.ws/bz6fzn
Bernanke hits back at critics of bond-buying plan
By JEANNINE AVERSA, AP Economics Writer
WASHINGTON - Federal Reserve Chairman Ben Bernanke has sought to defuse criticism of the Fed's $600 billion bond-purchase plan by arguing that it's needed to boost the economy and reduce unemployment. But he warned that the Fed's program can't succeed on its own.
http://jlne.ws/dei4au
U.S. Regulators Consider 15-Minute Delay in Swaps Block Trades
By Silla Brush and Matthew Leising
The U.S. Commodity Futures Trading Commission is proposing a 15-minute delay for reporting prices of block trades of standardized swaps on exchanges or so-called swap execution facilities.
Bloomberg
http://jlne.ws/cTtysU
Meredith Whitney Seeks to Launch New Credit Rating Agency
By MELLY ALAZRAKI
Meredith Whitney rose to fame as one of the few people who predicted the financial crisis ahead of time, with her bearish calls on banks and warnings about the dangers to the economy from the housing bubble. As such, she's probably one of the more-qualified people to head a credit agency -- and now she plans to start one, the Financial Times reports.
http://jlne.ws/9WI0eW
Kamis, 18 November 2010
November 18, 2010: First Fully-Electronic Interest Rate Swap Trade Executed and Cleared in U.S. [NEWSLETTER]
Conversation Starter
First Fully-Electronic Interest Rate Swap Trade Executed and Cleared in U.S.
Press Release
Tradeweb, a leading global provider of fixed income and derivatives markets, today announced the completion of the first interest rate swap trade by a client to be electronically executed and cleared in the U.S. The U.S. dollar-denominated swap transaction was executed on the Tradeweb platform between a U.S.-based asset manager and Deutsche Bank, with Deutsche Bank acting as the clearing member. The trade was then cleared by CME Clearing, and is the first transaction which could be considered swap execution facility (SEF)-ready under the expected regulatory framework soon to be defined and finalized by the CFTC and SEC.
http://jlne.ws/dawNBA
**CN: CME has been clearing interest-rate swaps since Oct. 18. This event is an example of how OTC derivatives could be traded once regulations under Dodd-Frank come into play.
Related Media Reports:
--Tradeweb Executes Its First Cleared U.S. Electronic Rate SwapBloomberg
Tradeweb LLC, the bond- and derivatives-trading network whose owners include Wall Street’s largest banks, said it executed its first electronic interest- rate swap in the U.S. that was cleared at CME Group Inc.
http://jlne.ws/cNxKX2
--Tradeweb Delivers Milestone in Electronic Swaps Trade
By KATY BURNE, WSJ.com
Tradeweb, an online derivatives marketplace, has become the first trading venue in the U.S. to facilitate execution of a fully electronic interest-rate swap that was then processed by a central clearinghouse.
http://jlne.ws/aLKJCb
--Interest rate swaps trading jumps on Tradeweb
Reuters
Tradeweb said interest rate swaps trading jumped by 71 percent on its online market in the first four months of 2010 as pressure increased for more transparent derivatives markets in the wake of the financial crisis.
http://jlne.ws/ccXxKC
--OTC Derivatives Volumes Fell 4% In First Half To $583T -BIS
By Katy Burne Of DOW JONES NEWSWIRES
The global over-the-counter derivatives market contracted almost 4% to $583 trillion in the first half of this year, compared with a 2% rise in the second half of 2009, according to survey results from the Bank for International Settlements on Monday.
http://jlne.ws/cLLVPn
Lead Stories
Bernake/QE2
Financial Crisis Commission Delays Report to Obama, Congress Until January
By Jesse Westbrook and Peter Eichenbaum, Bloomberg
Democrats on the Financial Crisis Inquiry Commission, the panel assigned to probe the worst U.S. economic collapse since the Great Depression, voted to delay the group’s final report on its findings amid Republican opposition.
http://jlne.ws/avOHZY
Fed likely to buy entire $600 bln in plan
Reuters
A top Federal Reserve official said on Wednesday the central bank is likely to follow through on its entire $600 billion bond buying program based on an anticipated weak economic recovery.
http://jlne.ws/d5SqI3
Warren Buffett's Warning: Fed Easing Creates 'Dangers' for Confidence in Dollar
By Alex Crippen, CNBC
Warren Buffett has written a 'Thank You' note to 'Uncle Sam' for preventing a catastrophic economic meltdown in September of 2008, but he's not as enthusiastic about what the Federal Reserve is doing right now to boost the economy.
http://jlne.ws/9P5LFl
***CN: Warren Buffett using a little drama to draw some attention to his views.
New York Fed purchases $8.154 bln in Treasury coupons
Press Release
The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system...
http://bit.ly/9Yp9Lv
BOB RUBIN: "US In Terribly Dangerous Territory," Bond Market May Be Headed For "Implosion"
Business Insider
Warning of the risk of an "implosion" in the bond market, former Treasury Secretary Robert Rubin says the soaring federal budget deficit and the Fed's quantitative easing are putting the U.S. in "terribly dangerous territory."
http://jlne.ws/9FFEc5
Fed’s Rosengren: Bond Buying Action Fully Consistent With Fed Mandate
By Michael S. Derby, WSJ.com
The Federal Reserve’s recent decision to purchase $600 billion in Treasury securities is essentially the same as conventional monetary policy, and should be an effective action that will counter a worsening economic environment, a top central banker said Wednesday.
http://jlne.ws/an6ruy
Open season on Ben
By MARK DeCAMBRE, NYPOST.com
Ben Bernanke better hope he has some fireproof suits in the closet. The Federal Reserve chairman came under another scorching attack yesterday as former Republican government officials and economists ripped apart his $600 billion plan to revive the economy.
http://jlne.ws/9dEKs1
Huge List Of Investors And Economists Pen Open Letter To Ben Bernanke Slamming QE
Business Insider
The Wall Street Journal ran this open letter to Ben Bernanke from many noted economists, professors and fund managers. The list is a who’s who of Wall Street and the general message is not dissimilar to what Sarah Palin and Glenn Beck (not exactly the people you want to be next to when making economic prognostications) have been saying – in essence, cease and desist Chairman Bernanke.
http://jlne.ws/co4rQn
Republican group to urge Fed to drop QE2: report
A group of Republican-leaning economists will launch a campaign this week calling on U.S. Federal Reserve Chairman Ben Bernanke to drop his plan to buy $600 billion more in Treasury bonds, the Wall Street Journal reported on Monday.
http://jlne.ws/ckjHXd
Fed dismisses idea that QE is 'some sort of chapter in a currency war'
Telegraph
The Federal Reserve has robustly defended its latest efforts to reignite a US recovery, with the central bank's vice chairman dismissing the idea that they're writing "some sort of chapter in a currency war."
http://jlne.ws/cAigf4
Fed's `New World Order' May Boost Treasury Volatility, Morgan Stanley Says
Bloomberg
Bank of America Merrill Lynch's MOVE index , measuring price swings based on over-the-counter options maturing in 2 to 30 years, climbed yesterday to 91.60, the highest level since Nov. 2, the day before the central bank announced that it will buy $600 billion in additional government debt through.
http://jlne.ws/91KWQo
____________________________________________
MORE LEAD STORIES
30-Year Fixed Mortgage Rates Up 27 Basis Points To Four-Month High
By Lauren Riefflin, Zillow
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.34 percent, up from 4.07 percent at this same time last week. This is the highest average rate reported on Zillow Mortgage Marketplace in 16 weeks.
http://jlne.ws/ajB0WW
U.S. Rating Not Under Pressure This Year or Next
By Dennis Fitzgerald and Deirdre Bolton, Bloomberg
The U.S. Aaa rating won’t be under pressure this year or next from record budget deficits, according to Moody’s Investors Service Inc.
http://jlne.ws/9FNkOP
Geithner Sees Tax-Cut Deal This Year
By DAMIAN PALETTA, WSJ.com
WASHINGTON—U.S. Treasury Secretary Timothy Geithner said Tuesday it is "quite likely" the White House and Congress will reach a deal to address the expiring Bush-era tax cuts by the end of the year.
http://jlne.ws/bAQMEp
Bond Market Defies Fed
By MARK GONGLOFF, WSJ.com
Bucking the Federal Reserve's efforts to push interest rates lower, investors are selling off U.S. government debt, driving rates in many cases to their highest levels in more than three months.
http://jlne.ws/bo7wGY
Battle With Bondholders Looms After G-20 Agrees on Basel Rules
By Simon Clark and John Glover
The next hurdle to bank reform is looming after U.S. President Barack Obama and other Group of 20 leaders endorsed the Basel Committee on Banking Supervision's new rules in South Korea last week: the bond market.
http://jlne.ws/bGk2Dy
Deficit panelist says consumption tax needed
Reuters
The United States needs to consider a European-style tax on consumption to help tackle the burgeoning U.S. deficit, a member of a presidential deficit panel said on Tuesday.
http://jlne.ws/dfTR1b
Wolin Says U.S., EU Must Collaborate on Derivatives Oversight
By Rebecca Christie, Bloomberg
The U.S. and Europe need to join forces on derivatives oversight to make sure that international firms can't gain advantage by switching regulators, Deputy U.S. Treasury Secretary Neal Wolin said today in a speech at the London Stock Exchange.
http://jlne.ws/9zBceP
Incorrigible: Fannie Mae and Freddie Mac Must Go
Forbes
It's another problem we have that seems almost impossible to solve - at least not quickly.
http://jlne.ws/bGBWPM
Events
Introduction to Treasury Futures: Factoring the Risks
When: Dec. 2, 2010
Who: Institute for Financial Markets Full info: www.theIFM.org
Where: New York
Details: Treasury futures are one of the most popular future contracts for both hedging and speculating. Some of the factors that influence value in the Treasury complex include: interest rate risk, inflation risk, and the willingness of investors to continue buying Treasury debt. These factors lead to volatility in the underlying value of debt instruments as interest rates move up or down. If your business borrows money, you can mitigate the effects of higher or lower interest rates by trading the Treasury future complex. Moreover, with Treasury interest rate levels at multi generational lows, a robust case can be made for hedging the threat of higher interest rates in the future now –before interest rates return to ‘normal’ levels.
Treasury Futures Basis: Beyond the Risks
When: Dec. 2, 2010
Who: Institute for Financial Markets Full info:www.theIFM.org
Where: New York
Details: This short course extends the knowledge gained from the IFM's Introduction to Treasury Futures: Factoring the Risks, and explores the important yet subtle nuances of the fixed income future contracts. We start by defining and calculating the gross basis, net basis, implied repo-rates, and the synthetic duration of a hedged position. We next consider how high or low interest rates must move to precipitate a cross-over in the CTD bond/note
Treasury Futures: Using International Fixed-Income and Money Market Spreads
When: Dec. 7, 2010
Who: Institute for Financial Markets Full info: www.theIFM.org
Where: Chicago
Details: This progressive course builds on the knowledge gained in two previous IFM courses: Introduction to Treasury Futures: Factoring the Risks [1], and Treasury Futures Basis: Beyond the Risks[2]. The program provides a decidedly international perspective and explores the enormous spread trading opportunities in trading one sovereign yield curve against another sovereign yield curve, using just futures. We begin with a discussion of the price volatility of various libor-based contracts vs. their sovereign fixed-income sovereign future contract counterparts. We reconcile how many eurodollar futures to spread vs. the ten-year note futures, among many other examples. This discussion is extended to the international arena, initially by calculating how to weight money market spreads using futures, i.e. short sterling spread vs. euribor. Next, we consider trading one sovereign yield curve vs. another one, using just futures, on a duration neutral-basis and currency neutral-basis. These currency hedged yield spreads are now popular macro strategy tool.
Economic News
Global growth set to slow in 2011, says OECD
Growth in the world’s largest economies is likely to be slower in 2011 than this year but should pick up again by 2012, the Organisation for Economic Cooperation and Development said in its latest forecast. It said GDP growth in the 33-member countries was likely to slow to 2.3 per cent in 2011 from 2.8 per cent this year, before recovering in 2010. Within the eurozone, GDP is likely to hold steady next year after expanding 1.7 per cent in 2010.
http://ow.ly/3bVzm
Mid-Atlantic Factory Activity Picks Up
By Michael S. Derby, WSJ.com
Factory operators in the district overseen by the Federal Reserve Bank of Philadelphia expanded at an unexpectedly vigorous pace in November, turning in their best gain since December.
http://jlne.ws/cVMXDp
Philadelphia Factory Index Rises to Highest This Year
By Shobhana Chandra, Bloomberg
Manufacturing in the Philadelphia region expanded in November at the fastest pace this year as orders, sales and employment surged, indicating U.S. and overseas demand will keep fueling growth.
http://jlne.ws/9P0yMf
Leading Indicators Index in U.S. Climbs 0.5% for Second Month
By Courtney Schlisserman and Shobhana Chandra, Bloomberg
The index of U.S. leading indicators rose for a fourth consecutive month, manufacturing surged in the Philadelphia area and jobless claims climbed less than forecast, signaling the world’s largest economy is accelerating.
http://jlne.ws/dl0CRx
Mortgage delinquencies decline, but foreclosure rates soar
By Les Christie, CNN Money
Mortgage delinquency rates dropped in the last three months -- but only because more borrowers had their homes repossessed. You can't be late on your mortgage payment if you've already lost your home.
http://jlne.ws/d64vKP
Consumer Price Index Summary
Press Release
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment.
http://jlne.ws/cS0Rml
Economists React: Inflation Remains ‘No Show’
By Phil Izzo, WSJ.com
Economists and others weigh in on the consumer price index report, which noted muted inflation in October.
http://jlne.ws/cpmhEl
US inflation muted in October
By Alan Rappeport, FT.com
Inflation in the US remained muted last month, as falling prices for cars and computers held back the producer price index, government figures showed on Tuesday. Separately, industrial production was flat in October and homebuilder sentiment picked up in November as buyers became more serious about making purchases.
http://jlne.ws/cYpXkl
U.S. Homebuilder Confidence Index Increased to 16 in November
By Bob Willis, Bloomberg
Confidence among U.S. homebuilders improved for a second month in November, a sign residential construction may hold at depressed levels.
http://jlne.ws/cUfyEQ
***CN: Depressing.
Firms & Banks
Citigroup May Need to Refile Thousands of Foreclosure Documents
By Donal Griffin, Bloomberg
Citigroup Inc., which has proceeded with foreclosures as some rivals stopped to recheck documents, said it may need to refile affidavits in cases that began before an overhaul of its procedures.
http://jlne.ws/doodX3
BofA's seizure of $500 mln Lehman deposits unauthorized
Reuters
Bank of America Corp (BAC.N) was ordered by a U.S. judge to return $500 million of deposits it seized from Lehman Brothers Holdings Inc (LEHMQ.PK) shortly after Lehman's record bankruptcy in September 2008.
http://jlne.ws/d7YKal
Large Banks Should Face Quarterly Stress Tests, Stanford's Duffie Proposes
By Matthew Leising and Shannon D. Harrington, Bloomberg
The world’s largest banks and investment firms should undergo quarterly stress tests to identify risks that could sink the financial system, according to a proposal by Stanford University finance professor Darrell Duffie.
http://jlne.ws/cq3bnB
HSBC Is Said to Double Base Pay for Some Investment Bankers as Bonuses Cut
By Jon Menon, Bloomberg
HSBC Holdings Plc, Europe’s biggest bank, may as much as double the base salary of some investment bankers following similar increases by competitors, said a person with knowledge of the plans.
http://jlne.ws/d3Pszw
U.S. Civil Suit Against UBS Withdrawn
BY MARTIN VAUGHN AND KATHARINA BART, WSJ.com
The U.S. Internal Revenue Service dropped its civil lawsuit against UBS AG, claiming victory in a years-long effort to uncover the identities of alleged tax offenders that are the Swiss bank's U.S. clients.
http://jlne.ws/a5prB0
U.S. drops case against UBS, ends harmful tax row
Reuters
U.S. tax authorities have withdrawn a summons against UBS aimed at getting data on the bank's U.S. clients, the Swiss government said, putting an end to a tax row that had threatened to bring the bank down.
http://jlne.ws/8XZJIM
Paulson Trims Bank of America, Sells Entire Goldman Sachs Stake
By Dakin Campbell and Katherine Burton, Bloomberg
Paulson & Co., the hedge fund run by John Paulson, trimmed positions in Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. in the third quarter as regulatory changes and disputes over faulty mortgages threatened to hurt bank profits.
http://jlne.ws/bG3oZD
Banks invest in varied skills of elite few
The Age
Aiden Allen works for private equity clients of UBS, the investment bank that won the mantle this year of best investment bank.
http://jlne.ws/9K6NdE
Morgan Stanley adds advisers from UBS
Reuters
Morgan Stanley Smith Barney has added four financial advisers from UBS .
http://jlne.ws/9FpH5R
OneWest Buys $1.4 Billion in Loans From Citigroup
BusinessWeek
OneWest Bank, formed in the aftermath of IndyMac Bancorp's failure, purchased $1.4 billion in commercial real estate loans from Citigroup Inc.
http://jlne.ws/aMkieR
Mizuho buys BlackRock stake for $500m
By Michiyo Nakamoto in Tokyo, FT.com
Mizuho is buying a 2 per cent stake in BlackRock, the world's largest asset manager, for $500m, in the latest move by a Japanese bank towards globalising its operations.
http://jlne.ws/90ZX1w
Barclays pension fund eyes emerging markets hike
Reuters Finance News (EU) via Yahoo! UK & Ireland Finance
Barclays (LSE: BARC.L - news) ' UK employees pension fund could double its exposure to fast-growing emerging markets, an executive said, as it seeks higher returns and a wider spread of investments. The 17.3 billion pounds Barclays UK Retirement Fund, one of the largest in the UK, currently invests about 6 percent of its total assets in emerging market equities. "It would make ...
http://jlne.ws/aaziyz
US gets UBS account names
BigPond News
Swiss bank UBS AG has been forced to disclose thousands of account holders suspected of cheating on US taxes
http://jlne.ws/bicDMT
BlackRock Lobbies to Avoid Fed Supervision on Systemic Risk
By Ian Katz
BlackRock Inc. executives met with Federal Reserve officials this month to explain why the world's largest money manager doesn't pose enough risk to the financial system to merit central bank supervision.
Bloomberg
http://jlne.ws/a7u4hB
Regulators
Fed's Yellen Defends Bond-Purchase Plan
By JON HILSENRATH, WSJ.com
Janet Yellen, the Federal Reserve's new vice chairwoman, said in an interview that the central bank isn't trying to drive down the dollar's value or push inflation above 2%, defending the Fed against the strong backlash that followed its Nov. 3 decision to purchase $600 billion more of U.S. Treasury bonds in a bid to strengthen economic growth.
http://jlne.ws/doTK6Q
Dodd-Frank Rules To Split The $583 Trillion Swaps Market
By Katy Burne Of DOW JONES NEWSWIRES
The derivatives industry, grappling with an overhaul brought about by the Dodd-Frank Act, is about to be split in two. The result will be a radical alteration of a $583 trillion marketplace that for the last 20 years has been the cash cow of investment banks.
http://jlne.ws/avegZL
G-20 refuses to back US push on China's currency
Leaders of 20 major economies on Friday refused to back a U.S. push to make China boost its currency's value, keeping alive a dispute that raises fears of a global trade war amid criticism that cheap Chinese exports are costing American jobs.
http://jlne.ws/cdH5qN
New regulations set to hit banks' profits
Banks' trading desks will struggle to achieve sufficient returns to cover their cost of capital amid the combined effects of Basel III capital requirements and additional regulatory costs imposed by the so-called Dodd-Frank US legislation, a top Wall Street analyst has warned.
http://jlne.ws/abcXbn
G20 Leaders Endorse Financial Stability Board Policy Framework For Addressing Systemically
The G20 Leaders at the Seoul Summit on 11-12 November endorsed the Financial Stability Board's (FSB) policy framework for Reducing the moral hazard of systemically important financial institutions (SIFIs), including the work processes and timelines set out in the report submitted to the Summit.
http://jlne.ws/cxgbC5
Lobbying Dodd-Frank
eFinancial News
Anyone who doubted for a second that the financial services industry would do it all it can to slow down the Dodd-Frank regulatory reform act just needs to take a look at the thousands of lobbyists they have hired.
http://jlne.ws/av9MYx
CFTC's Dunn Says Swaps Industry May Have to Pay for Reforms
By Matthew Leising - Bloomberg
The derivatives industry may have to pay for regulatory reforms if Republicans in Congress limit funding, said Commodity Futures Trading Commissioner Michael Dunn.
http://jlne.ws/aaxLYi
Federal Reserve Issues Proposal To Implement Volcker Rule Conformance Period
The Federal Reserve Board on Wednesday requested comment on a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that give banking firms a defined period of time to conform their activities and investments to the so-called Volcker Rule.
http://jlne.ws/9drBT9
Fed’s Lacker Sees Inflation Risk as Jobless Rate Remains High
By Martin Vaughan, WSJ.com
The U.S. Federal Reserve shouldn’t wait too long to tighten monetary policy, even if unemployment remains historically high, a top Fed official said Sunday.
http://jlne.ws/dljNG1
Fed Official Calls For More Mortgage Modifications
By Greg Robb and Ronald D. Orol, MarketWatch
Two top Federal Reserve officials on Friday blasted banks for their mortgage practices, with one official using her first speech since joining the central bank to argue the entire system is broken.
http://jlne.ws/c6V7FD
Global News
UK's Cameron discusses Ireland, spending cuts
Reuters
British Prime Minister David Cameron answered questions on Thursday from lawmakers on subjects including the Irish debt crisis and British government spending cuts.
http://jlne.ws/cwH2h2
LCH.Clearnet doubles deposit on Irish debt trading
By David Oakley, FT.com
The European Central Bank bought tens of millions of euros in eurozone government bonds on Wednesday to steady prices as private investors boycotted the market due to increasing uncertainty over Ireland, according to traders. Moves by LCH.Clearnet, Europe’s biggest clearing house for fixed income, which increased charges for trading Irish bonds, and a poor debt auction in Portugal shook confidence in the eurozone markets.
http://jlne.ws/cFwbpN
Hungary should phase out bank tax from 2012
Reuters
Hungary should phase out a special tax on the financial sector from 2012, as extending the extra tax for longer could cause serious damage to the economy, Banking Association Chairman Tamas Erdei said.
http://jlne.ws/cUarVp
Greece Reaches Agreement With Lenders on Budget
BY COSTAS PARIS AND NICK SKREKAS, WSJ.com
Greece reached an agreement Wednesday with its international lenders on the final draft of next year's budget after adopting up to €4 billion ($5.4 billion) in additional austerity measures, a senior government official with knowledge of the talks said.
http://jlne.ws/dwAuIK
Greece will meet targets, finance minister says
By William L. Watts, MarketWatch
Greek Finance Minister George Papaconstantinou on Tuesday said Athens would meet its budget goals after Austria said it may withhold aid unless Greece shows it can meet its revenue targets. Speaking to reporters ahead of a meeting of euro-zone finance ministers in Brussels, Papaconstantinou repeated that Greece plans to take additional steps to meet its 2011 budget target and that it would meet its 2010 targets
http://jlne.ws/cYFdHb
U.K. Support Sought for Ireland Bailout
BY MARCUS WALKER AND PATRICK MCGROARTY, WSJ.com
European finance ministers working on an international aid package for Ireland want the U.K. to make bilateral loans to Dublin as part of a larger aid package that could total up to €100 billion ($135 billion) and include credit from the euro zone and International Monetary Fund, according to people familiar with the matter.
http://jlne.ws/9C5ole
EU intervention for Ireland under way: opposition
By Lorraine Turner and Natsuko Waki, Reuters
Ireland signaled on Monday its banks, not the state, could need help with funding but its impatient euro zone partners urged a swift decision on any EU rescue, saying the uncertainty was rattling markets and hurting them.
http://jlne.ws/blCPrF
Citigroup Says Ireland Financial Bailout Would Exert Pressure on Portugal
Bloomberg
A request by Ireland for aid from the European Financial Stability Facility would increase pressure on Portuguese government bonds, Citigroup Inc. said.
http://jlne.ws/9kblaC
Bank of Korea `Dangerously Behind' After Record Run of Negative Real Rates
Bloomberg
The Bank of Korea's second interest- rate increase this year leaves its benchmark below the pace of inflation, a sign the central bank will need to add to its move in coming months or risk eroding households' savings.
http://jlne.ws/c4jwMW
Banks in Europe Said to Be Poised to Escape Basel Rules That Curtail Debt
By Jim Brunsden, Bloomberg
Banks in Europe may escape global rules designed to limit their debt, as several countries push the European Union to drop a so-called leverage ratio, two people close to the discussions said.
http://jlne.ws/cht0y3
Portugal Fin Min: High Risk Portugal Will Need Intl Help
MarketNews.com
The risk is high that Portugal will have to turn to the international community for assistance, Finance Minister Fernando Teixeira dos Santos told the Financial Times in a story released Monday evening.
http://jlne.ws/c5nKAk
First Fully-Electronic Interest Rate Swap Trade Executed and Cleared in U.S.
Press Release
Tradeweb, a leading global provider of fixed income and derivatives markets, today announced the completion of the first interest rate swap trade by a client to be electronically executed and cleared in the U.S. The U.S. dollar-denominated swap transaction was executed on the Tradeweb platform between a U.S.-based asset manager and Deutsche Bank, with Deutsche Bank acting as the clearing member. The trade was then cleared by CME Clearing, and is the first transaction which could be considered swap execution facility (SEF)-ready under the expected regulatory framework soon to be defined and finalized by the CFTC and SEC.
http://jlne.ws/dawNBA
**CN: CME has been clearing interest-rate swaps since Oct. 18. This event is an example of how OTC derivatives could be traded once regulations under Dodd-Frank come into play.
Related Media Reports:
--Tradeweb Executes Its First Cleared U.S. Electronic Rate SwapBloomberg
Tradeweb LLC, the bond- and derivatives-trading network whose owners include Wall Street’s largest banks, said it executed its first electronic interest- rate swap in the U.S. that was cleared at CME Group Inc.
http://jlne.ws/cNxKX2
--Tradeweb Delivers Milestone in Electronic Swaps Trade
By KATY BURNE, WSJ.com
Tradeweb, an online derivatives marketplace, has become the first trading venue in the U.S. to facilitate execution of a fully electronic interest-rate swap that was then processed by a central clearinghouse.
http://jlne.ws/aLKJCb
--Interest rate swaps trading jumps on Tradeweb
Reuters
Tradeweb said interest rate swaps trading jumped by 71 percent on its online market in the first four months of 2010 as pressure increased for more transparent derivatives markets in the wake of the financial crisis.
http://jlne.ws/ccXxKC
--OTC Derivatives Volumes Fell 4% In First Half To $583T -BIS
By Katy Burne Of DOW JONES NEWSWIRES
The global over-the-counter derivatives market contracted almost 4% to $583 trillion in the first half of this year, compared with a 2% rise in the second half of 2009, according to survey results from the Bank for International Settlements on Monday.
http://jlne.ws/cLLVPn
Lead Stories
Bernake/QE2
Financial Crisis Commission Delays Report to Obama, Congress Until January
By Jesse Westbrook and Peter Eichenbaum, Bloomberg
Democrats on the Financial Crisis Inquiry Commission, the panel assigned to probe the worst U.S. economic collapse since the Great Depression, voted to delay the group’s final report on its findings amid Republican opposition.
http://jlne.ws/avOHZY
Fed likely to buy entire $600 bln in plan
Reuters
A top Federal Reserve official said on Wednesday the central bank is likely to follow through on its entire $600 billion bond buying program based on an anticipated weak economic recovery.
http://jlne.ws/d5SqI3
Warren Buffett's Warning: Fed Easing Creates 'Dangers' for Confidence in Dollar
By Alex Crippen, CNBC
Warren Buffett has written a 'Thank You' note to 'Uncle Sam' for preventing a catastrophic economic meltdown in September of 2008, but he's not as enthusiastic about what the Federal Reserve is doing right now to boost the economy.
http://jlne.ws/9P5LFl
***CN: Warren Buffett using a little drama to draw some attention to his views.
New York Fed purchases $8.154 bln in Treasury coupons
Press Release
The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system...
http://bit.ly/9Yp9Lv
BOB RUBIN: "US In Terribly Dangerous Territory," Bond Market May Be Headed For "Implosion"
Business Insider
Warning of the risk of an "implosion" in the bond market, former Treasury Secretary Robert Rubin says the soaring federal budget deficit and the Fed's quantitative easing are putting the U.S. in "terribly dangerous territory."
http://jlne.ws/9FFEc5
Fed’s Rosengren: Bond Buying Action Fully Consistent With Fed Mandate
By Michael S. Derby, WSJ.com
The Federal Reserve’s recent decision to purchase $600 billion in Treasury securities is essentially the same as conventional monetary policy, and should be an effective action that will counter a worsening economic environment, a top central banker said Wednesday.
http://jlne.ws/an6ruy
Open season on Ben
By MARK DeCAMBRE, NYPOST.com
Ben Bernanke better hope he has some fireproof suits in the closet. The Federal Reserve chairman came under another scorching attack yesterday as former Republican government officials and economists ripped apart his $600 billion plan to revive the economy.
http://jlne.ws/9dEKs1
Huge List Of Investors And Economists Pen Open Letter To Ben Bernanke Slamming QE
Business Insider
The Wall Street Journal ran this open letter to Ben Bernanke from many noted economists, professors and fund managers. The list is a who’s who of Wall Street and the general message is not dissimilar to what Sarah Palin and Glenn Beck (not exactly the people you want to be next to when making economic prognostications) have been saying – in essence, cease and desist Chairman Bernanke.
http://jlne.ws/co4rQn
Republican group to urge Fed to drop QE2: report
A group of Republican-leaning economists will launch a campaign this week calling on U.S. Federal Reserve Chairman Ben Bernanke to drop his plan to buy $600 billion more in Treasury bonds, the Wall Street Journal reported on Monday.
http://jlne.ws/ckjHXd
Fed dismisses idea that QE is 'some sort of chapter in a currency war'
Telegraph
The Federal Reserve has robustly defended its latest efforts to reignite a US recovery, with the central bank's vice chairman dismissing the idea that they're writing "some sort of chapter in a currency war."
http://jlne.ws/cAigf4
Fed's `New World Order' May Boost Treasury Volatility, Morgan Stanley Says
Bloomberg
Bank of America Merrill Lynch's MOVE index , measuring price swings based on over-the-counter options maturing in 2 to 30 years, climbed yesterday to 91.60, the highest level since Nov. 2, the day before the central bank announced that it will buy $600 billion in additional government debt through.
http://jlne.ws/91KWQo
____________________________________________
MORE LEAD STORIES
30-Year Fixed Mortgage Rates Up 27 Basis Points To Four-Month High
By Lauren Riefflin, Zillow
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.34 percent, up from 4.07 percent at this same time last week. This is the highest average rate reported on Zillow Mortgage Marketplace in 16 weeks.
http://jlne.ws/ajB0WW
U.S. Rating Not Under Pressure This Year or Next
By Dennis Fitzgerald and Deirdre Bolton, Bloomberg
The U.S. Aaa rating won’t be under pressure this year or next from record budget deficits, according to Moody’s Investors Service Inc.
http://jlne.ws/9FNkOP
Geithner Sees Tax-Cut Deal This Year
By DAMIAN PALETTA, WSJ.com
WASHINGTON—U.S. Treasury Secretary Timothy Geithner said Tuesday it is "quite likely" the White House and Congress will reach a deal to address the expiring Bush-era tax cuts by the end of the year.
http://jlne.ws/bAQMEp
Bond Market Defies Fed
By MARK GONGLOFF, WSJ.com
Bucking the Federal Reserve's efforts to push interest rates lower, investors are selling off U.S. government debt, driving rates in many cases to their highest levels in more than three months.
http://jlne.ws/bo7wGY
Battle With Bondholders Looms After G-20 Agrees on Basel Rules
By Simon Clark and John Glover
The next hurdle to bank reform is looming after U.S. President Barack Obama and other Group of 20 leaders endorsed the Basel Committee on Banking Supervision's new rules in South Korea last week: the bond market.
http://jlne.ws/bGk2Dy
Deficit panelist says consumption tax needed
Reuters
The United States needs to consider a European-style tax on consumption to help tackle the burgeoning U.S. deficit, a member of a presidential deficit panel said on Tuesday.
http://jlne.ws/dfTR1b
Wolin Says U.S., EU Must Collaborate on Derivatives Oversight
By Rebecca Christie, Bloomberg
The U.S. and Europe need to join forces on derivatives oversight to make sure that international firms can't gain advantage by switching regulators, Deputy U.S. Treasury Secretary Neal Wolin said today in a speech at the London Stock Exchange.
http://jlne.ws/9zBceP
Incorrigible: Fannie Mae and Freddie Mac Must Go
Forbes
It's another problem we have that seems almost impossible to solve - at least not quickly.
http://jlne.ws/bGBWPM
Events
Introduction to Treasury Futures: Factoring the Risks
When: Dec. 2, 2010
Who: Institute for Financial Markets Full info: www.theIFM.org
Where: New York
Details: Treasury futures are one of the most popular future contracts for both hedging and speculating. Some of the factors that influence value in the Treasury complex include: interest rate risk, inflation risk, and the willingness of investors to continue buying Treasury debt. These factors lead to volatility in the underlying value of debt instruments as interest rates move up or down. If your business borrows money, you can mitigate the effects of higher or lower interest rates by trading the Treasury future complex. Moreover, with Treasury interest rate levels at multi generational lows, a robust case can be made for hedging the threat of higher interest rates in the future now –before interest rates return to ‘normal’ levels.
Treasury Futures Basis: Beyond the Risks
When: Dec. 2, 2010
Who: Institute for Financial Markets Full info:www.theIFM.org
Where: New York
Details: This short course extends the knowledge gained from the IFM's Introduction to Treasury Futures: Factoring the Risks, and explores the important yet subtle nuances of the fixed income future contracts. We start by defining and calculating the gross basis, net basis, implied repo-rates, and the synthetic duration of a hedged position. We next consider how high or low interest rates must move to precipitate a cross-over in the CTD bond/note
Treasury Futures: Using International Fixed-Income and Money Market Spreads
When: Dec. 7, 2010
Who: Institute for Financial Markets Full info: www.theIFM.org
Where: Chicago
Details: This progressive course builds on the knowledge gained in two previous IFM courses: Introduction to Treasury Futures: Factoring the Risks [1], and Treasury Futures Basis: Beyond the Risks[2]. The program provides a decidedly international perspective and explores the enormous spread trading opportunities in trading one sovereign yield curve against another sovereign yield curve, using just futures. We begin with a discussion of the price volatility of various libor-based contracts vs. their sovereign fixed-income sovereign future contract counterparts. We reconcile how many eurodollar futures to spread vs. the ten-year note futures, among many other examples. This discussion is extended to the international arena, initially by calculating how to weight money market spreads using futures, i.e. short sterling spread vs. euribor. Next, we consider trading one sovereign yield curve vs. another one, using just futures, on a duration neutral-basis and currency neutral-basis. These currency hedged yield spreads are now popular macro strategy tool.
Economic News
Global growth set to slow in 2011, says OECD
Growth in the world’s largest economies is likely to be slower in 2011 than this year but should pick up again by 2012, the Organisation for Economic Cooperation and Development said in its latest forecast. It said GDP growth in the 33-member countries was likely to slow to 2.3 per cent in 2011 from 2.8 per cent this year, before recovering in 2010. Within the eurozone, GDP is likely to hold steady next year after expanding 1.7 per cent in 2010.
http://ow.ly/3bVzm
Mid-Atlantic Factory Activity Picks Up
By Michael S. Derby, WSJ.com
Factory operators in the district overseen by the Federal Reserve Bank of Philadelphia expanded at an unexpectedly vigorous pace in November, turning in their best gain since December.
http://jlne.ws/cVMXDp
Philadelphia Factory Index Rises to Highest This Year
By Shobhana Chandra, Bloomberg
Manufacturing in the Philadelphia region expanded in November at the fastest pace this year as orders, sales and employment surged, indicating U.S. and overseas demand will keep fueling growth.
http://jlne.ws/9P0yMf
Leading Indicators Index in U.S. Climbs 0.5% for Second Month
By Courtney Schlisserman and Shobhana Chandra, Bloomberg
The index of U.S. leading indicators rose for a fourth consecutive month, manufacturing surged in the Philadelphia area and jobless claims climbed less than forecast, signaling the world’s largest economy is accelerating.
http://jlne.ws/dl0CRx
Mortgage delinquencies decline, but foreclosure rates soar
By Les Christie, CNN Money
Mortgage delinquency rates dropped in the last three months -- but only because more borrowers had their homes repossessed. You can't be late on your mortgage payment if you've already lost your home.
http://jlne.ws/d64vKP
Consumer Price Index Summary
Press Release
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment.
http://jlne.ws/cS0Rml
Economists React: Inflation Remains ‘No Show’
By Phil Izzo, WSJ.com
Economists and others weigh in on the consumer price index report, which noted muted inflation in October.
http://jlne.ws/cpmhEl
US inflation muted in October
By Alan Rappeport, FT.com
Inflation in the US remained muted last month, as falling prices for cars and computers held back the producer price index, government figures showed on Tuesday. Separately, industrial production was flat in October and homebuilder sentiment picked up in November as buyers became more serious about making purchases.
http://jlne.ws/cYpXkl
U.S. Homebuilder Confidence Index Increased to 16 in November
By Bob Willis, Bloomberg
Confidence among U.S. homebuilders improved for a second month in November, a sign residential construction may hold at depressed levels.
http://jlne.ws/cUfyEQ
***CN: Depressing.
Firms & Banks
Citigroup May Need to Refile Thousands of Foreclosure Documents
By Donal Griffin, Bloomberg
Citigroup Inc., which has proceeded with foreclosures as some rivals stopped to recheck documents, said it may need to refile affidavits in cases that began before an overhaul of its procedures.
http://jlne.ws/doodX3
BofA's seizure of $500 mln Lehman deposits unauthorized
Reuters
Bank of America Corp (BAC.N) was ordered by a U.S. judge to return $500 million of deposits it seized from Lehman Brothers Holdings Inc (LEHMQ.PK) shortly after Lehman's record bankruptcy in September 2008.
http://jlne.ws/d7YKal
Large Banks Should Face Quarterly Stress Tests, Stanford's Duffie Proposes
By Matthew Leising and Shannon D. Harrington, Bloomberg
The world’s largest banks and investment firms should undergo quarterly stress tests to identify risks that could sink the financial system, according to a proposal by Stanford University finance professor Darrell Duffie.
http://jlne.ws/cq3bnB
HSBC Is Said to Double Base Pay for Some Investment Bankers as Bonuses Cut
By Jon Menon, Bloomberg
HSBC Holdings Plc, Europe’s biggest bank, may as much as double the base salary of some investment bankers following similar increases by competitors, said a person with knowledge of the plans.
http://jlne.ws/d3Pszw
U.S. Civil Suit Against UBS Withdrawn
BY MARTIN VAUGHN AND KATHARINA BART, WSJ.com
The U.S. Internal Revenue Service dropped its civil lawsuit against UBS AG, claiming victory in a years-long effort to uncover the identities of alleged tax offenders that are the Swiss bank's U.S. clients.
http://jlne.ws/a5prB0
U.S. drops case against UBS, ends harmful tax row
Reuters
U.S. tax authorities have withdrawn a summons against UBS aimed at getting data on the bank's U.S. clients, the Swiss government said, putting an end to a tax row that had threatened to bring the bank down.
http://jlne.ws/8XZJIM
Paulson Trims Bank of America, Sells Entire Goldman Sachs Stake
By Dakin Campbell and Katherine Burton, Bloomberg
Paulson & Co., the hedge fund run by John Paulson, trimmed positions in Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. in the third quarter as regulatory changes and disputes over faulty mortgages threatened to hurt bank profits.
http://jlne.ws/bG3oZD
Banks invest in varied skills of elite few
The Age
Aiden Allen works for private equity clients of UBS, the investment bank that won the mantle this year of best investment bank.
http://jlne.ws/9K6NdE
Morgan Stanley adds advisers from UBS
Reuters
Morgan Stanley Smith Barney has added four financial advisers from UBS .
http://jlne.ws/9FpH5R
OneWest Buys $1.4 Billion in Loans From Citigroup
BusinessWeek
OneWest Bank, formed in the aftermath of IndyMac Bancorp's failure, purchased $1.4 billion in commercial real estate loans from Citigroup Inc.
http://jlne.ws/aMkieR
Mizuho buys BlackRock stake for $500m
By Michiyo Nakamoto in Tokyo, FT.com
Mizuho is buying a 2 per cent stake in BlackRock, the world's largest asset manager, for $500m, in the latest move by a Japanese bank towards globalising its operations.
http://jlne.ws/90ZX1w
Barclays pension fund eyes emerging markets hike
Reuters Finance News (EU) via Yahoo! UK & Ireland Finance
Barclays (LSE: BARC.L - news) ' UK employees pension fund could double its exposure to fast-growing emerging markets, an executive said, as it seeks higher returns and a wider spread of investments. The 17.3 billion pounds Barclays UK Retirement Fund, one of the largest in the UK, currently invests about 6 percent of its total assets in emerging market equities. "It would make ...
http://jlne.ws/aaziyz
US gets UBS account names
BigPond News
Swiss bank UBS AG has been forced to disclose thousands of account holders suspected of cheating on US taxes
http://jlne.ws/bicDMT
BlackRock Lobbies to Avoid Fed Supervision on Systemic Risk
By Ian Katz
BlackRock Inc. executives met with Federal Reserve officials this month to explain why the world's largest money manager doesn't pose enough risk to the financial system to merit central bank supervision.
Bloomberg
http://jlne.ws/a7u4hB
Regulators
Fed's Yellen Defends Bond-Purchase Plan
By JON HILSENRATH, WSJ.com
Janet Yellen, the Federal Reserve's new vice chairwoman, said in an interview that the central bank isn't trying to drive down the dollar's value or push inflation above 2%, defending the Fed against the strong backlash that followed its Nov. 3 decision to purchase $600 billion more of U.S. Treasury bonds in a bid to strengthen economic growth.
http://jlne.ws/doTK6Q
Dodd-Frank Rules To Split The $583 Trillion Swaps Market
By Katy Burne Of DOW JONES NEWSWIRES
The derivatives industry, grappling with an overhaul brought about by the Dodd-Frank Act, is about to be split in two. The result will be a radical alteration of a $583 trillion marketplace that for the last 20 years has been the cash cow of investment banks.
http://jlne.ws/avegZL
G-20 refuses to back US push on China's currency
Leaders of 20 major economies on Friday refused to back a U.S. push to make China boost its currency's value, keeping alive a dispute that raises fears of a global trade war amid criticism that cheap Chinese exports are costing American jobs.
http://jlne.ws/cdH5qN
New regulations set to hit banks' profits
Banks' trading desks will struggle to achieve sufficient returns to cover their cost of capital amid the combined effects of Basel III capital requirements and additional regulatory costs imposed by the so-called Dodd-Frank US legislation, a top Wall Street analyst has warned.
http://jlne.ws/abcXbn
G20 Leaders Endorse Financial Stability Board Policy Framework For Addressing Systemically
The G20 Leaders at the Seoul Summit on 11-12 November endorsed the Financial Stability Board's (FSB) policy framework for Reducing the moral hazard of systemically important financial institutions (SIFIs), including the work processes and timelines set out in the report submitted to the Summit.
http://jlne.ws/cxgbC5
Lobbying Dodd-Frank
eFinancial News
Anyone who doubted for a second that the financial services industry would do it all it can to slow down the Dodd-Frank regulatory reform act just needs to take a look at the thousands of lobbyists they have hired.
http://jlne.ws/av9MYx
CFTC's Dunn Says Swaps Industry May Have to Pay for Reforms
By Matthew Leising - Bloomberg
The derivatives industry may have to pay for regulatory reforms if Republicans in Congress limit funding, said Commodity Futures Trading Commissioner Michael Dunn.
http://jlne.ws/aaxLYi
Federal Reserve Issues Proposal To Implement Volcker Rule Conformance Period
The Federal Reserve Board on Wednesday requested comment on a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that give banking firms a defined period of time to conform their activities and investments to the so-called Volcker Rule.
http://jlne.ws/9drBT9
Fed’s Lacker Sees Inflation Risk as Jobless Rate Remains High
By Martin Vaughan, WSJ.com
The U.S. Federal Reserve shouldn’t wait too long to tighten monetary policy, even if unemployment remains historically high, a top Fed official said Sunday.
http://jlne.ws/dljNG1
Fed Official Calls For More Mortgage Modifications
By Greg Robb and Ronald D. Orol, MarketWatch
Two top Federal Reserve officials on Friday blasted banks for their mortgage practices, with one official using her first speech since joining the central bank to argue the entire system is broken.
http://jlne.ws/c6V7FD
Global News
UK's Cameron discusses Ireland, spending cuts
Reuters
British Prime Minister David Cameron answered questions on Thursday from lawmakers on subjects including the Irish debt crisis and British government spending cuts.
http://jlne.ws/cwH2h2
LCH.Clearnet doubles deposit on Irish debt trading
By David Oakley, FT.com
The European Central Bank bought tens of millions of euros in eurozone government bonds on Wednesday to steady prices as private investors boycotted the market due to increasing uncertainty over Ireland, according to traders. Moves by LCH.Clearnet, Europe’s biggest clearing house for fixed income, which increased charges for trading Irish bonds, and a poor debt auction in Portugal shook confidence in the eurozone markets.
http://jlne.ws/cFwbpN
Hungary should phase out bank tax from 2012
Reuters
Hungary should phase out a special tax on the financial sector from 2012, as extending the extra tax for longer could cause serious damage to the economy, Banking Association Chairman Tamas Erdei said.
http://jlne.ws/cUarVp
Greece Reaches Agreement With Lenders on Budget
BY COSTAS PARIS AND NICK SKREKAS, WSJ.com
Greece reached an agreement Wednesday with its international lenders on the final draft of next year's budget after adopting up to €4 billion ($5.4 billion) in additional austerity measures, a senior government official with knowledge of the talks said.
http://jlne.ws/dwAuIK
Greece will meet targets, finance minister says
By William L. Watts, MarketWatch
Greek Finance Minister George Papaconstantinou on Tuesday said Athens would meet its budget goals after Austria said it may withhold aid unless Greece shows it can meet its revenue targets. Speaking to reporters ahead of a meeting of euro-zone finance ministers in Brussels, Papaconstantinou repeated that Greece plans to take additional steps to meet its 2011 budget target and that it would meet its 2010 targets
http://jlne.ws/cYFdHb
U.K. Support Sought for Ireland Bailout
BY MARCUS WALKER AND PATRICK MCGROARTY, WSJ.com
European finance ministers working on an international aid package for Ireland want the U.K. to make bilateral loans to Dublin as part of a larger aid package that could total up to €100 billion ($135 billion) and include credit from the euro zone and International Monetary Fund, according to people familiar with the matter.
http://jlne.ws/9C5ole
EU intervention for Ireland under way: opposition
By Lorraine Turner and Natsuko Waki, Reuters
Ireland signaled on Monday its banks, not the state, could need help with funding but its impatient euro zone partners urged a swift decision on any EU rescue, saying the uncertainty was rattling markets and hurting them.
http://jlne.ws/blCPrF
Citigroup Says Ireland Financial Bailout Would Exert Pressure on Portugal
Bloomberg
A request by Ireland for aid from the European Financial Stability Facility would increase pressure on Portuguese government bonds, Citigroup Inc. said.
http://jlne.ws/9kblaC
Bank of Korea `Dangerously Behind' After Record Run of Negative Real Rates
Bloomberg
The Bank of Korea's second interest- rate increase this year leaves its benchmark below the pace of inflation, a sign the central bank will need to add to its move in coming months or risk eroding households' savings.
http://jlne.ws/c4jwMW
Banks in Europe Said to Be Poised to Escape Basel Rules That Curtail Debt
By Jim Brunsden, Bloomberg
Banks in Europe may escape global rules designed to limit their debt, as several countries push the European Union to drop a so-called leverage ratio, two people close to the discussions said.
http://jlne.ws/cht0y3
Portugal Fin Min: High Risk Portugal Will Need Intl Help
MarketNews.com
The risk is high that Portugal will have to turn to the international community for assistance, Finance Minister Fernando Teixeira dos Santos told the Financial Times in a story released Monday evening.
http://jlne.ws/c5nKAk
Langganan:
Postingan (Atom)