Central bankers from 10 leading economies have said the world economy is ‘approaching’ a turning point.
‘We have a number of elements that are suggesting that we are approaching the moment where you would have a pick-up,’ European Central Bank head Jean-Claude Trichet said.
He was speaking in his capacity as spokesman for the G10 central bankers meeting at the Bank for International Settlements (BIS) in Switzerland.
Advertisement’I would say that we are at a level where the positives are not necessarily fully priced in,’ he added.
that would be him calling the bottom without actually saying it… right?
Taking a leave from Gerard Houillier’s book so…
Sure this is the world. It’s different!
We’ll see a very powerful stock market rally first.
“We are approaching a turning-on point [and will begin printing money].”
Well I hope he’s right. It’s true that cheaper oil and commodities should help, but our banking system is totally banjaxed. I guess JCTs comments are a little contrary to his actions last week lowering rates by 50bps.
(At the risk of having the whole thread moved to The Piston)
There’s something about that article that reminded me of this
Or perhaps, those hoping for an early upturn will be more akin to those
“Waiting for Godot”
He didn’t say which direction the world economy was going to turn…
doesn’t growth mean upward?
Jurgen Stark’s presentation:
ecb.int/press/key/date/2009/ … 09.en.html
I’m only on the first paragraph and already I am in a cold sweat…
He sure knows a lot of ways to “
NOT” say deflation:
Let me emphasise that sharp fluctuations in annual inflation rates or the temporary emergence of negative inflation rates is a normal concomitant of any disinflation process, which by its very nature is temporary and thus should not be confused with another “d”-word, namely deflation. From a conceptual point of view, deflation is a completely different state. A deflationary process is a persistent, broad-based and self-sustaining decline in the overall price level. It is reinforced by the anticipation that prices will decline further in the future. As a consequence, inflation expectations become unanchored and negative, with adverse effects on investment and consumption.
By contrast, disinflation, which is linked to transitory movements in relative prices, is per se a welcome development because it helps sustain real incomes, provided that medium-term inflation expectations remain well anchored at levels consistent with price stability. To the extent that this is the case, short-term volatility in annual inflation rates, including negative inflation rates, is not relevant from the medium-term perspective of monetary policy. We expect that price stability is maintained at the medium-term. Moreover, available information indicates that medium-term inflation expectations in the euro area are solidly anchored at levels consistent with the aim of the Governing Council of keeping inflation at rate of below, but close to, 2% over the medium term. Such a firm anchoring represents the strongest and most reassuring safeguard against any risk of a downward spiral of inflation and inflation expectations. The fact that we have a clear mandate and a clear definition of price stability is helpful in anchoring inflation expectations.
would I be right in saying that he thinks:
-lowering interest rates further is a bad idea
-printing money is a bad idea
-buying bad assets is the way to go
Long speech Jurgen
Very long speech
From Mr. Starck:
The problem is not a lack of liquidity in the market. It is the lack of trust among the banks themselves. Unless trust in the solvency of banks is re-established, there is hardly any chance that conditions in the money market will normalise… Too low interest rates tend to foster lending to unprofitable business. This would harm the growth potential of the economy and thereby prepare the ground for anaemic growth. Or, as in the past, it could lay the foundations for another asset price bubble. Finally, very low interest rates hamper the functioning of the money market: The lower interest rates in the money market, the lower the incentive of banks to trade funds in the market rather than depositing them safely, at the same low return, with the central bank.
yes, yes, and no.
In considering further easing measures, these principles have obvious implications. Central banks can alleviate liquidity risks. But they cannot address the perceived solvency problems that impair the financial system. One could conceive measures to ease credit conditions by taking over some of the credit risk on commercial paper that banks currently hold. The ECB has already been accepting corporate loans as part of collateral in its regular liquidity operations. By operating through the banking sector, this has significantly contributed to providing funding to non-financial corporations – and thereby an easing of credit conditions. Buying corporate debt outright would circumvent the banking sector.
We have a responsibility to keep the Eurosystem financially sound. This concern puts a break on how much further we can expand our balance sheet.
He says it all, doesn’t he? We are the Bundesbank, you will be assimilated, attempts to escape your obligations are futile…
While we’re on the subject, I noticed this on the ECB site:
ecb.int/press/pr/date/2009/h … _2.en.html
n autumn 2008, five counterparties defaulted on refinancing operations undertaken by the Eurosystem, namely Lehman Brothers Bankhaus AG, three subsidiaries of Icelandic banks, and Indover NL. The total nominal value of the Eurosystem’s claims on these credit institutions amounted to some €10.3 billion at end-2008. The monetary policy operations in question were executed on behalf of the Eurosystem by three NCBs, namely the Deutsche Bundesbank, the Banque centrale du Luxembourg and de Nederlandsche Bank.
The Governing Council decided that any shortfall, if it were to materialise, should eventually be shared in full by the Eurosystem NCBs in accordance with Article 32.4 of the Statute of the ESCB, in proportion to the prevailing ECB capital key shares of these NCBs in 2008. The Governing Council also decided, as a matter of prudence, that the NCBs should establish their respective shares of an appropriate total provision in their annual accounts for 2008 as a buffer against risks arising from the monetary policy operations which were conducted with the counterparties mentioned above. The size of the total provision will amount to € 5.7 billion, and it is already accounted for in the net result figures stated above. The level of the provision will be reviewed annually pending the eventual disposal of the collateral and in line with the prospect of recovery.
Normally, IIRC, the Central Bank transfers some profit to the exchequer each year… look like that is going to be less this year…
And some hints about interest rates from Lorenzo bin Smaghi:
ecb.int/press/key/date/2009/ … 06.en.html
If the rate cut stops at a higher level, consistent with the medium-term inflationary projections, it is more likely that the interest rate will remain at that (above zero) floor level for some time and lenders will be more inclined to invest in long-term risky assets. It might seem paradoxical, but a policy of persistently low interest rates might be more credible at a slightly higher level of interest rate than at zero. The ECB’s announcement that it will provide fixed rate liquidity allotments at unlimited amounts for a prolonged period should also contribute to the effectiveness of this signal.
An excessively low level of interest rates may also have some unintended consequences in financial markets. It might drive some financial intermediaries out of business, for example money market funds having small, but strictly positive investment fixed costs and not anymore in the position to offer positive net returns to risk averse investors, thus risking large redemptions. It could also trigger a disorderly unwinding of investment in certain securities, causing mis-pricing in other market segments. This problem could be more serious in a situation in which large parts of the financial system are already distressed.