US: President and CEO of Dallas Fed speech

dallasfed.org/news/speeches/ … 080528.cfm
The speech excited much comment on ticketforum yesterday:
tickerforum.org/cgi-ticker/a … post=46364
(Much donning of tin hats).

Having gone through the mounting debts facing the US through the unbalanced budget and the timebomb of social security payments, Fisher gets to the interesting bit:

Next move up for the Fed? If the Fed moves up will the ECB immediately follow suit?

Goodness - on the same day another fed governor says (as reported by marketwatch):

I’ve seen Richard Fisher on CNBC a few times, not a Bernanke Yes man, actually seems to have a mind of his own.

Is this a vindication for the ECB policy?

To add further grist to this, Frederik Mishkin, a noted dove on interest rates, resigned yesterday:
bloomberg.com/apps/news?pid=2060 … refer=home

What the regional Feds are doing is cutting Greenspan down to size now that Greenspans power base at the White House is on the way out.

This is the management team saying after the previous CEO has left a few months that he was crap. Hence we find out that alot of the Regional Feds thought Greenspan policies were crap but clearly were afraid of George W would do to them if they spoke out.

Indicates the White House was in charge during “Mr Bubble’s” term.

However assume a fall in oil prices next year and plus a bit of inflation trickery and suddenly inflation could drop very quickly. This would give the central banks capacity to keep interest rates low and stimulate a recovery.

I still don’t think that theory actually makes any sense, despite it being accepted as The Truth practically worldwide. Cutting interest rates to fix an economy broken in the first place by, ummm, low interest rates feeding a frenzy of capital malinvestment in non-productive assets?

Tis pure voodoo.

If the underlying problem is malinvestment, then the only cure is to raise rates and forcibly flush the junk out of the system. If you lower rates you just keep all the toxic waste in circulation stinking up the gaff for a decade or more, and the economy never gets round to actually doing something productive.

Correct and Incorrect in the same breath Sidewinder.

No doubt, Voodoo Economics is indeed afoot, because the Fed is not sure what to do. The recent rate cuts and liquidity injections have been utterly Voodoo, but correct for the current situation.

Breathing space if you like. They are buying time, not economic reality. They are not, however, stupid. [He said hopefully]

Next set of moves will likely be up. Reason - inflation. No central bank wants to let inflation get embedded, or their currency to tank - obviously. The ECB has been fortunate so far - and they are well run - the €uro’s rise against the basket has been meteoric - but that is a function of the fall in relative value of the dollar and consequently sterling.

Now commodities - same thing. They are still rising because they are still rising. This will come to a halt [the speculative bit anyway] and the central banks know it. So headline inflation has been rising, primarily because of the price of energy and foodstuffs feeding quickly into the chain.

The question really comes down to whether those commodities continue the rise on the same curve or retrench. If they retrench, which is likely, then inflation should be caught. It’s a game of chicken.

The Malinvestment line is nonsense. It happens all the time to different degrees and people go bust - part of the mix. The issue was credit - regardless of the quality of investment - which was not an issue when buying money up to last summer. There’s none of that left. Game over.

The toxic junk is being flushed out of the system, as interest rates fall, which I suspect is a first for the global economy. Thus, the impact of rate rises will be well balanced in its objective of protecting the value of money from here [After the toxic shit washout only] on in.

I’m sure that some ECB board members, (bar our supine Mr Hurley ), are chuckling at all this . As for Hurley I don’t want to know what he is up to, he embarasses me :frowning:

Ahem…

Cough.

Cough eile !

Awaiting Morgans next treatise with extreme [National] interest.

Casey, Michael Central Bank of Ireland mgtboard@centralbank.ie
ecb.eu/events/pdf/conference … ants03.pdf

Perhaps queries should be addressesd to the above ?

No it’s not, the Irish banks are still marking the assets they lent against at book value, rather than mark to market. They have and are continuing to use these overvalued assets as security to get money from the ECB.

The ECB has never had any intention of protecting the purchasing power of money with controlled inflation being the stated goal (2% price stability), however, this has never been achieved, in Ireland’s case the Germans have merely exported inflation to us during the boom, rather like the US exports inflation to the rest of the world that uses dollars or dollar linked currencies (dollar hegemony)

It has to be said if the Punt were still in play the Irish Government would have done much worse and we would be probably be looking at a situation similar to Iceland now.

The ECBs policy seems to be, more inflation first, then raise interest rates later to clear up the mess they created in the first place.

The worrying thing from a european point of view is that there may be a lag between a rise in the dollar, caused by the fed raising interest rates to fight inflation, and a reduction in the dollar price of oil. If supply really is a problem, then the Fed raising rates will increase the value of the dollar against the euro and we will have to pay the piper - or the pumper in this case - as oil rises in euro terms.

I reckon the ECB would gladly hike away at that stage, no need to restrain rates if the US is hiking.

This surprises and concerns me.

That is a shocker. I was under the impression that asset backed securities had taken significant markdowns - particularly in the run up to results time in the first quarter this year.

Obviously a poor assumption on my part. :blush:

It’s notable that this is not being talked about in the mainstream media.

Why is the ECB not qualifying the asset quality of the paper it’s lending against - there has to be a good reason - stoopid they ain’t. Perhaps to protect against a domino default in the banking system ?

Still, it’s not yet the [nightmare] Iceland scenario. Speaking of which, is the Norse/Scandinavian bailout the ECB in disguise ? The back door so to speak … ?

I believe they are starting to do this - there was a piece on Bloomberg a couple of weeks ago about the quality of assets deposited, mostly to do with Spanish mortgages, IIRC.

I think the ECB will force slow writedowns on the banks, i.e. each time an asset is deposited, it will be marked down a little bit more.

Norway and Sweden and Denmark have their own currencies, so I doubt there is a proxy bailout going on. It might be interesting to see who the main lenders to the Icelandic banks are - is there a scandanavian country or two that is particularly exposed?

They take a fair range of stuff, but for ABSs, i believe only the top tranches. So it’s not quite as bad as offering full mythical value for the whole mortgage pool.

How so - only finland is in the eurozone?

The U.K. isn’t in the €urozone either - didn’t stop their banks running to the ECB for cash on the QT.

Similarly, the scandanvian economies are very closely linked to the €urozone - their banks all have operations in various € countries - don’t think it would be too difficult for them.

Having said all that I’m just speculating :wink:

Got ya now - i thought you were suggesting a strategic but stealth move by the ECB. A multinational bank strategically moving capital is certainly possible, and the ECB loose purse strings may help allow that to happen.

Mmm, but it was the Scandanavian central banks who passed the brown envelope to Iceland (brown from being in their back pocket, presumably).