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Monetary Policy Prescription

With the prospect of deflation, monetary policy alone without strong fiscal policy has a marginal effect in stimulating the economy.  By expanding Quantitative Easing by doing portfolio-restructuring purchasing corporate bonds, the Federal Reserve will expand the beneficial effects directly into the corporate financing environment.  The Feds choice is limited, by cutting out the stalled banking system and applying QE directly to businesses they have the best chance of creating a beneficial shock to the system and some measure of sustainable growth.    

The U.S. Economy is still suffering.  What's next?  ... >>

The European project – another step in the great master plan or... >>

Euro adoption has been the root cause of the woes... >>

Is the Greek Bailout History Repeating Itself or... >>

Tax payer revolt – EU establishment feels pull on the leash... >>

Editor’s Choice

More Highlights

Yuan Appreciation - Implications for China’s U.S. Treasury holdings   

Many commentators expect the appreciation of the yuan to force China to invest more in US Treasury bonds.  I believe it will have the opposite effect as their past investment motives have not been fully understood.  These speculations ignore the fact that China is the major foreign purchaser of U.S. Treasuries because of its exchange rate policy.  The historical data shows that China’s exchange rate policy was complemented by China’s ownership of U.S. Treasury securities, more than some economists will admit.

Did the CDO cause the financial crisis or was it blindness, the need for riskier assets?   

CDOs played a notable role in the financial markets.  Did the CDO cause the financial crisis or was it blindness, greed and the need for riskier assets? The constructors of the CDOs may not bear direct responsibility.  Rather their reckless use, misunderstanding and ignorance of key warning signs likely contributed to the magnitude of the financial crisis.  You can observe the financial landscape today and recognize from the survivors, walking wounded and the absentees those who knew and those who had not understood the use of these tools.

Housing values skewed, Index can misdirect   

Distorted home price indicators can adversely affect the consumer by increasing expectations of a stabilized housing market. If these false expectations do not become reality, the result will be consumer fear. The S&P/Case-Shiller Home Price Indices are more designed to measure the growth in value of residential real estate more towards where the market should be rather than where the market actually is.

Fed's magic is weak.  Bernanke cast his QE spell on the only target in range, "financing wages"  

Monetary policy intervention did not achieve the effects that most hoped.  What merits applause is the ingenuity of targeting an increase in "financing wages" as a means to spur spending out of profits.  More ambitious targets were beyond the firepower of the Fed - the analysis proves that QE2 was at least deployed intelligently towards one goal that could be achieved.

Euro crisis - phase two

It falls to the son to undo the folly created by his father - wider lessons for the EU and US.

The first decade of the 21st century can be characterised as the Debt Decade and the next is likely to be known as the Austerity Decade.  There is no rich uncle in China to bail us out and the losses are going to have to be paid by someone.  The argument is over how the bill will be divided.