Ed’s Daily Notes for February 4th   6 comments

Fox Business: Fed’s Fisher: Stock Selloff Won’t Change Tapering Plans

Bad news if you expect the Federal Reserve to stop this market fall:

Dallas Federal Reserve Bank President Richard Fischer said Monday in an exclusive interview on FOX Business that the current selloff in stock markets won’t deter his support for tapering the Fed’s monthly bond purchases.

…Fisher is a member of the policy setting Federal Open Market Committee, which announced last week that it would scale back the Fed’s monthly bond purchases by another $10 billion despite the problems in emerging markets and some other choppy economic data. The Fed announced the beginning of tapering in December.

“I’m very happy with the direction we’re going,” Fisher said. “We’re still providing a great deal of accommodation. It’s not that we’ve stopped, we haven’t gone cold turkey. We’ve just slowed down the pace of accumulation.”

…Asked if he would alter his position on tapering if the slide in stocks continued, Fisher said nothing has happened so far to change his views – he still supports tapering.

He declined to speculate on whether another weak jobs report might change his mind. January jobs data is due Friday and economists have predicted it will rebound from December’s disappointing report.

Fisher said the key to future monetary policy is what’s happening “in the real economy,” and cited stable bond markets even as volatility has taken over stock markets.

To bring back the classic line from James Carville, “It’s the economy, stupid!” The Fed won’t do anything until they see economic damage. And then they’ll do the wrong thing…

The Guardian: Germany preparing third financial rescue for Greece

Germany has signalled it is preparing a third rescue package for Greece – provided the debt-stricken country implements “rigorous”austerity measures blamed for record levels of unemployment and a dramatic drop in GDP.

The new loan, outlined in a five-page position paper by Berlin’s finance ministry, would be worth between €10bn to €20bn (£8bn-16bn), according to the German weekly Der Spiegel, which was leaked the document.

…”They are missing the point: Greece does not need a third bailout, it needs debt restructuring,” said the shadow development minister and economics professor, Giorgos Stathakis.

“Even in the IMF, logical people agree there is no way we can have any more fiscal adjustment when the whole thing has reached its limits,” he said. “There is simply no room for further cuts and further taxes and that is what they are going to ask for.”

Debt restructuring? Really? Let’s create an even longer drag on the Greek economy, so they can never dig out of this hole.

As for the German bailout, how long before the Germans say, “nicht mehr”? This will not end well.

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Posted February 4, 2014 by edmcgon in Economy, Editorial/opinion, Federal Reserve, News

6 responses to “Ed’s Daily Notes for February 4th

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  1. “As for the German bailout, how long before the Germans say, “nicht mehr”? This will not end well.”
    The only reason Germany is bailing Greece out, is because it is actually a bailout of the German (and French and Italian) banks. If they wouldn’t, German financials would collaps.
    But I agree, it will not end well … as I said before: it’s getting worse in Europe.

    • plas,
      My guess is we are 5-10 years away from a point where we will be able to see what will happen in Europe. Right now, the politicians are still able to lie and kick the can down the road.

      • Well, I don’t know about that. 5-10 years is for me the optimistic path – if nothing bad happens anymore. Governments (especially south) and banks (all over the EU) are over their head in debt, they can’t take another financial blow. What will happen if the stock market crashes? Can they handle it? And what about a hard landing in China which will cripple the German economy? What about another Latin-American bankrupcy? What if Italy or France wil be in problems? The EU can’t take anymore … well, okay, they can take Greece, it’s almost nothing. But do you see Spain and France bailing out Italy while German economy is going south? Will ECB bailout Italian and French banks?
        And what about riots? Don’t you think young people in Spain, Portugal and Greece will become more violent if another crisis hits? What do they have to do during the day? 50% doesn’t have a job. And what if National/Golden Dawn comes to power and kick’s EU’s butt?
        It can evolve pretty fast and become pretty ugly. ECB already said the politicians are moving way to slow. Do you see them agree in time of need? I don’t. I see south breaking apart and perhaps a Northern Union coming to life. You can’t have a monetary union without an economic/politic union.

        I really hope you are right, I really do. 5-10 years would give us some more time to arrange it here. But if it becomes here in Belgium as fierce as in Greece – their income was wiped out in a couple of months, I think we’re gonna have a hard time.

      • plas,
        I am looking at it from a historical perspective. It took the Nazis about 10 years to go from where Golden Dawn is now to complete control of Germany. And the German economy of the period was certainly comparable to Greece’s economy today.

        5-10 years seems a reasonable estimate. While it may look closer to 5 than 10, keep in mind that Europeans in general tend to accept the b.s. their politicians keep shoveling as long as the economy isn’t impacting them. When the majority of Europeans start feeling an impact, watch out. That’s when the far-left and far-right radicals will start coming to power.

      • ed,
        I cannot but agree with what you said. I just am afraid it may be go quicker because everything is so interconnected and at so much debt (gov+priv) now – which is unprecedented.
        “When the majority of Europeans start feeling an impact, watch out.” – remember how fast it came to Greece, Cyprus, Spain or Portugal. One day life looked like a dream, the next day the were chopping trees for heating.
        And remember Golden Dawn is running along for some years now, and with the Winter Olympics ahead, Nazism seems to be on topic again (at least here in EU), media is still much against, but I bet some people will welcome it.

      • plas,
        When enough people are starving and/or living in the streets, or know someone close who is, then a deal with the devil doesn’t look so bad. That’s how political groups like Nazis come to power.

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