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Have your say: The Fed and Bank of Japan fire up the printing presses

Posted in News

The US Federal Reserve has announced plans to buy back US$300 billion worth of Treasury bonds and to lend an extra US$750 billion in its Term Asset Backed Securities Loan Facility (TALF) to kick start car loans, student loans and mortgage lending. The Bank of Japan also announced plans overnight to buy up to US$18.3 billion a month of Japanese government bonds. The Bank of England has already started its gilt-buying programme. This is money printing on a grand scale that threatens to create a "very nasty" inflation problem in a year or two, according to Alan Bollard last week in his parliamentary appearance after he cut the Official Cash Rate by a less-than-expected 50 bps to 3%. Your views on this money printing?

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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it is an important signal.

it is an important signal. "Forget about deflation"

The next issue is how well they handle the transition to inflation you can believe in and the subsequent reversal of the deflation mindset as even the die hard skeptics throw in the towel.

In principal they can still manage an orderly adjustment of the imbalances without the hyperinflation that the deflationists regard as being the inevitable consequence of a reversal of the current deflation

The more desperate the measures

The more desperate the measures become - the less likely their actions will "kick start" anything.

It looks as though the

It looks as though the fun is really going to start now. Watch the u.s. dollar collapse and the price of gold take off. Both the u.s and u.k appear headed for inevitable bankruptzy. It will be interesting to see how China reacts to the collapsing u.s. dollar.and whether they pull the plug on funding the u.s deficit.

If inflation takes off then

If inflation takes off then interest rates need to rise. Rising interest rates will be the final nail in the coffin for our economy.

AndrewJ Ever the cheerful chap

AndrewJ

Ever the cheerful chap eh? I see you are now able to say 'high meat prices'.

What seems reasonable is that as higher prices lead to higher interest rates that farmers incomes will carry on rising while the debt remains relatively fixed but becomes more expensive to service. If you plug some numbers in today could then come up with various inflation rates of NZ commodities versus debt servicing costs and then decide if it builds the coffin you seem so hell bent in creating.

Meanwhile we are some way away from the kind of generalised asset price inflation of the kind that is likely to lead to significantly higher rates and if that comes then does it not in any case help to dismantle the coffin anyway?

I am surprised at the

I am surprised at the amount of hysteria about printing money. After all this is what the US banks did by shifting scrutinized loans off their balance sheets to fuel the boom. Now with the reverse - unprinting money - by the banks (being deflationary) the central bankers logically counteract by creating credit. Which they have to do if the banks and business don't or cant respond to lower interest rates by lending more.

The doomsayers are worried about inflation down the track. Fair enough, but only if the central bankers get the timing very badly wrong. At present they appear to have been underestimating the extent of the deflationary - deleveraging - impact.

AndrewJ Despite Bernards (& Cullens)

AndrewJ

Despite Bernards (& Cullens) opinion that we should save more, it has been the 'savers' that have been hard hit in this crisis hasn't it (low interest rates, loss of capital). Similarly on the track we are going it will the the creditor nations (particularly exporters) that suffer. So basically NZ could have its foreign debt wiped out by creditor nation hyperinflation.

This is counterintuitive and you could say unfair after all the Japanese, Chinese and Indians have toiled to improve our quality of life, but risk isn't fair, it was all very well China buying huge tranches of USD but in doing so they 'invested' in the welfare of the US Economy and as such will suffer as that investment struggles.

So given the rate of export drops out of Japan, China etc versus ours I'd say we are one of the taller pygmies

Neven

Mike The difference is that

Mike

The difference is that if a bank does it an fails the system corrects, if the State does it it has to tax (enslave its citizens) to fund it, the State cannot fail

Neven

Andrewj Unfortunately interest rates will

Andrewj

Unfortunately interest rates will not fall now.

Have a look at the initial reaction in terms of US treasury prices here:

http://www.bloomberg.com/markets/rates/index.html

Equally the NZD/USD overnight Tom/next forex swap implied NZD deposit rate is trading at 2.4572% out of New York.

Unless the RBNZ undertakes a serious programme to withdraw liquidity from our banking system today (ie Repo), which I doubt, the OCR is priced at 2.50% already.

errata: 'Unfortunately interest rates will

errata: 'Unfortunately interest rates will not fall now' should read: Unfortunately interest rates will fall now.

Does anyone actually believe that

Does anyone actually believe that the US is going to pay back their debt with anything other than worthless paper.

Oh to be a fly on the wall inside the chinese government when the fed made its anouncement today.

Good for Gold up US$26

Good for Gold up US$26 since news came out.

Goldbugs will be ecstatic with the actions of the Fed, BoE and BoJ.

China will be loading up on resource sector with vengeance now.

Mike, I think the issue

Mike, I think the issue is that most the stimulus hasn't hit the streets yet. If you'll excuse the metaphor, the Engine isn't moving yet, but it has built up a major head of steam. Now the engineers are adding nitroglycerine to the firebox as further encouragement.

Stephen Hulme - Thank you

Stephen Hulme - Thank you posting here. Your posts are always informative and helpful, as is your website.

All this seems to be

All this seems to be based on "if we can just kick start the economy again and get ppl buying"............Helicopter Bernanke just wants to ge a bigger 'copter....and bigger.....and bigger...at some point it wont get off the ground....

Whats plan B, I want to know....there is a huge destruction of wealth underway, economies cant grow anymore there isnt the energy to do it, a new business model is needed, until then we waste huge resources fixing the un-fixable instead of moving on.

regards

DavidC, thats what China warned

DavidC, thats what China warned about recently....the only way left for China not to lose its money is to sell out of the USD while it can.

I find in amazing NZ and the NZD is considered so bad when I read about stuff like this...I dont see basket case written all over our currency, unlike the US...or the UK...

regards

Guys I see the forment

Guys

I see the forment of a non tariff trade war starting, Chinalco blocked from Australia, Cocacola blocked from China, lets hope Key sees it as well and doesn't allow the flogging of NZ companies for sake of the "free market" revaluing resource assets at fire sale prices in a credit decline

Sometimes Fonterra et al being coops is a good thing

Neven

steven - China's investment is

steven - China's investment is too big. If they try to sell it all, they will force the value of their assets down and take a massive loss. They may be better off trying to prop up the US economy, because in doing so they are propping up the value of their assets.

The current 'market price' only applies to a small transaction. Big transactions move the market price. Mega transactions move it big time.

Vinenna, they have threatened just

Vinenna, they have threatened just that...Q of take a hit now on selling or see it become worthless as the US devalues the assets using inflationary tactics...in the former both the US and China takes a hit, latter, the US shafts China....

(second para, classic supply and demand) hence the worry that if China sells the USD it will collapse....once a big player starts to sell even a "reasonable" amount that could snowball as others jump on and sell as well.

another appalling decision. buy gold.

another appalling decision. buy gold.

I hope that NZ benefits

I hope that NZ benefits from being a "holdout" against this sort of lunacy and the related Keynesian ones. Good on Allan Bollard for being that clued up at least. We could have worse people at the head of parliament and the reserve bank than what we've got. But not getting Don Brash and the full "secret agenda" in 2005, was a tragic missed opportunity.

Sorry to lob this in

Sorry to lob this in here out of context a little, but this site moves that fast these days I am quite unsure if those I wished to continue debate with even saw it when I posted it. It is very relavent to this thread anyway;

Vibena - you are so right about different rates of interest encouraging hedging and other detrimental game playing to occur, thus I have added this to my solution;

All registered deposit taking institutions would be regulated to be unable to charge administration fees and interest exceeding 1% Any entity proven to be issuing loans regularly enough to be deemed commercial and in excess of 1% will be charged with loan sharking. Which would attract penalties in line with tax evation.

Full version here;
http://socialcreditorbust.blog.co.nz/credit%20reform/

Andrew - if the shop keeper loans out more credit at compounding interest than he knows the borrowers are going to be able to get goods from him or there are insufficient resources to ever convert to saleable goods to cover his lending , he is ripping them off and gaining the interest on even unspent credit for nothing. You appear not to grasp the fact that the planets resources are finite.

For all of you who blame government deregulation for the credit crisis and not the fact that masters of money have infiltrated and now subversively run most governments, with their locally recruited co-operatives, from behind the diplomatic curtain, I give you the last three articles here to provoke some thought;
http://socialcreditorbust.blog.co.nz/

Jill Wellington - if you are still out there, in the above mentioned articles there are a number of names you might be interested in learning some more about.

And this that reminds us that the Privatisation Blitzkreig we are about to have rammed up us by the Bankers favourite son Johny Key, has Douglas's strategies written all over it. Douglas and Keys good cop bad cop routine doesn't fool me, they are working toward the same end, for the same people ;
http://www.reason.com/news/show/30260.html
excerpt from above website-
But New Zealand's transformation cannot be properly understood without understanding the people who made it happen. Perhaps no two people were more instrumental than Roger Douglas, the Labour government's finance minister (from whom "Rogernomics" was to take its name), and Ruth Richardson, the finance minister when the National Party took back power in 1991. Their vision, persistence, stubbornness, and drive were indispensable in bringing about reform.

In the late 1970s and early '80s, while most of New Zealand's Labour Party was preoccupied with left-wing social and cultural issues (remember their anti-nuke policy?), Douglas, a businessman from a political family, was left alone to fashion much of Labour's economic policies. When Labour took office in 1984, he had brought a number of key party leaders around to his market-oriented views.

At the time, New Zealand looked remarkably similar to the interest-group-dominated state described by Mancur Olson. "New Zealand had been the acme of a lobbying, rent-seeking society," remembers Roger Kerr, the director of the New Zealand Business Roundtable. "If you look in Olson's book, you see two or three pages on New Zealand. The country conformed precisely with his hypothesis."

While recognizing the power of interest groups to block reform, Douglas didn't believe their existence necessitated compromise or retreat. Instead he designed strategies to buy out or overwhelm interest group opposition. One tactic was to apply the reforms on a broad front in order to spread the burden and enhance the legitimacy of the program.

Iain If you click on

Iain

If you click on the blue date and time of original post of "March 19th, 2009 at 1:00 am" you can bookmark it and then come back to it and check for answers.

Here is my answer to you which i saved in the same way to check if you answered me

http://www.interest.co.nz/ratesblog/index.php/2009/03/14/opinion-why-hug...