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90 seconds at 9 am: Fed eases again by extending Operation Twist; markets disappointed on no QE III; Merkel rejects direct bond buying; Bank of England almost printed again

Posted in News
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Here's my summary of the key news overnight in 90 seconds at 9 am, including news the US Federal Reserve has eased monetary policy again in an attempt to fire up growth in the world's largest economy.

The US Federal Reserve's monetary policy setting Federal Open Markets Committee (FOMC) announced a plan to extend the Fed's 'Operation Twist' programme of selling short term government bonds and buying longer term government bonds. This is aimed at 'twisting' the curve of bond interest rates so that longer term rates fall relative to shorter term rates. It's called the 'Twist' because the US Federal Reserve used the tactic during the early 1960s when the 'Twist' was a popular song.

The FOMC announced it would add another US$256 billion to its existing US$400 billion 'Twist' programme. See more here at Bloomberg.

The Federal Reserve is aiming to encourage households and businesses to borrow more to spend and invest to boost the economy, however it hasn't worked that well so far. The credit 'channel' seems blocked as those who need to borrow don't have good enough credit ratings or any equity left in their homes to borrow against, while those could invest and spend are already cashed up and are fearful about investing and spending given the uncertain economic outlook globally.

The Dow and S&P 500 closed down 0.2% and 0.3% respectively as investors and traders were disappointed the Federal Reser ve's easing measures didn't include a third round of money printing to buy government bonds, known as Quantitative Easing. They were also concerned about the extent of the US Federal Reserve's reductions in its economic growth forecasts. The Fed cut its forecast for US economic growth in 2012 to 1.9-2.4% from 2.4-2.9% in its April forecast. The Fed also cut its 2013 growth view to 2.2-2.8% from 2.7%-3.1% previously. See more here at Bloomberg.

The Fed also saw US unemployment staying above 8% until well into next year, which is a problem for US President Barack Obama. No US President has been elected to a second term with unemployment over 8%.

Meanwhile, in Europe, German Chancellor Angela Merkel was true to form again overnight, saying 'Nein!' again to proposals to use European resuce funds or the European Central Bank to buy Southern European bonds directly, a measure many say is the only hope to keep the euro-zone together and avoid an economic calamity. See more here at Bloomberg.

Elsewhere in Europe, Greece's new pro-bailout coalition government was sworn overnight and its first comments were that it wanted to soften the bailout terms. Merkel again said 'Nein!' to any suggestion of changing Greece's bailout package or austerity targets. See more here at Reuters.

Related Topics

In Britain, minutes from the Bank of England's last policy setting committee meeting were released showing it narrowly decided not to start printing money again to boost its economy. Bank of England Governor Mervyn King voted for another 50 billion pounds of quantitative easing to buy government bonds, but was voted down 5-4 by the rest of the committee. See more here at Reuters.

The New Zealand dollar was strong over 79 USc overnight amid all the talk of money printing and easing by overseas central banks, which would devalue their currencies, making the New Zealand dollar relatively stronger.

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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28 Comments

"The New Zealand dollar was

"The New Zealand dollar was strong over 79 USc overnight amid all the talk of money printing and easing by overseas central banks, which would devalue their currencies, making the New Zealand dollar relatively stronger."
The prospects for NZ exporters looks increasingly bleak. If the global economny continues to weaken we'll see more QE and a weaker $US.   If it starts to improve we'll see a 'risk-on' trade and demand for $NZ, pushing the currency up.
The only route to a lower $NZ seems to be some sort of global crash, sparking the 'risk off' trade, and that will weakend demand for our exports.
Is there a silver lining somewhere?

No.

No.

So it is time for English and

So it is time for English and Bollard to have their heads banged together to get our own QE to match the rest.

There is, but not in the

There is, but not in the conventional sense. Think of it as the opportunity to get closer to your family and neighbours :-) Maybe you can enjoy their company at the community gardens you set up :-P

No, I dont agree on a weaker

No, I dont agree on a weaker USD.....If the global economy continues to weaken then there will be a run to "safety" Which is the USD....NZD is seen as risky so a double whammy effect maybe...
"Silver lining", well we can expect 20 to 30 years of hardship ie a seond great Depressiion........I cant see +'s in that. Unless you have a lot of cash and no debt and can hang on to it.....
regards

20 to 30 years of hardship ie

20 to 30 years of hardship ie a second great Depression ........ surely not !
 
......be bold .... 30 to 40 years of hardship , at least ....... and that should force the majority of those baby-boomers into a cold austere retirement ....... yah ........ see , there is a + in that , you just have to pop the gloomster goggles on & look harder ......
regards

Surely FDR was re-ellected

Surely FDR was re-ellected with unemployment higher than 8%?

dp

dp

1936 about 15%....but I think

1936 about 15%....but I think the quote misses "since ww2"
regards

Quite right

Quite right Banksterbasher.......
  It should be noted Herbert Hoover lost re-election in 1932 in the midst of the Great Depression facing an unemployment rate estimated in excess of 23%; President Franklin Roosevelt won re-election in 1936 and 1940 despite unemployment rates in the teens.
http://content.usatoday.com/communities/theoval/post/2012/06/obama-likely-to-face-record-re-election-jobless-rate/1#.T-JyRBen-Ck

I guess the silver lining is

I guess the silver lining is petrol prices.  Brent down $3 to $92 overnight.

Victoria - I'm guessing that

Victoria - I'm guessing that Brent might just keep going down. Bakken Field in North Dakota production is starting to hit some good targets and I see the Russians have just found somewhere much bigger than the Bakken field.
 
 

... I'm with victoria on this

... I'm with victoria on this , the falling oil price is extra cash in the pockets of motorists , and a cheaper feedstock into many manufacturing industries .......
 
 Even dear old Air NZ will be rejoicing , and chopping their airfares ..... .... well ..... at least they will be rejoicing !

Let's take stock of what the

Let's take stock of what the US Fed has tried so far.  QE1 didn't work so they tried QE2 which also failed.  Then they tried OT1, which hasn't worked.  So the economic geniuses at the Fed come up with OT2, guess what that won't work either.  When will they understand that the problem is the current monetary system, consisting of fractional reserve banking propped up by central banks and ever expanding fiat currency.

Depends how you define

Depends how you define 'hasn't worked' I guess.  We don't know what unemployment and growth would have been if they hadn't acted. 

We will never know what

We will never know what growth and unemployment would have been without the Fed interventions, but are you suggesting they have been successful?  The US Gov't is continuously running a 9% budget deficit in order to get a growth rate of 2%.  Also the US unemployment figures are spurious at best e.g. if a US citizen works for 1 hour per week they are not counted.  Also if an unemployed person has not looked for work in the prior week they are also not classed as unemployed.   Einstein's definition of insanity was "to repeatedly take the same actions and expect different results"   I would suggest that the Fed's QE1 & 2 and OT1 & 2 fit that definition.

I'd suggest preparing for the

I'd suggest preparing for the Great Depression mkII you obviously want.
Yes the real unemployment is probably 16% and in some states higher, possibly 20%+ in some, not indeed the 8~9% that is claimed.
I would suggest that the stimulus packages were setup to fail, they needed to be double the actual level 1.2trillion and not 600million and targetted....instaed too little too late...Hav eyou never been handed anti-biotics and told to comeplete the whole course at the doses needed? same thing if you dont.  These and QE 1 and 2 have stopped a full blown depression setting in so far.....
To succeed the govn spending needed to be in construction ie actual job creation and closer to 2 Trillion....If Obama did that even today we might see a recovery......he cant/wont.  My 2 cents would be put 2 Trillion on the table for constructing a National Grid and Green tech and let the GOP congress resist it, go into the Nov election and let the ppl decide. No point in a second term if he cant get a mandate to boldly, better to let Romney win and destroy the GOP that way.
regards
 
 
 
 
 

..........

..........

...... agreed , Count ......

...... agreed , Count ...... and then there was the great depression of 1873-96 , 23 years of angst ....... prior to that , the panic of 1837 ( USA mainly ) when the real estate bubble collapsed , 5 years of slog after that ......
 
The world recovered though , didn't it , life went on  ...... or am I dreaming again .......
 
....... hmmm , angry wife screaming at me to stop fecking blogging .... nope , this is reality ...

steven says - "I'd suggest

steven says - "I'd suggest preparing for the Great Depression mkII you obviously want."
Since when did you become a mind reader?  I would suggest you stop making false and unsubstantiated accusations.

I'd suggest preparing for the

I'd suggest preparing for the Great Depression mkII you obviously want.
Yes the real unemployment is probably 16% and in some states higher, possibly 20%+ in some, not indeed the 8~9% that is claimed.
I would suggest that the stimulus packages were setup to fail, they needed to be double the actual level 1.2trillion and not 600million and targetted....instaed too little too late...Hav eyou never been handed anti-biotics and told to comeplete the whole course at the doses needed? same thing if you dont.  These and QE 1 and 2 have stopped a full blown depression setting in so far.....
To succeed the govn spending needed to be in construction ie actual job creation and closer to 2 Trillion....If Obama did that even today we might see a recovery......he cant/wont.  My 2 cents would be put 2 Trillion on the table for constructing a National Grid and Green tech and let the GOP congress resist it, go into the Nov election and let the ppl decide. No point in a second term if he cant get a mandate to act boldly, better to let Romney win and destroy the GOP that way.
regards
 
 
 
 
 

I liked it so much I saved it

I liked it so much I saved it for you twice Stevo.........now ya see that GBH has got me all mischiefyfied again. 

Einstein's definition of

Einstein's definition of insanity was "to repeatedly take the same actions and expect different results"   I would suggest that the Fed's QE1 & 2 and OT1 & 2 fit that definition.
 Exactly Andy R.....but the Twist  then twist with a twist  was the begining of accepting it did ot work ...does not work...will not work....becoming more a throw the Capital Markets a bone to be seen to be involved....pressure from both sides....
As  and .....if....the current stategy release rolls out and the world does not end ..the NO QE camp in the Fed will gain more support and traction.....the numbers have changed  and will continue to since the utter failure of QE1/2 
 

There is, did not give us a

There is, did not give us a recovery  and there is, prevented a Depression....
ditto QE1 and 2...
but sure Christov lets go for no QE3 and austerity....and Romney for the rich tax cuts.....lets see how well that does as a comparison as obviously ppl need to see the difference....and it will be a wow difference IMHO.....hang on to your hat....
Lets also kick out Bernanke and put in Naill Fergerson as Fed Chairman, I cant think of any other reason for him to be supporting the voodoo economic Ryan plan but personal Political gain....
regards
 

Appreciate what your saying

Appreciate what your saying there Steven but as some wise man said here the other day..hmmm who was that now,,? ...don't go putting words in my mouth (or whatever the cyber version is) , I made no elaboration on No QE3 this year......and I'm picking Barry to sneak home ( turnout dependent )...i don't recall saying America did not need to re-adjust it's  aspirations for Joe Average or indeed anyone else who's been living beyond their means...and that means targeted austerity.
Right now those that can re-invigorate America's wiil to become productive again while curbing their appitite for cheap imports will hold the keys to a beginning of a recovery   that can only be based on Job creation before the obscession of Growth  for Growths sake.

Prof. Niall Ferguson ?

Prof. Niall Ferguson ? ....... behave yourself ! ...
 
...... Jamie Dimon's the man for the job at the Fed . He's just had a $US 3 billion refresher course in financial management  ..... gotta be battle hardend after that .

Bernard, those to whom

Bernard, those to whom "credit channel blocked" you would not get on to bus with, those you would get on with (sensibly) don't want to borrow. Believe me there will be no artificial "stimulus" solution to the quagmire the west is in. The insolvent need to go broke and real business will then step forward into the opportunities that arise - pretty simple really, it is called Capitalism.
Ergophobia  

“Christchurch Landlords

“Christchurch Landlords Stunned At Low Response” – Liz McDonald – The Press

 
Christchurch Landlords Stunned At Low Response - Liz McDonald - The Press

 
Hugh Pavletich comprehensive response - http://www.facebook.com/CantabriansUnite

 
Brief on line comment...The Press....

 
 
Hugh Pavletich   #49  

CHRISTCHURCH HOUSING RATED "SEVERELY UNAFFORDABLE"

The reality is that Christchurch housing at 6.3 times household income ( refer Demographia Survey www.demographia.com ) is rated severely unaffordable. Housing should not exceed 3 times household incomes in normal markets, as was the case here in Christchurch back in the early 1990's.

Christchurch is also a low household income City with a median of $56,000 - just $46,000 in the east. Auckland in contrast is in the order of $72,000.

The reality is that the Christchurch recovery cannot get underway until the Authorities start allowing affordable new housing stock to be built. At Cantabrians Unite www.cantabriansunite.co.nz and on its constantly updated facebook page http://www.facebook.com/CantabriansUnite we have been pressing for this, for a long time now.

We either build affordable housing out of these earthquake events - or bust out of it as people migrate elsewhere for more affordable housing and better opportunities.

The second option is gross irresponsibility.

The choice is yours Gerry Brownlee.

Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org