BusinessDesk: Bernanke raises the spectre of inflation which would erode the value of bonds

BusinessDesk: Bernanke raises the spectre of inflation which would erode the value of bonds

Concern about Greece after politicians delayed a second bailout to the debt-laden nation weighed on equities even as investors drew hope from Federal Reserve chief Ben Bernanke’s promise that the U.S. central bank is ready to act to save the world’s largest economy.

In Europe, the Stoxx 600 Index closed the day with a 2.8% drop.

Shares of Dexia SA plunged to a record as European finance ministers were considering making banks take bigger losses on Greek debt and postponed a crucial aid payment to Athens until mid-November.

Greek Finance Minister Evangelos Venizelos said the country had enough cash to cope until then and insisted that euro zone ministers were not preparing for a Greek default, despite the ominous delay.

"There is no discussion of default," Venizelos told a news conference on returning to Athens on Tuesday, according to Reuters.

In afternoon trading in New York, the Dow Jones Industrial Average dropped 1.09% and the Standard & Poor's 500 Index fell 0.62%. The Nasdaq Composite Index was up 0.33%.

Fed Chairman Ben Bernanke said the central bank’s policy committee was ready to take more measures to boost an economy “that is close to faltering.”

"The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability," Bernanke told the Joint Economic Committee of Congress.

As a result, the euro rose 0.7% to US$1.3267. It gained 1% to 101.99 yen.

“Bernanke did hold out the possibility of further Fed action,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, told Bloomberg News.

“It’s largely a reiteration of what he’s said before, but it’ll reaffirm that they’re not out of bullets. People are very short the euro and there is some short-covering as well.”

The greenback strengthened 0.3% to 76.88 yen. The U.S. currency slipped 0.05% against a basket of major counterparts.

U.S. Treasuries fell as Bernanke’s comments raised the spectre of inflation which erodes the value of fixed-income assets. Yields on 30-year bonds rose five basis points to 2.78% at 1.16pm in New York, according to Bloomberg Bond Trader prices.

Further clues on the strength of the economy will come on Friday when the Labor Department releases monthly employment figures. Economists in a Reuters poll forecast a minor gain of 60,000 jobs for September.

Goldman Sachs Group Inc has lowered its global growth forecast for this year and next, forecasting recessions in Germany and France.


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Let's deal with facts: The Fed is not only out of ammo but the tracks have come off the tank and the barrel has printers droop. The piigs farce cannot be hidden beneath more debt and more leveraged debt. China is going pear shaped as their QE bubble implodes and their export markets throw the toys out of the cots. Australia is in trouble on every front. Commodities are emerging from the Bernanke mist to a new reality...lower demand with bloated supplies. Food commodities may well hold up for longer but in the end they too will be dragged down.

On the political front, the us is a haven for hollow men wearing wigs to hide their bald policies. The uk is trapped in a recession. Germany and France are heading for trouble. The piigs are stuffed. As are all the banks that loaned credit to other banks that bought the piigs debt. The domino are crashing. Try to stay out of the way.

 "We can't rely on monetary policy. We can't solve the international imbalances with monetary policy, but people don't know that yet," warned Hoenig, who oversees banks in Colorado, which is part of the Fed's 10th District based in Kansas City, Mo.

The core problem is that the United States has consumed more than it has produced for 20 years running. Consumers and governments in the developed world have piled on too much debt.