90 seconds at 9 am: French bailout

90 seconds at 9 am: France bails out Credit Immoblier with 20 bln euro guarantee; Chinese factory output contracts; Bernanke talks QE III; Euro-zone jobless hits record

3rd Sep 12, 9:02am by Bernard Hickey

Here's my summary of the key news over the weekend in 90 seconds at 9 am,including news the French government was forced on Saturday to guarantee the debts of Credit Immoblier de France after its access to credit markets was blocked.

The mortgage lender to lower income families had lent 30 billion euros and has its own debts of 20 billion euros, which have now been guaranteed by the French government in its second major bailout since it rescued out Dexia in October. The bailout indicate the stresses in Southern Europe's housing market are spreading to the core of Europe and that financial market turmoil is affecting many Euro-zone banks. See more here at The Guardian and at Reuters.

Meanwhile in China, factory output unexpectedly contracted in August, official Purchasing Manager Index figures showed. ANZ economists cut their growth forecast for China to 7.8% from 8.2% in another sign that China's economiy is experiencing a hard landing rather than a soft landing.

The Chinese government launched a crackdown on runaway property market inflation last year that has slowed construction in the sector to a virtual halt, while Europe's slump into economic contraction has hit demand from China's biggest buyer of exports. Iron ore and coal prices have slumped as much as 50% as demand for steel crashed. Analysts now expect China's government to unveil fresh stimulus measures. See more here at Bloomberg.

There was also more talk of fresh stimulus by US Federal Reserve Chairman Ben Bernanke over the weekend. He gave his much-anticipated (24 page) speech at the Jackson Hole symposium for central bankers. He argued the Fed would add more stimulus to the economy and that the first two rounds of Quantitative Easing had boosted the economy, although not enough to get unemployment low enough. See more here at Bloomberg.

Meanwhile in Europe, unemployment figures for July showed a record-high 18 million people or 11.3% of the workforce were unemployed in the Euro-zone, with youth unemployment in Greece and Spain rising over 53%. See more here at The Telegraph.

The New Zealand dollar dipped briefly below 80 USc over the weekend after the weak Chinese factory output figures, but is around its Friday levels of 80.4 USc in morning trade.

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5 Comments

by Christov | 3rd Sep 12, 9:30am 1346621449

How's that QE3 in September coming along...?A speech in defence of his actions to date does not ensure the print will happen.

In light of the evidence I discussed, it appears reasonable to conclude that nontraditional policy tools have been and can continue to be effective in providing financial accommodation, though we are less certain about the magnitude and persistence of these effects than we are about those of more-traditional policies.

He goes on to say...

One possible cost of conducting additional LSAPs is that these operations could impair the functioning of securities markets. As I noted, the Federal Reserve is limited by law mainly to the purchase of Treasury and agency securities; the supply of those securities is large but finite, and not all of the supply is actively traded. Conceivably, if the Federal Reserve became too dominant a buyer in certain segments of these markets, trading among private agents could dry up, degrading liquidity and price discovery. As the global financial system depends on deep and liquid markets for U.S. Treasury securities, significant impairment of those markets would be costly, and, in particular, could impede the transmission of monetary policy. For example, market disruptions could lead to higher liquidity premiums on Treasury securities, which would run counter to the policy goal of reducing Treasury yields. However, although market capacity could ultimately become an issue, to this point we have seen few if any problems in the markets for Treasury or agency securities, private-sector holdings of securities remain large, and trading among private market participants remains robust.

A second potential cost of additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed's ability to exit smoothly from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might increase the risk of a costly unanchoring of inflation expectations, leading in turn to financial and economic instability. It is noteworthy, however, that the expansion of the balance sheet to date has not materially affected inflation expectations, likely in part because of the great emphasis the Federal Reserve has placed on developing tools to ensure that we can normalize monetary policy when appropriate, even if our securities holdings remain large. In particular, the FOMC will be able to put upward pressure on short-term interest rates by raising the interest rate it pays banks for reserves they hold at the Fed. Upward pressure on rates can also be achieved by using reserve-draining tools or by selling securities from the Federal Reserve's portfolio, thus reversing the effects achieved by LSAPs. The FOMC has spent considerable effort planning and testing our exit strategy and will act decisively to execute it at the appropriate time.

Did he convince Mitt the mutt....? we shall see uh...?

by Ralph | 3rd Sep 12, 12:18pm 1346631505

A possible translation:

"it appears reasonable to conclude that nontraditional policy tools have been and can continue to be effective"

I've done a pretty good job.

"we are less certain about the magnitude and persistence of these effects"

But don't blame me for the unexpected consequences.

by Gummy Bear Hero | 3rd Sep 12, 9:33am 1346621597

That all seems quite satisfactory to me ..

..... business as usual then , Bernard ....... goody good ..... see you , same time , tomorrow ...

by Christov | 3rd Sep 12, 10:23am 1346624608

Oh I agree on that Grant S.........but not as important as the Election , or even the direction the Election is taking......

The dilema for Bernake is not to be put in a position to provide the Republicans with cannon fodder ...pre election...knowing all the while a Republican installment guarantees the end of his strategy.

I bothered to read the whole report , and it read to me more like a scholar marking his own examination , with some emphasis on "what I would do given more time" as the footnote.

Maybe Bolly should have given some thought to a speech justifying his "Wait n See " policy during his esteemed tenure and again as a footnote, just what his exit strategy from .....doing nothing at all....would have been...

Maybe...... doing something....as a possibility....huh, who knows...?

by scarfie | 3rd Sep 12, 5:55pm 1346651736

I think we owe you a debt of gratititude for your feat of endurance there Count, did you get it all down in one go? Or was a nap to two required in between?