Here's my summary of the key news overnight in 90 seconds at 8 am, including news of struggles against deflation.
Japan's fight against deflation is making progress. Consumer prices there have risen at their fastest pace in more than five years. Data released Friday showed that core consumer prices, excluding fresh food, rose by 1.3% in December from a year earlier, which was higher than market forecasts.
Meanwhile, the Eurozone is increasingly worried about what deflation might do to their growth prospects. Official figures showed that eurozone inflation fell to 0.7% in January, down from 0.8% in December and further below the ECB's 2% target. Separate data showed the unemployment rate in December was unchanged at 12%. The pressure is on now for another ECB rate cut.
The US dollar found massive support at the close of trading last week, rising against almost every other currency. The taper-induced emerging markets rout seems to have some way to go.
And the focus is now on those emerging markets actually making the adjustments at home to face up to the reality of their failed policies during the stimulus-induced liquidity flood.
UST benchmark 10yr bond yields fell again Friday and are now down to 2.65%. That represents major gains in bond prices since the start of the year.
Gold is holding at US$1,250/oz, a level it has generally maintained for more than the past six months. Oil is at US$97/$106 for WTI/Brent, which is about 3% higher than this time last year.
The NZ dollar starts today quite a bit lower at 80.8 USc, 92.3 AUc and the TWI is at 76.7. This are our currency's lowest level against the US dollar since September.
If you want to catch up with all the changes Friday, we have an update here.
The easiest place to stay up with today's event risk is by following our Economic Calendar here »
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10 Comments
Mauldin
The idea that ultra-low interest rates cause booms and busts is not new. Economists of the Austrian school, led by von Mises and Hayek, warned that credit-fueled expansions lead to the misallocation of real resources that end in crisis. In the Austrian theory of the business cycle, the central cause of a credit boom is the fall of the market rate of interest below the natural rate of interest. Investments that would not be profitable at higher rates become possible. The bigger the deviation of interest rates from the natural rate, the bigger the potential credit boom and the bigger the bust.
Like all bubbles, rapid price increases can rapidly reverse when interest rates return to normal levels. The greatest danger will then be to leveraged investors who bought farmland, corporate bonds, some emerging markets, and other bubbles with borrowed money.
http://d21uq3hx4esec9.cloudfront.net/uploads/pdf/140201_TFTF3.pdf
It should be no surprise the growing gap in income inequalities has coincided with the adoption of fiat currencies worldwide. Every dollar the central bank creates benefits the early recipients of the money—the government and the banking sector — at the expense of the late recipients of the money, the wage earners, and the poor. Since the creation of a fiat currency system in 1971, the dollar has lost 82 percent of its value while the banking sector has gone from 4 percent of GDP to well over 10 percent today.
The central bank does not create anything real; neither resources nor goods and services. When it creates money it causes the price of transactions to increase. The original quantity theory of money clearly related money to the price of anything money can buy, including assets. When the central bank creates money, traders, hedge funds and banks — being first in line — benefit from the increased variability and upward trend in asset prices. Also, future contracts and other derivative products on exchange rates or interest rates were unnecessary prior to 1971, since hedging activity was mostly unnecessary. The central bank is responsible for this added risk, variability, and surge in asset prices unjustified by fundamentals.
The banking sector has been able to significantly increase its profits or claims on goods and services. However, more claims held by one sector, which essentially does not create anything of real value, means less claims on real goods and services for everyone else. This is why counterfeiting is illegal. Hence, the central bank has been playing a central role as a “reverse Robin Hood” by increasing the economic pie going to the rich and by slowly sinking the middle class toward poverty.
http://www.zerohedge.com/news/2014-02-01/how-central-banks-cause-income…
The New Zealand economy has recently been perceived as successful. However, the generally positive outlook includes some challenges. New Zealand income levels, which used to be above much of Western Europe prior to the deep crisis of the 1970s, have never recovered in relative terms. For instance, the New Zealand nominal GDP per capita is about 80% that of the United States. Income inequality has increased greatly, implying that significant portions of the population have quite modest incomes. Further, New Zealand has a very large current account deficit of 8–9% of GDP. Despite this, its public debt stands at 33.7% (2011 est.)[24] of the total GDP, which is small compared to many developed nations. However, between 1984 and 2006, net foreign debt increased 11-fold, to NZ$182 billion, NZ$45,000 for each person
There's a chart in this article. It shows that inequality grew quite steeply in the late 1980s and early 1990s, but has remained pretty steady since then.
http://gropingtobethlehem.wordpress.com/2014/01/31/another-entry-in-the-inequality-discussion/
Okay , so the only thing that holds a fiat currency is TRUST .
Trust that the Government and its treasury will act responsibly and in the interests of Business , and lets face it BUSINESS IS THE ONLY PRODUCTIVE SECTOR AND CREATOR OF WEALTH AND REVENUE IN ANY ECONOMY .
Governments produce nothing whatsoever , they take from the productive sector and spend it a loss less judiciuosly than you or I who have slogged and risked all to earn it .
That is why the currencies of tin -pot third world dictatorships are useless as a medium of value store or exchange .
They spend like drunken sailors until it runs out .
There is no way we could ever go back to the Gold Standard , so the Giverment are forced to act responsibly with our economy , spend carefully with thier means
Sorry the "Governments produce nothing whatsoever" line is just finance sector nonsense. For example, in New Zealand the government does a far better job at delivering healthcare services than the rorted US system does. Yes, it is fair to say that large bureaucratic organisations such as governments tend to be slower to change, but that is not the same.
I agree there is a sense that the productive private sector is the engine that pulls the caravan of government and the caravan can get too big for the engine to pull, but the caravan is essential too.
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