A Real Mess
It is probably better I am out of time because there was plenty of breathless screaming headlines today of all sorts that seemed a bit over the top. Enough confusion for one day. Here are some things I found most important.
via Zero Hedge (among many others):
FOMC Minutes: No Asset Sales Until After First Rate Hike
Take home point:
A majority preferred beginning asset sales some time after the first increase in the Federal Open Market Committee’s (FOMC) target for short-term interest rates. Such an approach would postpone any asset sales until the economic recovery was well established and would maintain short-term interest rates as the Committee’s key monetary policy tool. Other participants favored a strategy in which the Committee would soon announce a general schedule for future asset sales, with a date for the initiation of sales that would not necessarily be linked to the increase in the Committee’s interest rate target. A few preferred to begin sales relatively soon...See you in 2013.
No decisions about the Committee’s longer-run strategy for asset sales and redemptions were made at this meeting. For the time being, participants agreed that the Desk should continue the interim approach of allowing all maturing agency debt and all prepayments of agency MBS to be redeemed without replacement while rolling over all maturing Treasury securities. Participants agreed to give further consideration to their longer-run strategy at a later date.
One of the more screamer headlines but still worth a look (via The Telegraph):
Germany's 'desperate' short ban triggers capital flight to Switzerland
Case in point, the Swiss intervention in the FX market was very huge and was news. Here is the "capital flight" number:
The short ban set off instant capital flight to Switzerland. BNP Paribas said €9.5bn flowed into Swiss franc deposits in a matter of hours on Wednesday morning.Is that figure outsized? I am not 100% sure but I would think it is not. Still, worth noting money direction.
The thought experiment for this evening comes from a find by The Illusion of Prosperity on CNBC with Dennis Kneale providing the following quote:
I'm, I'm sorry but update me please... why is it that we've doubled the money supply of dollars around the world... how could we possibly have the opposite of inflation? - Dennis Kneale, May 18, 2010
It is an excellent question. Things to consider:
-By what mechanism is this even possible?
-What would the next step be (if there is one) given this dynamic?
On a related note:
Japanese GDP Deflator Plunges To Multi-Year Low As GDP Comes Below Expectations
Consider that Keynesians think Japan has failed to stop deflation becasue they simply did not go hard enough and long enough into QE.
Have a good night.