Friday, February 13, 2015

Global Central Banks open 24/7. Currency Wars, Deflation and Instability

This is the second of two financial news stories-
Both containing interesting, insightful and important information-
Both are related to each other-
First news story- Oil Jumps on Weak US dollar- Deflationary tendencies & currency wars?

The Bloomberg news item directly below is highly suggestive of a great deal of global instability requiring  massive global money manipulation to create inflation and prevent deflation. Inflation benefiting the bankster, moneyed classes. Inflation is equivalent to a hidden tax on all of us. Of course, I will highlight the bits I find interesting


Central banks are now open all hours.
Just as they worked weekends through the financial crisis, policy makers are again signaling they can strike at any time for the good of their economies.

Spooked by the threat of deflation, Sweden’s Riksbank became the latest to put investors on alert when it said on Thursday that it’s “prepared to do more at short notice” after cutting its main interest rate below zero and unexpectedly saying it will buy government bonds.

“To ensure that inflation rises towards the target, the Riksbank is prepared to quickly make monetary policy more expansionary, even between the ordinary monetary policy meetings, should the need arise,” it said in a statement.

The world’s oldest central bank is not alone in throwing out its normal agenda. The Reserve Bank of India ignored its calendar of policy meetings to cut its key rate on Jan. 15, while Russia’s central bank increased its benchmark at 1 a.m. on Dec. 16.
The Swiss National Bank announced plans to charge banks to deposit cash with it on Dec. 18, just a week after its quarterly policy meeting, and shocked markets on Jan. 15 when it abolished its currency cap -- again ignoring its own schedule.
Singapore said on Jan. 28 it will seek a slower currency appreciation and the People’s Bank of China also often acts at random times.

Denmark has cut its deposit rate four times this year, though a need to defend the krone’s peg to the euro means it has always acted when it chooses. It chose not to move today, which was a surprise to some economists.
Predictable Policy

The ad-hoc actions undermine the traditional preference of central banks to be predictable and transparent. Indeed, a post-crisis trend has been to use forward guidance as a policy tool in signaling intentions.

The theory goes that if investors can easily forecast the short-term interest rates of central banks, then that will influence long-term borrowing costs too. Financial markets should also be less volatile if policy can be forecast.
So why the switch? One reason is that policy makers are increasingly willing to move when incoming data or market moves challenge their previous outlook, demanding a quick response. Reserve Bank of India Governor Raghuram Rajan shifted a day after evidence mounted that price pressures were diminishing.
Indicating an all-out effort, no matter the time, also helps reinforce the decisions they’ve already made in markets and keeps investors wanting to test them on tenterhooks. Are you really going to buy Danish kroner or dump Russian equities if you know a central bank could suddenly shift policy? 
 Currency Wars

Perhaps the biggest reason, and why Rob Carnell, chief international economist at ING Groep NV, suspects more surprise shifts to come, is the so-called currency wars.

Most notably, the European Central Bank’s use of quantitative easing has sent the euro sliding, forcing up other currencies in response, especially those elsewhere in Europe. Meantime, the dollar has surged as the Federal Reserve considers raising interest rates.

“Certain big central banks are making moves, leaving a lot of others having to respond on the fly to the implications of those moves, said Carnell. “They have to keep a step ahead and we’ve seen that on a number of occasions. There will probably be more surprises.”

Respond on the fly. Keep a step ahead. More surprises. So unusual for bankers, who prefer predictability and stability

9 comments:

  1. Western qe. Is going to fail in europe. The Dax is already at record high and spreads record tights. What exactly is printing money going to do to unclog a transmission mechanism that is all ready at full throttle by historical standards? The mcKinsey. Report just released on debt says it all. 20 plus trillion added. No amount of qe or record highs in equity indices forestall the avalanche. Just like Greece.

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    1. Hey anonymous

      by the looks of it there is a hell of a lot of trouble on the horizon and I am no financial expert- but, what do you mean by a transmission mechanism at full throttle? Could you clarify that for me?
      I just have no context for it? Any help would be appreciated

      And thanks for the link to the mckinsey report below I am going to read it!

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    2. btw: the Dow is also almost at it's record high

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  2. http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

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  3. Open fire on crowd....

    http://english.alarabiya.net/en/News/middle-east/2015/02/14/Six-wounded-as-Houthis-open-fire-on-protestors-.html

    meanwhile the Croats deny the allegations of troops in Ukraine as euro tries to ram a Kosova solution down the serbs.

    http://tass.ru/en/world/777381

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    Replies
    1. Open fire on "protestors" that is such a familiar narrative

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    2. So is the sing times headline only protest left in Thailand are students...hunger games salutes and all

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  4. It's all down hill from here for the dollar.

    http://www.4thmedia.org/2015/02/russia-creates-its-own-payment-system/

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    Replies
    1. Hi jo

      I think they are going to prop it up- It seems interest rates will go up
      keeping an eye on it as much as possible, because IMO it's important
      thanks for the link! :)

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