European Central Bank says Recovery Underway, is Opportunity to Fix Euro's Troubles

A sustained economic recovery is finally arriving in the 19-country eurozone, European Central Bank head Mario Draghi said Monday - a recovery he says must be used to complete the euro currency union and fix its problems for good.

Draghi said in a speech at a financial forum in Frankfurt that "most indicators suggest a sustained recovery is taking hold" as consumers and businesses grow more confident and banks become more willing to lend.

The head of the chief monetary authority for the shared currency said the upturn was helped by cheaper oil prices and by the central bank's stimulus policies.

The ECB has cut its benchmark interest rate to near zero at 0.05 per cent and launched large-scale purchases of government and corporate bonds with newly printed money to lower longer-term borrowing costs and raise inflation from worrisome low levels. It says it will purchase 60 billion euros a month through September 2016 for a total of at least 1.1 trillion euros ($1.2 trillion) in added monetary stimulus.

Draghi said Monday that member countries should use the breathing space given them by the central bank's stimulus efforts. He said they need to pass tough structural reforms that would make their economies more business-friendly so they can grow and prosper - and to enshrine supervision of such policies at the EU level. The 16-year-old currency union is still struggling to overcome troubles with too much government and bank debt that led to Greece, Portugal, Ireland, Cyprus and Spain needing bailout loans from the other countries. Despite two bailouts, Greece is trying to avoid a debt default that could see it leave the euro. Eurozone unemployment remains high at 11.2 per cent and prices are falling at a 0.3 per cent annual rate.

Draghi said that "a nascent recovery provides us with a window of opportunity, with the conditions to press ahead with reforms that will make the euro area less fragile and vulnerable to shocks."

Eurozone countries must make their economies more productive and "stand on their own two feet" because the eurozone doesn't provide for budget transfers from richer countries - the way U.S. states that suffer recessions can depend on tax transfers through the federal government.

The way to do that was to create new EU institutions in which countries would share sovereignty over their economic policies instead of leaving the responsibility at the national level. Draghi said any such institution would need strengthened democratic oversight and accountability to voters.

He didn't give a detailed picture of what such an institution would look like. The current EU-level reviews of national economic imbalances such as excessive labour costs and trade surpluses "has so far not gained much traction in national decision-making processes."

Draghi praised recent efforts by Spain and Portugal to lower labour costs to businesses - for instance by decentralizing wage negotiations in Spain - had helped those countries begin to recover.

Fed's Evans: Global Economy Growing Less Than Expected

The global economy is growing less than expected and countries should not bet on exports as a growth driver, Chicago Federal Reserve Bank President Charles Evans said on Wednesday.

"The global economy is not expanding as vigorously as previous forecasts had expected," Evans said in the question and answer session following a speech at the European Economics and Financial Center in London.

"The idea that any country is going to be able to get a leg up by expanding exports seems difficult to imagine in the current environment," he added.

In his speech, Evans said the U.S. Federal Reserve should ease monetary policy further to help the job market.

Evans also said that the U.S. banking sector was doing fine but the demand for loans was not high at the moment.

Market Turmoil Turns all Eyes Towards the Fed

Monday's dizzying stock market dive has heightened speculation that the Fed could take steps to ease market jitters that some fear could help topple a teetering economy into recession. The recovery is already sputtering amid weakening manufacturing activity, sluggish retail sales and European debt woes.

"I'm looking for (the central bank) certainly to do something," says Nigel Gault, chief U.S. economist of IHS Global Insight.

Yet Gault, like many economists, says any move likely would involve a largely symbolic change in the language of its policy statement, rather than another big purchase of Treasury bonds aimed at lowering interest rates. And Conrad DeQuadros of RDQ Economics notes the Fed's mission is to keep inflation and unemployment low — not to respond to stock market gyrations.

Plus, "It's too soon to give up on expectations that growth will pick up" in the second half of the year, says Jim O'Sullivan, chief economist of MF Global.

Last fall, the Fed launched $600 billion in Treasury purchases to lower interest rates, following a similar $1.7 trillion stimulus during the financial crisis. Last year, however, the central bank worried about deflation, or falling prices, that could have derailed the recovery. This year, inflation has increased to about 2%, and pumping more money into the economy would fuel concerns about rising prices, DeQuadros says.

What's more, he says, borrowing costs are already at historic lows. "It's not … interest rates that's holding back the economy," he says.

Other Fed options:

•The central bank has been saying interest rates are expected to remain near zero for "an extended period" that's widely understood to mean several months. The Fed could provide a more specific, longer time frame. Policymakers also could clarify they won't sell the Fed's more than $2 trillion in securities for a similarly extended period.

•Exchange short-term bonds in its portfolio for longer-term ones to further lower interest rates for mortgages and other loans.

•Cut the interest rate on reserves that banks keep at the Fed to encourage them to lend more. The rate is already 0.25%. "I don't think (the current rate) is causing banks not to lend," DeQuadros says.

A First Step To Sound Money

Here’s a hypothetical situation. Suppose you had $1.5 million. At today’s gold price that would buy approximately 1,000 ounces of gold. Suppose now that President Obama, the Congress, and the Federal Reserve began managing the American economy in such a way that by the end of President Obama’s second term, the dollar was back to where it was when President George W. Bush began his first term. Were that to happen, your $1.5 million could purchase 5,660 ounces of gold.

So, do you think you should have to pay taxes on the increase in the value of your money?

If the idea strikes you as crazy, let us refer you to the legislation introduced today at the Senate by James DeMint, Rand Paul, and Michael Lee. It’s called the Sound Money Promotion Act, and The New York Sun is happy to lay claim to being the first newspaper to endorse it. The measure, as it is characterized in a press release posted by Senator DeMint, would remove the tax burden on gold and silver coins that have been declared legal tender by either the federal government or state governments.

On its face it might seem an odd bill. But looks at the hypothetical situation above from the opposite end of the telescope, so to speak. It seeks to block tax authorities from treating gold and silver coins as though they were mere commodities and start treating them, at least in tax law, as though they were what the Founders of America thought they were, which is money. Gold and silver coins are already treated this way, as legal tender, inside the state of Utah, whence Senator Lee was elected.

This is because Utah was the first state in our modern time to exercise its constitutional power to make gold and silver coins legal tender. It did so earlier this year, ahead of as many as a dozen states that are at various stages of looking in to the question of how to protect themselves against the collapse of the United States dollars that are being issued by the Federal Reserve. They are all being energized by the fact that the value of the dollar has collapsed to barely a fifth of what it was, if that, at the start of the 21st century.

One of the states considering making gold and silver coins legal tender is South Carolina. That was remarked on by Mr. DeMint, one of its senators at Washington, in introducing the bill. He attributed the dollar’s collapse in recent years to “the government’s reckless over-spending, continued bailouts, and the Federal Reserve’s easy money policy” and said that in addition to fiscal discipline the country would need “monetary discipline to restrain further destructive monetizing of our debt.” The legislation, he said, “would encourage wider adoption of sound money measures.”

The press release introduced by Senators DeMint, Lee, and Paul noted that Standard & Poor’s has recently downgraded America’s outlook to “negative” from “stable,” meaning, the senators asserted, “there is a one in three chance of an actual credit downgrade in the next two years.” They asserted that the Federal Reserve is now buying 70% of U.S. Treasuries, set to surpass the holdings of both Communist China and Japan combined.

How far the three senators will get with the Sound Money Protection Act is hard to say. Its implication — a recognition of gold and silver as the true constitutional money — is, in the current context, radical. But it's no more radical than the Founders, who, when they twice used the word “dollars” in the Constitution, were referring to a coin containing 371 ¼ grains of silver. They codified that as the definition of the dollar in the Coinage Act of 1792. They also referenced gold in the 1792 Act, with a value of 15 times that of silver. We are in a time when understanding the concept of constitutional money will point the way to the policies needed to steer our country out of its current difficulties.

China's premiere arrives in the UK (25-Jun-11)(GLOBAL FOCUS series - UK)

China's premiere arrives in the UK (25-Jun-11)(GLOBAL FOCUS series - UK)

Good discussion about the Greece Economic crisis and Chinas interest in maintaining european economic stability

If Market Keeps Falling, Fed Will Keep Printing: 'Dr. Doom'

Speaking as global markets fell violently lower in the wake of the Japan earthquake and fears of a nuclear meltdown, Faber said a stock correction actually is healthy in view of how far equities have come from the March 2009 lows.

He also expects weakness to persist and the Standard & Poor's 500 to drop as much as 15 percent. Further, Fed Chairman Ben Bernanke will likely give the green light to another round of Treasurys purchases, which have come to be known as quantitative easing, he said.

"We may drop 10 to 15 percent. Then QE 2 will come, (then) QE 4, QE 5, QE 6, QE 7—whatever you want. The money printer will continue to print, that I'm sure," said the author of the Gloom, Boom and Doom Report. Later in the interview, he added, "Actually I made a mistake. I meant to say QE 18."

As for the situation with Japan specifically, he said the end result of rebuilding after the quake would be inflation and a positive for stocks, while Japanese Government Bonds, or JGBs as they are often called, would suffer.

"This huge selloff is an investment opportunity in Japanese equities, but if a meltdown occurs then all bets are off," he said.

The Nikkei Japanese stock market index has plunged more than 12 percent this week, its worst two-day drop in more than 20 years.

US equities have shown far less reaction but were poised to drop more than 2 percent at the open Tuesday. Faber, though, said the central bank would spring into action should the selling get out of hand.

"I think Mr. Bernanke doesn't know much about the global economy but he probably watches the S&P every day," he said.

"Until very recently the Feds have had very few critiques, very few people criticized the Fed's policies under Mr. Greenspan and Mr. Bernanke," Faber added. "Over the last few months, a lot of critical comments have come up about the Fed and its money-printing habit. The S&P drops 20 percent (and) all the critics will be silent and they will all applaud new money-printing."



Falling stock prices will be met only with more money injections from the Federal Reserve, Marc Faber, the so-called "Dr. Doom," told CNBC.

United States Treasuries Snap Decline as Fed Plans to Purchase Notes Today

US Treasuries snapped a decline from yesterday as the Federal Reserve prepared to buy as much as $6 billion of U.S. debt today, after saying it intends to stick to its plan to purchase $600 billion of securities by June 30.

Yields have risen too far given that inflation is running slower than the Federal Reserve wants, according to Nikko Cordial Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc., Japan’s third-largest publicly traded bank. The U.S. government is scheduled to sell $29 billion of seven-year debt today, the last of three note auctions this week.

“It will take a few quarters for inflation to pick up,” said Hiroki Shimazu, an economist at Nikko Cordial in Tokyo. “That will make Treasury yields fall in the next few months.”

Ten-year notes yielded 3.41 percent as of 6:51 a.m. in London, according to BGCantor Market Data. The 2.625 percent security maturing in November 2020 traded at 93 1/2. The yield increased eight basis points yesterday.

U.S. government securities have fluctuated between gains and losses for the past eight sessions. The 10-year rate will fall to 3 percent by March 31, Shimazu said.

The Fed will buy $4 billion to $6 billion of notes maturing from July 2012 to July 2013 today, according to its website.

The euro was near a two-month high versus the dollar before a German report forecast to show consumer prices rose at the fastest pace in two years. The 17-nation currency rose to $1.3722 yesterday, the strongest since Nov. 22.

Extra Yield

The extra yield investors demand to hold two-year German notes instead of similar-maturity Treasuries expanded to 70 basis points today, the most since January 2009.

The difference between 2- and 30-year rates was 3.96 percentage points. The spread widened to a record 3.98 percentage points on Jan. 20 based on closing levels, indicating investors have been demanding greater compensation for rising costs in the economy.

Ten-year Treasury Inflation Protected Securities show bondholders expect the consumer price index to increase 2.27 percentage points annually on average over the life of the debt. Economists surveyed by Bloomberg forecast an inflation rate this year of 1.7 percent.

Treasuries fell yesterday as the Fed maintained its bond- purchase program while saying the pace of economic expansion is insufficient to lower unemployment. The jobless rate has been more than 9 percent for 20 months.

Government securities also declined after the U.S. sold $35 billion of five-year notes and a report showed sales of new homes rose more in December than economists forecast.

‘Full Speed Ahead’

While commodities have risen, “longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward,” the central bank said in a statement yesterday after its two-day meeting.

The inflation gauge watched by the Fed, which excludes food and energy costs, increased 0.8 percent in the 12 months through November. The figure is below the 1.6 percent to 2 percent range central bank officials say is consistent with achieving their legislative mandate for stable prices.

Treasuries are heading for a fourth monthly decline on signs the economy is improving. U.S. debt has handed investors a 3 percent loss since the end of September, based on Bank of America Merrill Lynch data.

The MSCI All Country World Index of stocks returned 11 percent in the period, according to data compiled by Bloomberg. U.S. corporate bonds fell 0.2 percent, the BOA indexes show.

Durable Goods

Orders for U.S. durable goods and pending home sales both rose in December, economists said before government and industry reports today. At General Electric Co., the world’s biggest maker of jet engines, operating earnings will increase “nicely” this year, Chief Executive Officer Jeffrey Immelt said Jan. 21.

The Fed’s purchases of Treasuries and mortgage debt reduce the supply of those securities, according to Fidelity Investments, the Boston-based fund manager that oversees $1.6 trillion of assets.

“The corporate bond market is still reasonably attractive,” David Prothro, a debt fund manager at Fidelity, wrote in a report yesterday on the company’s website. “The U.S. economy is stabilizing.”

The seven-year notes being sold today yielded 2.77 percent in pre-auction trading, compared with 2.83 percent at the previous sale of the securities on Dec. 29.

Investors bid for 2.86 times the amount on offer last month, up from 2.63 times in November. Indirect bidders, the class of investors that includes foreign central banks, bought 64.2 percent of the debt, versus a 10-sale average of 50.9 percent.

--Editors: Nicholas Reynolds, Jonathan Annells

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

Bernanke Expresses Concern Over Sluggish United States Economy January 09, 2011

The United States Federal Reserve chair Ben Bernanke said while the US economy was showing signs of a recovery, this was not yet sufficient to address lingering unemployment.

Addressing the Senate Budget Committee, Bernanke said it would take a number of years for the employment situation in the United States to reach “normal” levels. He said :” We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold”. He added that the job market improvement had been “modest” at best.

Bernanke said that :” Persistently high unemployment, by damping household income and confidence, could threaten the strength and sustainability of the recovery”. He added that low inflation was also a key concern as :” Very low inflation increases the risk that new adverse shocks could push the economy into deflation”.

United States Labour Department figures showed that US unemployment dropped marginally in December to 9.4% from 9.8% the month before. The drop was the largest recorded in a single month in over 12 years. This is mitigated however by the statistic that 260,000 Americans were removed from the calculation after giving up on seeking employment.

Job Creation Not Good; Bernanke Says to Give It Four or Five Years

The Labor Department has reported that the economy created 103,000 jobs last month. That’s not good. With revisions, the economy created 71,000 jobs in November and 210,000 in October.

The unemployment rate fell to 9.4%. Ben Bernanke testified before Congress this morning. Here’s the bit getting a lot of attention:

Although it is likely that economic growth will pick up this year and that the unemployment rate will decline somewhat, progress toward the Federal Reserve’s statutory objectives of maximum employment and stable prices is expected to remain slow. The projections submitted by Federal Open Market Committee (FOMC) participants in November showed that, notwithstanding forecasts of increased growth in 2011 and 2012, most participants expected the unemployment rate to be close to 8 percent two years from now. At this rate of improvement, it could take four to five more years for the job market to normalize fully.