A LOT OF MONEY, TOO BAD - TOWARDS THE END OF QUANTUM EASING

A LOT OF MONEY, TOO BAD - TOWARDS THE END OF QUANTUM EASING

Posted By: IZAKOVIC [Send E-Mail]
Date: Saturday, 11-May-2013 09:02:20

A lot of money, too bad 11.05.2013, 14:42 Catherine Mereminskaya The head of the U.S. Federal Reserve Chairman Ben Bernanke made it clear that a prolonged state support dulls the sense of risk of market participants and posing a new "bubbles". Sources say that the U.S. Federal Reserve is preparing to turn off stimulus program, known as the "third quantitative easing." The head of the Federal Reserve System (FRS) the USA Ben Bernanke delivered a broad analysis of the vulnerability of the U.S. financial system. His speech, as always, was very cautious, but says a lot, too, had announced topic. Bernanke sees serious risks to the economy. "The main question - how the system will behave in the event of a fall of a broker-dealer or other large borrowers," - he said Friday in a speech at a conference in Chicago on May 10. There is a "steady trend", when market participants take on the increased risks at a time when the macroeconomic situation is stable. " However, he said, is a "double-edged sword." Stability can dull the sense of caution in decision-making by market participants, Bernanke warned. Revived confidence in the fact that some banks are "too big to fail," he called "a very big problem." Fears Bernanke is still a securities lending, which is "potentially very fragile." Vulnerable Fed chief said, and mutual funds money. "The risks are increasing, as the Treasury can no longer guarantee the investments of investors in financial assets," - he stressed. The repo market (transactions with an obligation to deal) is particularly wary. Bernanke worried tripartite repo (at which the subject of the transaction is transferred to a third party - a bank, clearing house or depository, and already she is responsible for the maintenance of adequate collateral value over the life of the transaction), which are usually involved in such large banks like JPMorgan Chase and Bank of New York Mellon. "We need further work to properly prepare investors and other market participants to the potential consequences of default of major market participants repo", - said the head of the Fed. Another troubling point - the uneven recovery income. "Revenue growth is concentrated in the wealthiest households, while the middle class and the most vulnerable layers of severely affected by the crisis," - said Bernanke. Home of the latter, according to him, is often worth less than is owed on the mortgage. To deal with these risks Bernanke intends to improving the monitoring system and stress tests of financial institutions. He said that the Fed and the Treasury are working to improve market surveillance tripartite repo. At the same time Bernanke spoke in favor of the requirement to increase the level of banks' own capital. Since the Great Depression (30 years of the twentieth century), we have not seen such extensive changes in the system of financial regulation, such as the Dodd - Frank in the U.S. and international agreements "Basel III» (to improve the stability of banks by increasing their capital and liquidity reserves), Bernanke said. "Instead of trying to somehow limit the growth of the bank's business, in particular establishing the maximum size of a credit institution, it is best to make sure that major lenders have sufficient net worth of high quality. This would be a competent force application, "- he said. Bernanke did not make any special elaboration on further action by the Fed's program of "quantitative easing." In the May memorandum, the Fed said that the regulator was "ready to increase as well as reduce the rate of purchase" bonds in the United States for an unprecedented incentive program. Fed's program, known as the "third quantitative easing", or QE-3, was adopted by the Federal Reserve in September 2012. It provided redemption of bonds by $ 40 billion a month and did not have specific terms, for which he received a second name "endless quantitative easing." In December, the volume of foreclosures increased to $ 85 billion through the Fed's balance sheet by buying U.S. government securities. Bonds (government and mortgage) on the Fed's balance sheet grew from $ 2.58 trillion in September to $ 3.04 trillion at the moment. Therefore, such a rapidly growing market indexes, because in exchange for illiquid securities the Fed provides banks with free money. U.S. stock markets are hitting historic highs. Economic growth in the I quarter of 2013 was resumed after a failure in the IV quarter of 2012 (2.5% vs 0.4% year on year). U.S. unemployment fell to 7.5% from 8.1% in August (though accuracy of the account of unemployment is doubtful). In general, official statistics seems that the situation in the U.S. economy began to improve, and the stock markets more "overheated". It is therefore Sources of U.S. officials report that the Fed is preparing to start folding programs, writes The Wall Street Journal. The volume of foreclosures will decline gradually, said the official, and vary depending on the state of the labor market and inflation. When exactly will decline, is still unknown: the date is still under discussion. WSJ poll showed that 55% of economists expect the Fed will begin to curtail the program in the third or fourth quarter of 2013, the remaining 45% believe that the controller will wait until 2014. None of the respondents forecast an increase in state support. Clearer signals from the Fed may appear on next week, when a speech five heads of federal banks. Officials are trying to plan the folding of the program so as to avoid a sharp reaction from the financial market, and explain that the end of support of the regulator can cause a collapse in the stock market, but further rapid growth threatens to overheat. The regulator is trying not to create false expectations that the reduction will be one steady process - so what was the rate hike cycle in 2003-2006. Even the head of the Federal Reserve Bank of Dallas, Richard Fisher, sticking with "hawkish" policy, said it should not "tie sharply," although "we have to back off." As can be seen from the memorandum Fed May 1, the regulator is still not prepared to discuss his rise in interest rates until the unemployment rate drops to 6.5% with an inflation rate no higher than 2-2.5%. Thus, the first step to fight the measures of money stimulate the U.S. economy should be the limit of non-traditional monetary program of "quantitative easing." Market reaction to Bernanke's speech was restrained. U.S. markets closed higher on Friday. The Dow Jones rose by 0,24%, NASDAQ - by 0.8%. Broad market index S & P 500 gained 0.43% since the beginning of the year it rose by 14%, about the same bank index rose KBW, including shares of 24 major financial institutions such as Bank of America Corp. 10-year U.S. Treasury yield rose to 1.9% after a minimum of 1.62% on May 2. Source: http://www.gazeta.ru/business/2013/05/08/5316485.shtml --- IZAKOVIC http://www.deepspace4.com