U.S. National Debt: $17,709,322,691,303.06

Posted in Debt |

Gold Rising-Rate Fallacy

Gold has slid during this past week on mounting fears of interest-rate hikes.Between the latest FOMC meeting’s minutes and the Fed’s annual Jackson Hole Economic Policy Symposium, American futures speculators’ rising-rate phobias have been whipped into a fever pitch. They worry gold will be crushed when the Fed eventually starts normalizing rates. But history shatters this fallacy that rising rates are gold’s nemesis.

Today there is a near-universal belief among futures traders that rising interest rates are very bearish for gold. The underlying logic is simple.When interest rates rise, so do yields on bonds and cash in the form of money-market funds. This makes bonds and cash relatively more attractive to investors than gold, which yields nothing. Therefore they jettison their gold holdings to migrate capital back into bonds and cash.

While this thesis may seem sound on the surface, it should be tested rather than being blindly accepted as truth. The financial markets are littered with popular notions that later prove dead wrong. And even the sophisticated gold-futures speculators are not immune. Late last year they scared themselves into a full-blown hysteria over the nearing start of the Fed winding down its massive QE3 bond-monetization campaign.

So American futures speculators’ staunch conviction today that gold and rates have a strong negative correlation simply isn’t true. The proof is not just visual, but statistical. Over this entire massive span, gold’s correlation with 1-year and 10-year Treasury yields merely ran -0.525 and -0.509. Multiply these by themselves to get each of their r-squares, and they weigh in at merely 27.5% and 25.9% respectively.

[source]

PG View: I covered this very topic back on 01-Aug.

Posted in Gold News, Gold Views |

Defense Secretary: ISIS Is An ‘Imminent Threat To Every Interest We Have’

Secretary of Defense Chuck Hagel warned of the threat posed by militants from the Islamic State of Iraq and Syria (ISIS or ISIL), calling the group an “imminent threat to every interest we have.”

“They are as sophisticated and well-funded as any group that we have seen. They’re beyond just a terrorist group,” Hagel said at a joint press briefing with Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey.

Hagel added: “This is beyond anything we’ve seen. We must prepare for everything.”

[source]

PG View: Once your Defense Secretary calls ISIS and imminent threat to every U.S. interest, don’t we pretty much have to go to war? As in, beyond just airstrikes?

Posted in Geopolitical Risks |

ECB Economists Find Benefits in ‘Fiscal Devaluation’

22-Aug (The Wall Street Journal) — One of the thorniest issues facing the euro zone is how members of the 18-country currency bloc can improve competitiveness and exports without having a national currency that can be devalued.

In a paper published by the European Central Bank, a trio of economists have come up with a way: “fiscal devaluation.”

What it basically means is using fiscal measures–in this case higher consumption taxes and lower social contributions paid by companies–to boost competitiveness, giving exporters a leg up and raising investment.

The paper’s authors–from the ECB, Bank of Italy and Bank of Portugal–estimate the effects on Spain and Portugal of a reduction in labor charges equal to 1% of gross domestic product for four years that are offset by an equivalent rise in consumption taxes.

“The increase in consumption tax is an incentive to increase saving and, hence, investment,” the authors wrote. “Moreover, lower social contributions favor employment. The latter increases productivity and, hence, investment.”

[source]

PG View: Interesting concept, but the Fed has tried to pressure Congress to make much-needed fiscal reforms for years, to no avail. Seems like Draghi already shot this idea down today anyway.

Posted in Central Banks, Economy, Monetary Policy |

Draghi softens tone on austerity

22-Aug (Financial Times) — Mario Draghi, the European Central Bank president, has signalled he is becoming increasingly concerned about high unemployment and low inflation in the eurozone by backing calls for countries to be allowed to apply strict rules on government deficits more flexibly.

In a significant change in tone on the eurozone’s fiscal rules, Mr Draghi said countries should be encouraged to spend more within existing EU regulations that limit budget deficits to 3 per cent of gross domestic product. Germany, the eurozone’s largest and strongest economy, is one member state that could lift growth by boosting investment and cutting taxes.

The remarks, which move the ECB much closer to the position adopted by Italian prime minister Matteo Renzi, will be welcomed in Paris and Rome. Mr Renzi has made easing the eurozone’s fiscal restraints one of the hallmarks of his young tenure and has attracted criticism from the ECB president for his failure to reform the region’s third-largest economy.

[source]

Posted in Central Banks, Monetary Policy |

Is Portugal Next In Line For Wealth Confiscation?

22-Aug (ZeroHedge) — The pattern should be seared in your memory by now. If you fail to recognize it, you could be struck with a huge financial blow.

It’s a pattern that has played out over and over throughout history: a government gets into financial trouble, then denies there’s a problem, which is followed by a surprise wealth grab.

That’s exactly what happened when bank deposits in Spain and Cyprus were raided. We’ve also seen retirement savings confiscated in some form in Poland, Portugal, and Hungary. Capital controls have been imposed in Cyprus and Iceland.

Of course these aren’t the only examples of blatant government thievery. These examples are just within Europe and just within recent years. They can and will happen anywhere.

These events highlight the need to use international diversification to mitigate your political risk—the risk that comes from governments.

I think they also give us some clues as to what country is next on the chopping block.

When it comes to protecting yourself from confiscations, capital controls, bank holidays, and other desperate measures of an out-of-control government, it’s absolutely essential to take action before it’s too late.

[source]

PG View: Having a portion of your wealth outside the banking system in the form of physical gold, held in your own possession, is an extremely effective hedge against such risks.

Posted in Debt, Economy |

A Bond Paid For and Denominated In Gold: A Rhyme From the Past

22-Aug (Jesse’s Café Américain) — I don’t think that we have seen such a thing since the gold bonds issued in the US, which went the way of the twenty dollar gold piece in the early part of the 20th century.

There is a Bloomberg story on this today that is not generally available so I do not have a link as yet. It will be added as it becomes available. An astute reader sent it my way.

Here is a link to the actual bond announcement on the JSE site.

As you may recall, South Africa puts the ‘S’ in BRICS.

I am not so sure whether it is a good investment or not. A bond is a bond, and represents the credit risk of the issuer. But it is certainly an interesting development to see a real bond denominated in both purchase and payout with gold as its underlying ‘currency’ once again.

…What will we remember next?

[source]

PG View: The bond-holders of any number of countries — most recently Argentina — have been severely snake-bit by that whole ‘credit-risk’ thing.

Ask yourself: Would those bond-holders have fared any better if their bonds were denominated in gold?

Also, presumably such a bond would be subject to FATCA regulations for U.S. investors.

Posted in Gold News |

The Daily Market Report: Gold Steady After Yellen Speaks, Draghi Awaited


22-Aug (USAGOLD) — Gold is trading in a narrow range, just above the two-month low established on Thursday at 1272.75. This leaves the yellow metal just below the midpoint of the 1182.10/1388.46 range, which is in turn well within the broader 1179.83/1433.85 range that has dominated for more than a year.

The market was hoping for some fresh directional queues out of Jackson Hole this morning. However, Fed chair Yellen struck an all-too familiar cord; expressing concern about “significant” under-use of labor resources, while also saying the Fed could raise rates sooner than expected if progress toward the Fed’s goals “continues to be more rapid than anticipated.”

“There is no simple recipe for appropriate policy in this context,” said Yellen in a speech rife with caveats.

This left the market utterly confused, with some complaining Yellen wasn’t dovish enough and others saying she was too noncommittal on rate-hikes based on recent data. In other words, she probably viewed this as a successful speech; walking the tightrope between dove and hawk and leaving investors reluctant to make a significant bet one way or another.

Around midday, stocks were mixed, bonds were modestly lower and gold was trading around the previous day’s close. Yellen did however hint once again that the labor market trumps inflation as far as the Fed’s dual mandate is concerned. “Tightening monetary policy as soon as inflation moves back toward 2 percent might prevent labor markets from recovering fully,” said Ms. Yellen. In other words, the Fed would be willing to tolerate a period of above-target inflation if all the slack weren’t out of the jobs market yet.

But it may be all a mute-point, if a report presented in Jackson Hole is given any credence:

The paper, presented Friday morning at the annual gathering of economists and central bankers at Jackson Hole, Wyo., argues that the share of Americans with jobs has declined because the labor market has stagnated in recent decades — fewer people losing or leaving jobs, fewer people landing new ones. This dearth of creative destruction, the authors argue, is the result of long-term trends including a slowdown in small business creation and the rise of occupational licensing.

“These results,” wrote the economists Stephen J. Davis, of the University of Chicago, and John Haltiwanger, of the University of Maryland, “suggest the U.S. economy faced serious impediments to high employment rates well before the Great Recession, and that sustained high employment is unlikely to return without restoring labor market fluidity.”

Their findings contribute to the growing genre of papers that purport to show that the weakness of the American economy is caused largely by problems that predate the recession — and that the Federal Reserve can’t remedy them with low interest rates.  — via The New York Times

If the labor market issues are indeed systemic, then the trillions of dollars worth of monetary and fiscal accommodations over the last six-years were wasted. We’ve seen the same in Japan over the last two-decades and now the market looks forward to Mario Draghi’s speech in Jackson Hole to see if the ECB gets sucked down the same rabbit-hole.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

Yellen Facing Hard Call on When Labor Market Has Healed

22-Aug (Bloomberg) — Federal Reserve Chair Janet Yellen said she still isn’t satisfied with the U.S. labor market. Deciding when she is won’t be easy.

“The labor market has yet to fully recover,” Yellen said today in a speech at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. While the five-year expansion has put more Americans back to work, “a key challenge is to assess just how far the economy now stands from attainment of its maximum employment goal.”

Her comments echoed the message from minutes of the July Federal Open Market Committee meeting, which showed officials growing more aware that labor markets are returning to health. She said policy makers will have to look at a “wide range” of indicators to make that assessment, adding that there’s “no simple recipe” for deciding when to raise interest rates for the first time since 2006.

[source]

Posted in Central Banks, Monetary Policy |

NATO sees alarming build-up of Russian forces near Ukraine – Rasmussen

22-Aug (Reuters) — NATO Secretary General Anders Fogh Rasmussen said on Friday the alliance had observed an alarming build-up of Russian ground and air forces in the vicinity of Ukraine.

“We have also seen transfers of large quantities of advanced weapons, including tanks, armoured personnel carriers and artillery to separatist groups in eastern Ukraine,” Rasmussen said in a statement.

Rasmussen said Russia continued to escalate the crisis in eastern Ukraine and that this could lead to further isolation of Moscow.

[source]

Posted in Geopolitical Risks |

Free Money for Germany Is Bad News for Euro

22-Aug (Bloomberg) — When investors are willing to lend money to Germany for two years for free, at a zero interest rate, you know the euro project is in trouble again.

Germany yesterday sold 4.04 billion euros ($5.3 billion) of notes that pay no interest, repayable in September 2016. Investors, it seems, are willing to forgo income for the safety of stashing their cash in the AAA-rated government debt of Europe’s biggest economy. That’s a huge vote of no-confidence in the region’s growth prospects.

The current generation of investors is likely to see the euro crisis come and go several times. The euro area is not invulnerable while internal divisions remain. With growth weakening once more it is time to dust off the old euro crisis playbook: short the euro, short the periphery, long Germany. — Trevor Greetham, Fidelity Worldwide Investments

[source]

Posted in European Debt Crisis |

The Great Stagnation: Long-Term Trends in Economy More Worrisome Than Sudden Crash

22-Aug (New York Times) — Employment losses during the Great Recession may have had more to do with factors like the rise of Walmart than with the recession itself, two economists say in a new academic paper.

The paper, presented Friday morning at the annual gathering of economists and central bankers at Jackson Hole, Wyo., argues that the share of Americans with jobs has declined because the labor market has stagnated in recent decades — fewer people losing or leaving jobs, fewer people landing new ones. This dearth of creative destruction, the authors argue, is the result of long-term trends including a slowdown in small business creation and the rise of occupational licensing.

“These results,” wrote the economists Stephen J. Davis, of the University of Chicago, and John Haltiwanger, of the University of Maryland, “suggest the U.S. economy faced serious impediments to high employment rates well before the Great Recession, and that sustained high employment is unlikely to return without restoring labor market fluidity.”

Their findings contribute to the growing genre of papers that purport to show that the weakness of the American economy is caused largely by problems that predate the recession — and that the Federal Reserve can’t remedy them with low interest rates.

[source]

Posted in Central Banks, Economy, Monetary Policy |

Argentina’s Peso Weakening at Fastest Pace Since January

22-Aug (Bloomberg) — First came the default, then a proposed debt swap aimed at circumventing a U.S. court ruling that could normalize Argentina’s relations with foreign investors. Now traders foresee a devaluation for the second time this year.

Argentina’s peso sank 1.3 percent this week to 8.3932 per dollar, the biggest drop since the government devalued the currency 15 percent in the week ended Jan. 24. In the black market, where Argentines go to avoid government limits on purchases of U.S. currency, the peso weakened to a record 13.95 per dollar.

Argentines are demanding more hard currency after the government proposed exchanging overseas debt into notes governed by local law. The plan means it’s less likely President Cristina Fernandez de Kirchner will negotiate a deal with holdout creditors that would lift the court order that has prevented the country from servicing its obligations, according to Bank of America Corp. Prolonging the default would then restrict Argentine borrowers’ access to international markets, putting pressure on policy makers to allow the peso to weaken as dollars become scarce.

[source]

PG View: In the accompanying video interview Bloomberg’s Katie Porzecanski noted the central bank sped-up the decline of the Argentine peso this week, but she noted that “by no means is it out of control yet.” The operative word in that statement is ‘yet’.

Posted in Debt |

Gold Above 2-Month Low Before Fed Chair Yellen Speaks


22-Aug (Bloomberg) — Gold rose in New York, rebounding from a two-month low, as investors awaited speeches by Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi today at a meeting of central bankers.

Bullion declined 1.9 percent this week as the dollar climbed to an 11-month high against the euro on signs that the U.S. is recovering while Europe’s economy falters. Data this month showed U.S. home sales rose and manufacturing accelerated while euro-area growth stalled in the second quarter.

“Relative calm has been restored to the gold market ahead of the much anticipated Fed symposium later today,” UBS AG analyst Edel Tully said in a report. “The return of physical demand likely helped gold find its floor yesterday.”

[source]

Posted in Gold News, Gold Views |

Ukraine accuses Russian aid convoy of ‘direct invasion’

22-Aug (USA Today) — After more than a week of border delays, Russia sent a humanitarian aid convoy unauthorized into Ukraine on Friday in what the Kiev government called a “direct invasion” by military vehicles under the guise of delivering relief aid to the besieged eastern regions.

The Russian convoy, bound for the besieged city of Luhansk in the area of eastern Ukraine under partial control of Russian-backed rebels, had been stuck at the border until a dispute over customs clearance and security guarantees.

The rebel stronghold of Luhansk, which is largely surrounded by Ukrainian armed forces, has been without water or electricity for weeks.

About 200 trucks were sent from Moscow with what the Kremlin said was food and medical supplies. Ukraine had refused to allow the vehicles to cross without inspection and said it would allow them to proceed with only a single driver per vehicle aboard, not a team. Ukraine also insisted that the International Committee of the Red Cross oversee the distribution of the goods.

Ukraine has been wary of the convoy, saying it feared the convoy could be used as a pretext for direct Russian military action.

[source]

Posted in Geopolitical Risks |

Gold steady 1278.44 (+0.51). Silver 19.52 (+0.003). Dollar firm. Euro lower. Stocks called easier. US 10yr 2.39% (-2 bps).

Posted in all posts |

Mystery of Jackson Hole

The New York Sun / 8-21-2014

“No wonder there is no joy in the land, even if the Dow Jones Industrial Average is bouncing in and out of record highs. The Obama presidency is nearing the final turn. Savers have been devastated. The market isn’t what it seems. No one wants to lend and no one wants to borrow. Unemployment is still above where it was when Congress gave the Fed a mandate to bring it down. A new Fed chairman has made jobs her signature. But will anyone at Jackson Hole ask whether it is the fiat nature of our money that got us into this hole in the first place?”

MK comment:  May I take a stab at that question?. . . .Fiat money is probably here to stay, but its presence is easily addressed in the private investment portfolio through the simple expedient of gold ownership.  Recall gold’s price history since fiat money was first introduced in 1971. Then recall its history since 2008 — and the dawn of the crisis which Jackson Holers still find themselves addressing six years later.  As the Sun’s editor so brilliantly drops like a brick on the proceedings:  ”We celebrate, say, the sages of Berkshire Hathaway. Yet the value of a share of Berkshire has plunged to something like 159 ounces of gold from the 269 ounces of gold a share was at, say, the day that George W. Bush acceded to the White House.” (Perhaps that nettlesome fact of economic life is what drives the Sage’s antipathy to yellow metal.)

Put yourself above the jury-rigged economics — Jackson Hole or otherwise.  Save in gold.

Posted in all posts |

Japan has fallen victim to the Keynesian scam

21-Aug (CNBC) — Japan saw its economy shrink at an alarming 6.8 percent annualized rate in the second quarter, proving its greatest national disaster, Abenomics, has failed and the Japanese economy has fallen victim to the scam called Keynesian economics. (Defined as the belief that a country can tax, spend, devalue and inflate its way to prosperity.)

Since the popping of the BOJ-induced bubble in 1989, Japan has been the most faithful adherent of Keynesian principals. At the onset of the crisis, they immediately began on their misguided path with large doses of deficit spending. Instead of allowing the economy to rid itself of bad investments and heal, they continued to prop-up failed business models — creating Zombie banks and an equally Zombie-like economy.

As one lost decade turned into two, in the year 2000, they coupled their fruitless spending efforts with massive amounts of money printing. And despite two decades of low growth, the nation stubbornly held on to the popular Keynesian excuse of “if only” … If only our stimulus was larger, if only we weakened our currency more, if only we kept interest rates lower for longer; economic nirvana would be achieved. Keynesians love to use this counterfactual argument because they believe it cannot be proven wrong — that is until now!

[source]

Posted in Central Banks, Economy, Monetary Policy |

The Daily Market Report: Gold Falls Back Into Lower Half of the Range on Firm Dollar, Policy Expections


21-Aug (USAGOLD) — Gold tumbled back into the lower half of the recent range, weighed by a stronger dollar and fresh speculation about a sooner-than-expected rate hike from the Fed. This morning’s round of better than expected U.S. data may add impetus to those rate hike expectations. However, Fed chair Yellen’s speech in Jackson Hole tomorrow may swing the pendulum back the other way.

“[M]any participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated.” — Minutes from July 29-30 FOMC meeting

What that says to me is that the debate on ‘lift-off’ is ongoing, and data dependent. The doves on the Committee, however, continue to hold sway and Yellen is expected to reiterate her concerns about slack in the labor market tomorrow.

Stocks and bonds quickly shrugged-off rate hike concerns. Shares continue to push back toward recent record highs and 10-year yields remain comfortably below 2.50%. The dollar pushed to new eleven-month highs in overseas trading today before retreating intraday.

Dollar gains are largely the result of the expected further divergence between Fed and ECB policy. The Fed has been removing accommodations in the form of the taper, as the ECB is under considerable pressure to ramp-up accommodations. Persistent talk of U.S. rate hikes feeds this meme, but I don’t know anyone who is predicting that first rate hike before Q1-15 and a lot can change between now and then.

You may recall the considerable optimism associated with the “green-shoots” spring of 2009 and the “recovery-summer” of 2010. Those green-shoots withered rather rapidly and the summer turned to fall. While the messages from the Fed have been mixed of late, I believe this is by design (see Tuesday’s DMR). I therefore expect some words of slack and caution tomorrow from Ms. Yellen.

Posted in Daily Market Report, Gold News, Gold Views |

US Philly Fed index surged to 28.0 in Aug, above expectations of 20.0, vs 23.9 in Jul.

Posted in Economic Data |

US existing home sales +2.4% to 5.15M in Jul, above expectations of 5.01M, vs negative revised 5.03M in Jun.

Posted in Economic Data |

US leading indicators +0.9% in Jul, above expectations of +0.6%, vs positive revised +0.6% in Jun.

Posted in Economic Data |

QE: New York Fed purchases $2.214 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

Former top mob boss doesn’t trust Wall Street, says invest in physical gold and silver

CNBC/Leslie Shaffer/8-20-2014

Riveting interview of Michael Franzese. . . . . .

“Always going to have a value. . . .”

Posted in all posts |

Gold drops to 2-month low as dollar gets boost from hawkish Fed

21-Aug (Reuters) – Gold extended losses to a fifth session on Thursday, sliding 1 percent to its lowest in two months, after the U.S. dollar strengthened on indications from the Federal Reserve that it could raise interest rates sooner than expected.

A surprisingly strong recovery in the U.S. job market could lead the Fed to raise interest rates earlier than it had been anticipating, minutes from the Fed’s July meeting showed,
although most officials wanted further evidence before changing their view.

Spot gold fell as much as 1.2 percent to $1,276.90 an ounce, its lowest since June 19, before recovering slightly by 0635 GMT to trade down 0.9 percent at $1,280.04.

[source]

Posted in Gold News, Gold Views |

US initial jobless claims -14k to 298k for the week ended 16-Aug, just below expectations of 300k, vs upward revised 312k in previous week.

Posted in Economic Data |

Gold lower at 1276.00 (-14.21). Silver 19.38 (-0.095). Dollar higher. Euro soft. Stocks called higher. Us 10yr 2.44% (+1 bp).

Posted in all posts |

Tinker, Trader, Holder. Why? Things that make you go hmmm….

Mauldin Economics (Aug 18) by Grant Williams —

The latest letter from Grant Williams is once again full of phenomenal analysis regarding all things gold – specifically, a full discussion on the somewhat unknown/underreported central bank behavior in the gold market over the last decade or so. In short, there is much more going on in the gold market than the price behavior would lead us to believe. A long read, but if its the only thing you read today, it will serve you well. – JK

Some highlights:

Yes, as anybody who follows the space knows only too well, Indians love their physical gold; and, unlike their counterparts in the West, when they have money to save, they have no hang-ups about swapping cash for hard yellow lumps of metal. Until February of this year, they were the largest buyers of gold in the world. By a long, long way. Now, however, the Chinese have overtaken them:

But — and I’ve talked about this before — it’s the metal they want to own. Period. Not futures. Metal.
Oh… and not ETFs, either.

Now, stop for a second and just imagine what would happen if the world-at-large didn’t wait to have numbers like Koos’ officially confirmed but instead made the kinds of thoroughly vetted assumptions that Koos does after sifting diligently through the data.
Back in the day, it used to be called research.

If the PBoC’s holding “6,000 to 8,000 tonnes would be a gamechanger,” what effect does would their holding nearly 15,000 tonnes have, I wonder?

I wonder.

Seems to me that, when 2008 came out of the clear blue sky and blindsided every central banker in the world (the situation was “contained,” I believe they said…), they panicked just like everybody else; and when they did, where did they run? Yup. To gold.
When QE1 ended and equity markets fell out of bed once again, guess what? Yup. Another sudden panicky-looking dash into the ultimate safe-haven asset — our old friend gold.

In fairness to this group of geniuses, they at least got the joke after that and bought steadily for almost three years, though, as we’ve seen, some of them bought harder than others.

Now we stand on the brink of another possible war between NATO and Russia as tensions over Ukraine ratchet ever higher.

We’ve already seen the effect the last threat had on gold, so how do things stack up this time around?

Well, funnily enough, for once this time really is different; and the New Cold War is, as you can see from the chart below, apparently not even remotely troubling. In fact, gold is trading below where it was when the Russians first dipped their toes in Ukraine to test the water.

Many investors who claim to “own” gold as an insurance policy do so through the ownership of ETFs such as GLD. That’s just not the same as owning metal, I’m afraid. Doing that, you’re simply one of the traders. You’re NOT a holder.

Individuals (and institutions) who buy physical gold and hold it, unencumbered, outside the banking system are true holders. They aren’t about to alter their position in any meaningful way just because the price moves a few percent against them (or, for that matter, for them). They own gold as an insurance policy, and until the reason for owning it is proven wrong, they hold onto it.

That just leaves the central banks.

Posted in all posts |

The British economy: Mr Dependable

19-Aug (The Economist) — RECOGNISING that fragile economies need strong leaders, Mark Carney, the governor of the Bank of England, aims for an air of unruffled competence. Recently, however, his mixed messages on the economy have bamboozled firms and financial markets. In February the bank suggested that interest rates would not rise until the second quarter of 2015. Just four months later the plan changed: in June Mr Carney hinted that rates could rise “sooner than markets currently expect.” Pat McFadden, a Labour MP, likened the bank’s behaviour to that of an unreliable boyfriend. That judgment proved unfair: Mr Carney is sticking to his original plan. The bank’s latest forecast, released on August 13th, revealed that ultra-low rates are likely to endure until 2015, as he previously promised.

Cheap money has become the norm in Britain: August marked the 65th successive month in which the monetary-policy committee (MPC) has kept interest rates at 0.5%. Hawks, hungry for signals that rates will rise this year, have plenty to point to. Unemployment has tumbled faster than expected, passing 7% at the beginning of 2014 (progress that the bank thought unfathomable a year ago). It now stands at 6.4% (see chart). In July, Britain’s GDP surpassed its pre-crisis peak. The bank sees good times ahead. It reckons that GDP growth in 2015 will be about 3%, higher than in predictions published in May. All this suggests the economy can cope with higher interest rates.

It might need them, too. Worries about housing market bubbles abound. According to the Council of Mortgage Lenders, a trade association, gross mortgage lending reached £17.5 billion ($29 billion) in June, up 17% over the year. Mr Carney intimated in July that he could use higher rates to manage the housing market.

Yet Mr Carney holds steady.

[source]

PG View: The mixed signals are by design: Keep the markets guessing so nobody makes any big bets one way or another.

Posted in Central Banks, Monetary Policy |

France Returns From Summer Holiday To A Stagnant Economy, Record Unemployment, And A Growing Deficit

19-Aug (BusinessInsider) — A stagnant economy, ballooning deficit, and sniping from within his own party ranks — President Francois Hollande faces a mountain of problems when French political life restarts after the long summer holidays.

The government on Wednesday will hold its first cabinet meeting of what is known as the political “rentree,” or return from holidays, just a week after the finance minister admitted the economy had “broken down,” with zero growth over the past six months.

Prime Minister Manuel Valls had already warned the autumn months would be “difficult,” with France’s unemployment at a record high and the European Union increasingly worried about the country’s budget deficit.

The government was forced to slash this year’s growth forecast in half to 0.5 percent after figures showed the economy failed to grow in the second quarter after stagnating in the first three months.

[source]

Posted in Economy |