Tag Archives: federal reserve

GOP seeks to trim stimulus, cut deficit – Washington Times

GOP seeks to trim stimulus, cut deficit – Washington Times.

Economy improves with billions unspent

With the economy showing signs of recovery, fiscally conservative economists and Republican lawmakers are suggesting that the large unspent portion of the nearly $800 billion stimulus fund should be redirected to slash this year’s nearly $2 trillion annual deficit.

Democratic lawmakers, Obama administration officials and many economists doubt the wisdom of truncating the stimulus program so soon after it began. But Republican congressmen and economists who were not thrilled with the stimulus effort are increasingly calling for it to be foreshortened as a return to economic growth appears closer at hand.

Administration accounting shows that relatively little of the stimulus funds that would directly create jobs have been spent. The White House says $112 billion from the stimulus account has been spent or obligated. In addition, much if not most of the economic recovery expenditures have been spent to pay for state assistance, unemployment and Medicaid benefits, and other safety net programs that would create few if any new jobs.

Nevertheless, there are increasing reports that key sectors of the economy are beginning to show modest signs of recovery.

Obama looks to ‘accelerate’ stimulus

Construction spending is up slightly for the second straight month, factory orders rose 0.7 percent in April, existing home sales were up three months in a row, and banks have begun raising capital again and showing signs of growth. These and other economic signals have sparked a rally on Wall Street that has raised stock values by more than 30 percent since March.

No one suggests the economy is out of the woods. The unemployment rate, always the last economic figure to show improvement in the aftermath of recessions, continues to climb, rising from 8.9 percent in April to 9.4 percent in May — though the figure of 345,000 jobs lost last month was sharply below economic forecasts and marked the fourth straight month that the pace of layoffs has slowed.

That is one of the reasons why top economists such as Ben S. Bernanke, chairman of the Federal Reserve, see the pace of the nation’s economic contraction slowing and entering a recovery stage later this year. A survey of 45 economists by the National Association for Business Economics (NABE) Outlook reported late last month that the end of the recession is near.

“The good news is the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010,” NABE President Chris Varvares said. Nearly three out of four of the panel’s economists said they expected the recession would end by the third quarter.

But some economists think President Obama’s stimulus plan has had little if anything to do with the economy’s new signs of life, that a lot of the heavy lifting in the recovery is a result of actions taken by the Federal Reserve, and that once the recession ends, the remaining funds, estimated to be in the hundreds of billions of dollars next year, should be returned to the U.S. Treasury.

Geithner Hints at High Bar In Letting Banks Repay Aid – washingtonpost.com

Geithner Hints at High Bar In Letting Banks Repay Aid – washingtonpost.com.

So, I guess, if the banks don’t start lending to revive the economy they won’t be allowed to repay their loans. Let’s see how this turns out.

By David Cho

Washington Post Staff Writer
Wednesday, April 22, 2009


Treasury Secretary Timothy F. Geithner said yesterday that the “ultimate test” for determining which banks can repay government bailout money is whether the entire financial system is capable of offering enough credit to revive the economy.

Geithner’s remarks indicate that regulators will require banks to meet high standards to get out from under the government’s thumb. Industry and federal officials are bracing for a showdown over this issue beginning Friday when the chief financial officers of 19 of the nation’s major banks will be summoned to the Federal Reserve and told the results of the government’s “stress tests.”

This federal initiative is examining whether the firms have enough capital to continue lending if the economy significantly worsens. Senior administration officials say the tests may show that some banks need to raise more money or take additional government aid.

But the banks say federal bailout money, which requires firms to restrict executive pay and submit to other limits, now carries a stigma. Several of the firms, such as J.P. Morgan Chase and Goldman Sachs, have been lobbying the government to be released from the bailout and have taken steps to repay the money.

Geithner said his primary responsibility is to consider the well-being of the entire financial system, rather than the health of individual companies. The federal government can reject requests from banks that want to repay the money.

“The critical thing we care about is whether the system, as a whole, is in a position where it has the capacity to support the credit that recovery requires,” he said, making his first appearance before a congressional oversight panel on the government’s financial-rescue program. “That’s the ultimate test.”

Geithner added that he sees signs of “thawing” in the credit markets and that most banks have more capital than they need. Some market analysts said those comments sparked yesterday’s rally in stocks, which had been trading in negative territory before the hearing began. The Dow Jones industrial average ended the day 1.6 percent higher, while the Standard and Poor’s 500-stock index, a broader measure, jumped 2.1 percent.

“Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators,” Geithner said in his testimony.

Still, even among the positive signs, there are “significant declines” in commercial lending and some consumer loans, such as credit cards, and the cost of borrowing money remains high, he said.

Highlighting these continuing risks to the financial system, the International Monetary Fund yesterday predicted that U.S. financial institutions could lose $2.7 trillion by the time the global credit crisis ends.

Geithner added that the stress tests are looking at not just the overall level of capital, but the type of capital on banks’ balance sheets. Of particular concern is whether banks have enough “tangible common equity,” a kind of capital that can be raised by selling more stock. These funds are the best cushion for cash-strapped banks in crisis.

In a letter to the oversight panel’s chairwoman, Elizabeth Warren, Geithner said that $109.6 billion remains in bailout funds. The Treasury Department has conservatively estimated that firms will repay another $25 billion in the short term. J.P. Morgan and Goldman Sachs combined have received $35 billion in bailout funds.

Some federal officials have said that the government needs such repayments in order to have enough financial firepower to see the nation through the crisis.

“We would welcome it,” Geithner said of the repayments. “It helps show progress, it helps underscore the basic points that the institutions of our financial system are in very different circumstances.”

But he warned that “the basic objective that’s guiding what we do is to make sure the system is working as a whole.”

Dollar Declines Most Since 1985 Plaza Accord on Fed Bond Buying – Bloomberg.com

March 21 (Bloomberg) — The dollar dropped the most against the currencies of six major U.S. trading partners since the Plaza Accord almost a quarter-century ago as the Federal Reserve’s plan to purchase Treasuries spurred speculation that it’s debasing the greenback.

“What it introduces is the problem of the currency to the extent that the Fed is buying what isn’t desired by foreign holders,” said Bill Gross, co-chief investment officer of Pacific Investment Management Co., in an interview on Bloomberg Television on March 19. “The Fed can keep interest rates where they want to keep them, at least for a 6- to 12- to 18-month period of time, but it will have consequences down the road.”

The U.S. currency weakened beyond $1.37 per euro this week for the first time since January as the central bank’s decision to increase its balance sheet by $1.15 trillion lowered yields, making American assets less attractive. The Norwegian krone and the New Zealand dollar rallied as the Fed’s move spurred advances in commodities.

The dollar depreciated 4.8 percent to $1.3582 per euro yesterday, from $1.2928 on March 13. The U.S. currency touched $1.3738 on March 19, the weakest level since Jan. 9. The dollar also fell 2.1 percent to 95.94 yen from 97.95. The euro increased for a fifth week versus the yen, gaining 2.9 percent to 130.29 after touching 130.49 yesterday, the highest level since Dec. 18.

The ICE’s trade-weighted Dollar Index dropped 4.1 percent this week to 83.84, the biggest decrease since the week in September 1985 when the U.S., U.K., France, Japan and West Germany agreed at New York’s Plaza Hotel to coordinate the devaluation of the dollar against the yen and deutsche mark.

Fed’s Announcement

The U.S. currency tumbled 3.4 percent versus the euro on March 18, the biggest drop since the 16-nation currency’s 1999 debut, when the Fed unexpectedly announced at the end of its two-day policy meeting that it will buy up to $300 billion of Treasuries and increase its purchase of agency mortgage-backed securities, a policy known as quantitative easing.

“The dollar’s decline this week has more or less priced in the policy response,” said David Woo, global head of foreign- exchange strategy at Barclays Capital in London, in an interview on Bloomberg Television. “Over the next three months, I don’t see much downside for the dollar to the extent other central banks will be under pressure to follow the Fed’s lead and essentially go down the route of quantitative easing.”

Stocks advanced this week, while crude oil had a fifth week of gains, the longest winning streak in 11 months. The Standard & Poor’s 500 Index increased 1.6 perce

via Dollar Declines Most Since 1985 Plaza Accord on Fed Bond Buying – Bloomberg.com.

Terence Corcoran: Is this the end of America? – FP Comment

Posted: March 19, 2009, 7:38 PM by NP Editor

Terence Corcoran, Ben Bernanke, inflation

U.S. law-making is riddled with slapdash, incompetence and gamesmanship

By Terence Corcoran

Helicopter Ben Bernanke’s Federal Reserve is dropping trillions of fresh paper dollars on the world economy, the President of the United States is cracking jokes on late night comedy shows, his energy minister is threatening a trade war over carbon emissions, his treasury secretary is dithering over a banking reform program amid rising concerns over his competence and a monumentally dysfunctional U.S. Congress is launching another public jihad against corporations and bankers.

As an aghast world — from China to Chicago and Chihuahua — watches, the circus-like U.S. political system seems to be declining into near chaos. Through it all, stock and financial markets are paralyzed. The more the policy regime does, the worse the outlook gets. The multi-ringed spectacle raises a disturbing question in many minds: Is this the end of America?

Probably not, if only because there are good reasons for optimism. The U.S. economy has pulled out of self-destructive political spirals in the past, spurred on by its business class and corporate leaders, the profit-making and market-creating people who rose above the political turmoil to once again lift the world out of financial crisis. It’s happened many times before, except for once, when it took 20 years to rise out of the Great Depression.

Past success, however, is no guarantee of future recovery, especially now when there are daily disasters and new indicators of political breakdown. All developments are not disasters in themselves. The AIG bonus firestorm is a diversion from real issues , but it puts the ghastly political classes who make U.S. law on display for what they are: ageing self-serving demagogues who have spent decades warping the U.S. political system for their own ends. We see the system up close, law-making that is riddled with slapdash, incompetence and gamesmanship.

One test of whether we are witnessing the end of America is how many more times Americans put up with congressional show trials of individual business people and their employees, slandering and vilifying them for their actions and motives. And for how long will they tolerate a President who berates business and corporations as dens of crime and malfeasance? If the majority of Americans come to accept the caricatures of business as true, then America is closer to the end of its life as a global leader, as a champion of markets and individualism.

But America is at risk in other ways, especially in the technical business of setting and executing policy. The presidency of Barack Obama has set out on a course tha……

Click on the link below to read the full story……..

via Terence Corcoran: Is this the end of America? – FP Comment.

U.S. to Toughen Finance Rules – WSJ.com

U.S. to Toughen Finance Rules – WSJ.com.

Click on the above link to read the full story…

The Obama administration, moving with increasing speed, has inked the main contours of its plan to revamp financial-market oversight — changes that will ripple through the economy, affecting everything from the operations of international banks to consumer protection.

The principles include giving the Federal Reserve new powers that include authority to monitor and address broad risks across the economy, say people familiar with the matter. The proposals are expected to include tougher capital requirements for big banks and authority for regulators to take over a large financial firm that is failing.

Proposed Changes

Treasury Secretary Timothy Geithner will soon outline proposed changes in financial regulation. They are expected to include:

  • An enhanced role for the Federal Reserve to monitor and address broad economic risks.
  • Changes to the way banks are overseen to prevent lenders from shopping among regulators for the easiest supervision.
  • More transparency and stricter rules for the way money flows between banks.
  • Tougher capital requirements for big banks.
  • Consolidation of consumer-protection enforcement.

The Money Masters – How International Bankers Gained Control of America

This is long but informative.

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