KeNo's Housing and Economic Portal: Saturday November 13 Housing and Economic stories

Friday, November 12, 2010

Saturday November 13 Housing and Economic stories

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TOP STORIES:

Backlash against Fed’s $600bn easing - (www.ft.com) The US Federal Reserve’s decision to pump an extra $600bn into the economy has galvanized emerging market central banks into preparing defensive measures and sparked criticism from leading global economies. The Fed’s initiative, in response to rising concern about the weakness of the US economy, has fuelled fears of a sharp drop in the dollar and a fresh flood of capital inflows into emerging markets. China, Brazil and Germany on Thursday criticised the Fed’s action a day earlier, and a string of east Asian central banks said they were preparing measures to defend their economies against large capital inflows. Guido Mantega, the Brazilian finance minister who was the first to warn of a “currency war”, said: “Everybody wants the US economy to recover, but it does no good at all to just throw dollars from a helicopter.” Mr Mantega added: “You have to combine that with fiscal policy. You have to stimulate consumption.” Germany also expressed concern.

Brazil ready to retaliate for US move in ‘currency war’ - (www.ft.com) Brazil, the country that fired the gun on the so-called “currency wars”, is girding itself for further battle. Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures. “It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.” At a joint press conference with president-elect Dilma Rousseff, outgoing president Luiz Inácio Lula da Silva said on Wednesday he would travel to the G20 summit in Seoul with Ms Rousseff, ready to take “all the necessary measures to not allow our currency to become overvalued” and to “fight for Brazil’s interests”. “They’ll have to face two of us this time!” he said. Ms Rousseff added: “The last time there was a series of competitive devaluations. . . it ended in world war two.”

The Fed Has Now Given The Big Banks Two Big Gifts In As Many Days - (www.businessinsider.com) The first was yesterday... by focusing its bond purchases at the short end, the Fed is steepening the yield curve, making it that much easier for the banks to make money by borrowing short cheap and lending long. And today, it's reported that the Fed will soon allow banks to up their dividends, which is a reason for folks to bid up their shares, while also acting as a show of confidence. As you can see here by the big spike in the financial ETF XLF, the banks have appreciated the gifts.

Fannie, Freddie Overhaul Could Cost $685 Billion - (online.wsj.com) The total cost to rescue and then overhaul mortgage giants Fannie Mae and Freddie Mac could reach $685 billion, according to estimates published Thursday by Standard & Poor's. Fannie and Freddie have already cost taxpayers nearly $134 billion, but S&P analysts said Thursday that the government could ultimately be forced to inject $280 billion into the firms because of a slowdown in the housing market. Any entities that might replace Fannie and Freddie would need new start-up funding that would go beyond the money already committed. A consensus of academics, industry officials and investors has coalesced around the idea of using the government to provide explicit guarantees for securities backed by mortgages that meet certain standards. Tough questions loom over how those guarantees would be structured and priced and what entities would provide them.

Fed Will Buy $600 Billion in Debt, Hoping to Spur Growth - (www.nytimes.com) The Federal Reserve, getting ahead of the battles that will dominate national politics over the next two years, moved Wednesday to jolt the economy into recovery with a bold but risky plan to pump $600 billion into the banking system. A day earlier, Republicans swept to a majority in the House on an antideficit platform, virtually guaranteeing that they would clash with the Obama administration over the best way to nurture a fragile recovery. The action was the second time in a year that the Fed had ventured into new territory as it struggles to push down long-term interest rates to encourage borrowing and economic growth. In a statement, the Fed said it was acting because the recovery was “disappointingly slow,” and it left the door open to even more purchases of government securities next year.