enough about finance, econ and political malaise. how about some culture
went to see the movie, The Concert. it should make you cry, laugh, and cry again but with tears of joy. a really remarkable film
please see it
Monday, August 30, 2010
Saturday, August 21, 2010
RAISE RATES TO GROW THE ECONOMY
thats right, we should raise interest rates to grow the economy. while europe has been trying to balance budgets and i think raise rates a bit, their thinking, i think, is budgets should be balanced so why not start now and tighten monetary policy to prevent inflation from the easy money policies implemented world wide during the crisis
in the US, we have a totally manipulated yield curve. whenever there is a banking crisis, the feds supply liquidity and often manipulate the yield curve such that short term rates are very low. this initially helps with the crisis but also creates a risk free arbitrage for the banks to repair their balance sheets. they borrow from the feds at near zero and can invest in medium term government securities and make a 300bp spread with no risk and little interest rate risk due to maturity mismatch.
this is all fine for awhile. but no longer. when you can make 300bps risk free why lend to somebody who has some risk? the answer is you dont and that is one of our problems today; lack of extension of credit to small to medium size businesses, sme's and even larger companies that are still too small to access the high yield bond market.
we don't need zero per cent short term rates. if the feds let rates go up to say1.5 per cent, still very low, this ought to force the banks to lend money to people and companies, not this incestuous arbitrage with the feds. for most businesses its not about the cost of money its about the availability of money. they would happily pay 7% for short term debt to fund working capital because their gross margin can justify it.
you want banks to lend, take them off the feds teat.
now long term rates are lower than they should be also, due to among other things the government buying its own bonds and manipulating the mortgage market; but that is a whole other story
in the US, we have a totally manipulated yield curve. whenever there is a banking crisis, the feds supply liquidity and often manipulate the yield curve such that short term rates are very low. this initially helps with the crisis but also creates a risk free arbitrage for the banks to repair their balance sheets. they borrow from the feds at near zero and can invest in medium term government securities and make a 300bp spread with no risk and little interest rate risk due to maturity mismatch.
this is all fine for awhile. but no longer. when you can make 300bps risk free why lend to somebody who has some risk? the answer is you dont and that is one of our problems today; lack of extension of credit to small to medium size businesses, sme's and even larger companies that are still too small to access the high yield bond market.
we don't need zero per cent short term rates. if the feds let rates go up to say1.5 per cent, still very low, this ought to force the banks to lend money to people and companies, not this incestuous arbitrage with the feds. for most businesses its not about the cost of money its about the availability of money. they would happily pay 7% for short term debt to fund working capital because their gross margin can justify it.
you want banks to lend, take them off the feds teat.
now long term rates are lower than they should be also, due to among other things the government buying its own bonds and manipulating the mortgage market; but that is a whole other story
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