Bernanke is reiterating his goal with his new round of asset purchases and that to keep long term interest rates low. He talked about trade imbalances and emerging market dependence on export growth and thus low FX rates and implicitly pointed his finger at China over this. Of course the critique back from China towards the Fed is creating $2.3T out of thin air on top of short rates being basically zero is a grand manipulation of one’s currency. Bernanke also humanized the intent of the Fed by pointing out “on its current economic trajectory, the US runs the risk of millions of workers unemployed or underemployed for many years…As a society, we should find that outcome unacceptable.” I believe we can all agree on that, the issue however is how best to cure it. Rely on the price fixing of interest rates and printing of money or have faith in the wonders of capitalism and its ability to regenerate if the economic cycle is left alone.
After their market close, China again raised its reserve requirement for banks by 50 bps. This comes after Hong Kong announced the hike in down payment requirements for the purchases of homes above certain price levels. Hong Kong also initiated a tax on homes sold before the elapse of 6 months of ownership. Irish bonds are trading better for a 2nd day as the market has come to the realization that only the terms and amount of a EU/IMF deal is what’s left to decide.