The Fed to buy $1 trillion worth of securities

[feargach]

This is being spoken of as a response to the G-20 summit.

To what extent should we expect the ECB to follow Washington´s lead and do likewise?

[youngdan]

I think part of the plan (or so my myriad advisers have told me) is to buy up some of that toxic debt (at say 35c in the $) and by cleansing the banks they can get back to lending some time in the latter half of this year.

Fire those advisors because it a toxic asset is trading at 35c the Fed does not need to buy them because that is what investors are paying for them in the marketplace. The Fed buys them at face so the owners get 3 times te price they are worth. happy days.

[142857]

The dollar is actually stronger now against the pound,then it was a year ago.

That's because the pound is doing so badly.

The signs for the dollar are extremely grim indeed, regardless of current relative values.

[Sensible Head]

I am very confused reading the news this morning. It looks like the Fed is buying US bonds (2-10 yr), so they are taking good assets (i know i know) giving them cash when we are in a period of deflation in the hope it burns a hole in the banks pockets?

Surely the banks will hold the cash as they still don't know how much they are all in the hole over bad assets?

I need to do some reading up this weekend, its been a long time since i studied economics.

[Middleaged]

If this doesn't work, that's it,there is no more rabbits left in the hat.

I suppose one way to look at it is, we'll know soon enough whether there will be a recovery.

On the plus side it makes our Bonds at 4.5% attractive which should help in filling the book next week.

[constitutionus]

well thats our export markets buggered then.

STG is practically 1 for 1 now. the rates ive got in today mean if i change £100 you get 100.36 euro after comission. or 18.78 on a £20 and thats thanks to the dollar dropping like a stone.

seeing as the news came out of the blue the rates i have for the day only reflect what was known when they were set and its STILL knocked a fiver off what a yank would get for $100 (70.84) and i fully expect it to be worse tomorrow.

for all the waffle from the europhiles the VAST majority of our exporters send to the UK and the US. our food and drink sector alone is over 70% dependant on the UK.

watch em close left right and centre over this.

of course none of that is obamas conscern. his job is to sort out the states. whether this'll work is anyones guess but as others have mentioned its essentially mugabeconomics. printing money. its the last toss of the hat and if it doesnt work theres nothing else they can do.

BIG question is what will the ECB do now as its under enormous preasure now
interesting times ahead.

[kerrynorth]

The ECB (Bundesbanks downtown sub-office) will not be allowed by the Germans to go down the same route. The Germans only bought into the Euro on the basis that it will ape the Bundesbank in maintaining a low stable inflationary environment. Quantitative easing is a recipe for inflation that is just too reminesent of the Weimar Republic for the Germans. Ordinary Germans do not need a bout of inflation to cure any personal debt/asset price bubble woes unlike the PIGS, with us chief among them. Rather than being a 'saviour' as touted by the government, the Euro is about to crucify us.

[KingKane]

Fire those advisors because it a toxic asset is trading at 35c the Fed does not need to buy them because that is what investors are paying for them in the marketplace. The Fed buys them at face so the owners get 3 times te price they are worth. happy days.

I didn't mention whether the $ was the book worth or what the assets are trading at. Fact remains that the US will eventually take the toxics of the banks at a heavily discounted rate and the banks will then be able to lend to each other again because they will be more confident that they are clean.

[slx]

2007 Trading Partners Source CSO

Millions of Euro

Great Britain and Northern Ireland Imp: 20,869.2 Exp: 16,742.8
Other EU Countries Imp: 18,520.2 Exp: 39,864.0 (Almost all traded in Euro)
USA Imp: 7,050.6 Exp: 15,825.0
Rest of World Imp: 17,045.7 Exp: 16,794.3
Total Imp: 63,485.7 Exp: 89,266.1

A major shift in US$ and £ will certainly damage Irish exporters, particularly in the food sector. But, it's not by any means the 'vast majority' of our exports, rather it's about half which is still pretty worrying to put it mildly.

I don't think the Eurozone economies will put up with the Euro trading this high though. It may suit the German conservative savers, but it's killing industrial and other exports. Germany itself is going to suffer badly as the demand for industrial equipment, cars, from the far east will shift to the US. Same with France, Netherlands etc

It's also going to do terrible damage to Spain and Portugal's holiday industry which is heavily dependent on the UK.

The Eurozone is a huge bloc, but we can't just trade with ourselves. It would not kill us, but it would leave us pretty damn broke!

[Dios]

If this doesn't work, that's it,there is no more rabbits left in the hat.

Its the only rabbit they need, really. If that rabbit doesn't work, they just make it bigger until it does work.

Rather than being a 'saviour' as touted by the government, the Euro is about to crucify us.

Initially there was no doubt that eurozone membership saved us from an ungodly hiding in the international markets, a la Iceland. The future is a bit more cloudy however. Remember that hulking Germany is a largely export based economy, about half of which stays within the eurozone. The other half will vanish in a puff of hyperinflation once QE gets into motion properly in about two or three years. This raises a few interesting scenarios:

a) The ECB follows with QE: Exports go back up along with massive inflation, business as usual in a few years.

b) The ECB does not follow the QE method: Exports to those countries that have QE in place drop off completely, but leaving the euro as the stongest currency on earth, bar none. Intra-EU trade remains largely unaffected. Next question is do Asian economies engage in QE, or start focusing more on Europe as their export market, and vice-versa.

This would be the start of a major economic schism, globally, with the US and UK and those who flooded their markets with money working in one system, and the EU and possibly Asian economies as well as the middle east working in another. Its protectionism by any other name on the part of the Anglo countries, and it won't have escaped the attention of the Japanese and Chinese that their dollar reserves are becoming completely worthless.

The end result might be that the Anglo countries become expremely powerful exporters, the industrial powerhouses of this century, or it might work out that the euro becomes the global trade currency, in which case the US will be increasingly left behind in the cold, an isolationist state able to look after most of its interests internally.