Secret summit of top bankers

THE world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.

Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.

Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.

Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed last night.

The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.

The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.

Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.

Australia's ASX 200 slumped 2.4 per cent, to a its lowest close since November 5, echoing a sharp fall on Wall Street.

Asian share markets were also pummelled, with Japan's Nikkei 225 down almost 3 per cent and Hong Kong's Hang Seng slumping 3.3 per cent.

The damage was also being felt by European markets last night with London's FTSE 100 down sagging 1 per cent in early trade.

Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night.

"This does feel like '08 and '07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,'' said H3 Global Advisors chief executive Andrew Kaleel.

"Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.''

It wasn't all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.

The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.

The outlook for global growth is likely to be a key theme of the high level central bank talks.

The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.

A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.

Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.

Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night.




Secret summit of top bankers | News.com.au

Central banks end US dollar emergency swap lines - BusinessWeek

The Bank of England said Wednesday that it and other major central banks are ending emergency lending arrangements put in place with the U.S. Federal Reserve in the wake of the global credit crisis, citing improvements in financial markets.

The decision marks the first unified retraction by central banks around the world of extraordinary support measures to boost lending after credit markets seized up in late 2007, causing the global economic downturn.

The Bank of England was joined by the European Central Bank, the Bank of Japan and the Swiss National Bank in announcing that the temporary reciprocal currency arrangements with the Fed would expire on Feb. 1.

"These lines, which were established to counter pressures in global funding markets, are no longer needed given the improvements in financial market functioning seen over the past year," the bank said in a statement. "Central banks will continue to cooperate as needed."

The Fed announced in December 2007 that it had authorized so-called liquidity swap lines with the European Central Bank and the Swiss National Bank. The agreement was extended to include several other central banks in April 2009.

Under the arrangements, central banks around the world provided each other with foreign currency -- the Fed made U.S. dollar liquidity available elsewhere, with the ECB providing euros and the Bank of England providing sterling. The agreements added up to hundreds of billions of dollars.

The aim was to improve liquidity conditions in U.S. and foreign financial markets after banks became nervous of lending to each other amid concerns about the state of balance sheets across the industry.

The stagnation in the interbank lending pushed up the premium for short-term U.S. dollar funding in particular, a currency that features widely in both asset and liability tables of banks and companies around the world. That led to a sharp rise in interbank lending rates, which flowed through to the rest of the financial system.

The Bank of England said it conducted its last U.S. dollar repo operation under the arrangements on Wednesday.



Central banks end US dollar emergency swap lines - BusinessWeek

The World Bids Farewell to Obama

US President Barack Obama suffered a painful defeat in Massachusetts on Tuesday. With mid-term elections looming, it means that Obama will have to fundamentally re-think his political course. German commentators say it is the end of hope.

US President Barack Obama has had a number of difficult weeks during his first year in the White House. Right after he took office, he had to wade through a week full of partisan bickering over his economic stimulus package combined with a tax scandal surrounding Tom Daschle, the man Obama had hoped would lead his health care reform team.

Then there was the last week of 2009, when a failed terror attack on a flight inbound for Detroit exposed major flaws in US efforts to identify and stop potential terrorists.

This week, though -- a week when Obama should have been celebrating the first anniversary of his inauguration -- may have been the president's worst yet. Scott Brown, an almost unknown Republican member of the Massachusetts Senate, defeated the Democratic candidate Martha Coakley for the US Senate seat vacated by the death of Senator Edward M. Kennedy. The defeat in a heavily Democratic state not only highlights Obama's massive loss of popular support during his first year in office, but it also could spell doom for his signature effort to reform the US health care system.

There were immediate calls for a suspension of health care votes in the Senate until Brown is sworn in. The loss of the Massachusetts seat means that the Democrats no longer control the 60 Senate seats necessary to avoid a filibuster. Obama's reform package, which aims to provide health insurance to most of the over 40 million Americans currently lacking coverage, may ultimately fail as a result.

More than that, though, the vote shows just how quickly the political pendulum has swung back to the right following Obama's election. The seat Brown won had been in Democratic hands for all but six years since 1926. Now, its new occupant is a man who not only opposes the health care bill, but also favors waterboarding as a method of interrogation for terrorism suspects and rejects carbon cap-and-trade as a means of limiting carbon emissions.

The omen could be a dark one for the Obama administration heading into a mid-term election year. German commentators take a closer look.

Center-left daily Süddeutsche Zeitung writes on Thursday:

"Obama made a serious misjudgement. Right at the beginning of his first year in office, he saved the banks, rescued the automobile industry from collapse and passed a huge economic stimulus package. He had hoped that these enormous deeds would give him the space to address those issues which are dearest to him: health care reform, climate change and investment in education."

"Those issues, however, are clearly not priorities for people in the US at the moment. Scott Brown campaigned on two promises, both of which apparently struck a nerve with the electorate. He wants to block health care reform and he wants to find ways to reduce the enormous budget deficit. It is here where the roots of dissatisfaction with Obama are to be found. His reform agenda, in its current form, is highly suspect to Americans. And they have the impression that, if he continues piling up debt, he will be gambling away the country's future."

The Financial Times Deutschland writes:

"For Obama, the election in Massachusetts means that he will have to re-evaluate his political style. He could now focus his concentration on his political base and push through his policy agenda. After all, he still has a majority in Congress -- he could back away from his strategy of bipartisanship ... which would mean giving up much of what he spent his first year in office creating."

"More likely, however, is that Obama will interpret the Massachusetts loss as a signal that he should move further toward the middle and make more concessions to the conservatives -- even if this alienates his base even further, a base which had high expectations from the 'yes we can' candidate."

"For everyone else in the world, this means that they will have to bid farewell to a candidate for whom the hopes were so high. They will have to say goodbye to the charisma they fell in love with. Obama will be staying home after all."

The left-leaning daily Die Tageszeitung writes:

"In addition to health care reform, Obama's reputation has primarily been harmed by the high unemployment rate and the increasingly unpopular war in Afghanistan. It will become even more difficult in the future for the president to push projects through successfully. Not just because Republicans now have a means of preventing it, but also because the Democratic camp is deeply divided. Some would like to see the party shift toward the center -- wherever that may be -- whereas others want the party to position itself to the left. Such a battle is hardly a good sign for the mid-term elections in November. Massachusetts could prove to be an omen."

The center-right Frankfurter Allgemeine Zeitung writes:

"Of course the president rejects the interpretation that the Massachusetts election was a referendum on his first year in the White House. But he cannot ignore the fact that his health care reform package is not popular, the situation of the country's finances is seen as threatening and many voters blame the high unemployment rate on the party in power -- on the Democrats, led by Obama. The result is a second year in office full of very different challenges than the first. To save what there is to be saved, Obama will have to be prepared to fashion a bipartisan compromise on health care -- a compromise with a Republican Party which has tasted blood and can now dream once again about a return to power."

Will the Feds Fund Deficits with 401(k)s?

The writing is on the wall for retirement assets held in conventional ways. A report last week in Business Week shows that the U.S. Feds have 401(k) assets in their sites.

“The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort."

“Annuities generally guarantee income until the retiree’s death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.”


Now ostensibly, the plan to offer an annuity option for 401(k) plans will seem sensible. But don’t be fooled.

This is the beginning of a money grab by the Feds for the $3.6 trillion in assets held by U.S. 401(k)s. The Feds need that money to finance the deficit. This is where some of the money to fund the deficits may come from, answering a question we asked earlier in the week. What you can’t take, you’ll have to print.

But right now, the Feds can’t just take that 401(k) money. Well, they could. But it would crash stocks and infuriate the public, leading to some civic violence. What’s more, it would feel like theft as well as looking (and being) like it. So they have to dress the plan up as something that’s better for savers.

They’re trotting out the idea that a defined benefit pension plan is better than defined contribution plan (which is true, if it’s funded well). A defined benefit plan guarantees you income in your old age years. A defined contribution plan (what we have now) just guarantees money flows into the stock market (which is good for the financial services industry, but don’t guarantee you’ll have any money when you really need it later in life).

The U.S. Treasury Department and the Obama administration are exploring ways to encourage U.S. savers to buy more annuities or investment vehicles composed of “safe” assets. What constitutes safe? Why 30-year U.S. government bonds of course! Thus, the government can encourage people to buy what the Chinese and the Japanese and most other U.S. creditors don’t want to touch any longer.

The trouble with an annuity or 30-year bond is that you get crushed by inflation. In principle, it’s not different that a zero coupon bond. You get your nominal investment back upon redemption. But you are not compensated for inflation and your money is tied up, instead of working harder for you elsewhere.

It’s obvious what the Fed’s get out of this: a ready source of new funds to buy their bonds. This kicks the can of unsustainable deficit spending down the road a few months, or perhaps a few years. But it doesn’t change the fundamentally destructive path of U.S. fiscal policy.

What it does tell you is that mischief is afoot among the wealth stealers of the modern nation state? Faced with a failed funding model, they are beginning their cash grab. This takes the form of higher taxes. But the big bounty is the retirement savings of millions of Americans.

This solves the problem of having to sell the debt to foreign investors. And it solves the problem of having to make tough budget deficits. Just issue more debt and make the super funds buy it with your money.

If you think that’s balderdash or won’t happen, you’re being naïve. It won’t happen overnight. But it will happen gradually. It’s evolving towards that already. If they can’t get it through tax or royalty revenues, the tax posse will get it by any means necessary, which means your super assets are an obvious target.

Alarmist? Irresponsible? You decide. But we can see the evolution of this as clear as day, even if saying it in public is bad form or taboo. But now is the time to say the taboo things.

Dan Denning Article