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Cracks In Central Banking Credibility



-- Posted Friday, 10 September 2010 | | Source: GoldSeek.com

The credibility of central banks is being questioned.  In the United States, media reports point to growing dissension within the Federal Reserve about future policy decisions.  Additionally, the European Central Bank (ECB), while initially having success in supporting bond prices, has recently seen its massive bailout effort wasted as a number of the member nations’ bonds have resumed their declines. 

Greek 10-Year Yield

Source: Bloomberg

Irish 10-Year Yield

Source: Bloomberg

Portugese 10-Year Yield

Source: Bloomberg

The above charts show that bond prices initially rose (yields fell) when the ECB announced that it would buy European government debt, but have since resumed their decline, and in some cases reached new crisis highs.  The inability of the ECB to stabilize government bond prices despite its nearly one trillion dollar “shock and awe” announcement in May undermines its credibility.  Furthermore, if the ECB again attempt to stabilize bond markets the Euro will resume its decline and could dramatically fall bringing even greater scrutiny of the European Central Bank. 

Investors should question their long embedded confidence in the ability of central banks to support market prices. As Japan’s experience has proven, and as the European situation may too, central banks are not bigger than markets, private capital flows or the economy.

Daniel Aaronson - daaronson@continentalca.com
Lee Markowitz - lmarkowitz@continentalca.com

 
http://www.continentalca.com

 
Continental Capital Advisors, LLC
Continental Capital Advisors, LLC was formed to offset the destruction of wealth caused by the global devaluation of currencies by central banks. The name Continental Capital symbolizes the 1775 US Currency, "the Continental", which was backed by nothing and quickly became devalued.

Disclaimer: The above is a matter of opinion and is not intended as investment advice.  Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities.  Certain statements included herein may constitute "forward-looking statements" within the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any action taken as a result of reading this is solely the responsibility of the reader.


-- Posted Friday, 10 September 2010 | Digg This Article | Source: GoldSeek.com




 



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