-- Posted Wednesday, 25 March 2009 | | Source: GoldSeek.com

Federal Reserve on Wednesday stunned investors by announcing plans to buy $300bn of US government debt, rocking the bond market and the dollar.

            In a further display of aggression, the Fed also said it was more than doubling its purchases of securities issued by housing giants Fannie Mae and Freddie Mac to $1,450bn in a bid to bring down mortgage rates and support the housing market.

            The yield on 10-year US Treasuries plummeted 50 basis points to 2.50 per cent, although the yield on 30-year US bonds rose because it was excluded from the programme. Equities bounced with big gains in troubled banks such as Citigroup and Bank of America, but the dollar fell.

            Even though the Fannie and Freddie purchases are much larger in size, it was the plan to buy Treasuries that caught investors by surprise. The last time the Fed attempted to bring down yields on long-term securities was during the ill-fated Operation Twist in the 1960s.

            The Fed said it would buy longer term Treasury securities with maturities of two to 10 years. The US central bank said its intention was to “help improve conditions in private credit markets” – and by implication, not to help the government finance its mounting deficits, although it will have that effect.

            With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy.

            To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

            Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most — if not all — of next year.

            The decision to hold rates near zero was widely expected. But the Fed's plan to buy government bonds and the sheer amount — $1.2 trillion — of the extra money to be pumped into the U.S. economy was a surprise.

            "The Fed is clearly ready, willing and able to be the ATM for the credit markets," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.

At least 73 employees of AIG's Financial Products unit -- the London-based division of the insurance giant that sold the high-risk derivatives blamed for the company's near-collapse -- got bonuses of at least $1 million out of the $165 million pot of bonuses that was recently revealed, New York Attorney General Andrew Cuomo said moments ago.

 

            Cuomo subpoenaed AIG yesterday for details of the bonuses. AIG has received $173 billion in government bailout money to stay in business.

 

            According to Cuomo, 11 of the AIG employees who received bonuses are no longer with the company, obviating the concept of the "retention bonus."

 

Also, $42 million of the $165 million in bonuses was given to 10 AIG employees, Cuomo said.

            "Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG," Cuomo writes. "Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome."

 

            US President Barack Obama is considering a plan that would double the size of Afghanistan's security force to about 400,000 troops and police officer to stabilize the nation, The New York Times reported on Wednesday.

 

Obama was expected to approve a version of the plan in coming days as part of a broader Afghanistan-Pakistan strategy, the report said, citing senior administration and Pentagon officials.

 

Afghanistan now has about 90,000 troops and the Afghan National Police numbers about 80,000 officers, the newspaper said.

 

Investor John Paulson, whose hedge fund made billions betting against subprime mortgages, is making a massively bullish call on gold. They spent $1.28 billion for an 11% stake in Anglo Gold Ashanti, one of the world’s largest miners of precious metals. Investment funds are turning to gold as world central banks print money and issue credit. They are long 28 million shares of Kinross, or 4% of the company. Many other are jumping on the gold wagon.

 

Gold has to go to $7,000 an ounce to reflect inflation since 1980.

 

CANADA

Canadian annual inflation unexpectedly accelerated in February as gasoline prices rose during the month, which may ease pressure on the Bank of Canada to take additional measures to stem the recession.

 

            The year-over-year inflation rate quickened to 1.4 percent from 1.1 percent in January, Statistics Canada said today in Ottawa. The consumer price index rose 0.7 percent from January, the first increase in five months, the agency said.

 

Retail Sales rise 1.9% in Jan from -5.4%.

 

Canada's household net worth fell the most since at least 1990 in the fourth quarter.  The value of families’ assets, such as houses and savings accounts, minus their liabilities fell 4.4% between October and December, Statistics Canada said this represented a loss of C$252 billion ($199 billion) in Canadians’ net worth.

 

EUROPE

 

The Swiss National Bank has no plans to change its gold holdings, directorate member Thomas Jordan said Thursday.

 

We have a firm stock of 1,040 tons of gold and there are no plans to change anything," Jordan said at the Swiss central bank's annual money market event.

 

...

THE INTERNATIONAL FORECASTER

Saturday, March 21, 2009

      032109 (6)_IF

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

 

Published and Edited by: Bob Chapman

NOTE: NEW E-MAIL ADDRESSES

For correspondence to Bob: bob@intforecaster.com

For subscription and renewal: info@intforecaster.com

 

CHECK OUT OUR WEBSITE

www.theinternationalforecaster.com

1-YEAR $159.95 U.S. Funds

US AND CANADIAN SUBSCRIBERS: Make check payable to Robert Chapman (NOT International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address.

Or:

We accept Visa and MasterCard charges.  Provide us with your card number and expiration date.  We will charge your card US$159.95 for a one-year subscription.

 

You can email us in two separate emails (1- the Credit Card Number with full name, address and your telephone number and (2- the Expiration date on the card.

 

NON US OR CANADIANS SUBSCRIBERS:

Due to the time that it takes for your mail to arrive to us from a foreign country, we would like for you to email us as above the CC information in two separate emails.

 

Note:  We publish twice a month by surface mail or twice a week by E-mail. bob@intforecaster.com

 

-- Posted Wednesday, 25 March 2009 | Digg This Article | Source: GoldSeek.com

Previous Articles by Bob Chapman

© 1995 - 2019

Live GoldSeek Visitor Map | Disclaimer