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While debate continues on when the ECB will again raise interest rates (although we saw how the economy will continue to need support), and in other parts of the world’s central banks have already started to act in this way.

In Australia, the Central Bank has brought interest rates to 4.25% against the previous 4.00%, in what is the fifth increase since October. This is a decision motivated by a desire to curb inflation and in particular the increase in house prices, which increase is favored by relatively low mortgage rates, and is alive fears of a housing bubble.

Despite the decision to raise rates, the economic scenario is not optimal, since consumer spending has also recently suffered contractions and is in a slowdown in construction. But Australia is one of the few countries that has not entered into recession – at least according to the quantitative definition often used: in fact, Australia has had a single quarter of negative growth of GDP at the end of 2008.

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Intanto in Australia i tassi aumentano

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The U.S. is beginning to walk the road of quantitative easing , following the path already taken by Britain. The Fed will purchase U.S. Treasury securities with maturities of 2 and 10 years. It is a measure chosen to intervene in the money markets now that the tools with “normal”, ie the management of interest rates, there are more room to maneuver (because they are close to zero). We try to explain in terms simple (and simplified), What are the measures introduced.

quantitative easing policy provides the “pumping” money into the economy by the central bank , operation that is precisely through the purchase of securities on the market and in particular < a href = "http://www.banknoise.com/2007/07/i-titoli-di-stato-bot-ctz-cct-btp-btpi.html"> Bonds .

To understand what is involved the purchase of securities by the central bank must take a step back, to “remember” what the currency. Simplistically, money is a “broker” for economic transactions . In other words, when you want to exchange a good A (which may also work) with a good B for convenience is used as an intermediary currency, but is not “really” part of the transaction: the value is “content” goods in A and B. Always much easier, money for these transactions is given by central banks (thus trivializing an extreme, it remains outside the transaction, since it is a bit ‘ as a term present in both sides of an equation that can be “ignored”).

However, if the central bank uses the money not to lend but to make purchases, then the money becomes part the transaction, because no other underlying asset. The problem is that money alone “is not worth anything.” Or rather, the money is in proportion to the “real wealth” of the economy where it is used.

“Pumping money” in this way then it means dilute the value of money (same cake, I make more slices, the slices are smaller), and in some ways means devaluation implicit . In practice this means that the asset cost more not because they increase in value, but because it decreases the value of money, thereby increasing their value. A key to reading interesting to analyze eg the increase in oil prices after the U.S. began to apply this policy has not increased the value of oil but the dollar fell.

this policy may fail to stimulate the economy, it must be said that it also possible side effects. The main one is that of ‘ inflation . Clearly, at this time is a secondary issue, given the current risk of deflation, but there may be effects in the medium to long term if we introduce an excessive amount of money.

It should be noted however, that unlike other cases (such as Zimbabwe ) where this policy has been used in attempt to pay the debt in the case of USA and Great Britain is a temporary measure , since the intention is to resell the purchased securities when the economic situation will again be favorable (with the operation then would be a “loan” anomalous, rather than a true “premium”).

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USA e UK sulla strada del "quantitative easing", cosa vuol dire?

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In financial circles consider circulating a interesting fact, some analysts already we would be rates before central banks even negative in real terms . Well, actually it is already beyond the “zero interest rate policy “(known as ZIRP: Zero Interest Rate Policy ).

In fact, comparing the interest rates of central banks compared to inflation data, would result “in red. For example, in October, the interest rate was (between 8 and 29 month) 1, 5%, while the rate of inflation in the U.S. stood at about 3.66%. and then rate the “real” was -2.16%.

One interesting argument, but however from a misunderstanding . Thus, as both the rate of inflation to interest are both referred to “October 2008″, not really refer to the same period of time, and then comparing is meaningless .

In fact, inflation in October 2008 covering the period (annual) that ends in October 2008, while the interest rate refers to loans begin in October 2008. In other words, while one is actually referring to the period 2007-2008, the other refers to the period 2008-2009.

To make meaningful comparisons and reasoning must be used first of all data between them, and then refer to the same period. For example might make sense instead use the values from month to month rather than year over year, but they paint a completely different scenario in which prices in the U.S. fell from July to today.

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Tassi di interesse "reali" negativi per le banche centrali? Non proprio...

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In the U.S. (and others) you start talking with some concern, “stagflation.” What does it mean?
The stagflation is a situation where there are simultaneously present both inflation and a lack of economic growth in real terms (economic stagnation). Just the combination of the words stagnation and inflation created stagflation. This is a solution “anomalous”, because normally in a situation of growing prices rise, while in a state of contraction prices “slightly increase” (or even decrease scenarios deflation).

The concern arises because is a phenomenon very difficult to manage for governments and central banks In fact, the economic slowdown would require lower rates to stimulate the economy, fighting inflation but require instead that central banks instead alzassero interest rates .

‘actually possible that the U.S. economy, and perhaps that of Europe, we are heading towards a situation of stagflation, as the slowing U.S. economy is beyond doubt, as it is a reality that inflation in January in the U.S. has risen significantly.

If the real scenario is actually that of stagflation, then we must say that the Fed is probably wrong policy regarding interest rates . Indeed, history seems to tell that the rate cut is not an effective cure to solve the stagflation, but rather likely to worsen and lengthen. During the period of stagflation in the U.S. during the 70s, the cure that worked was the exact opposite.
In fact, Fed policy is criticized by many, the recent rate cuts to interest it, who did not have the desired effect on markets : they ensure slowed the fall of the awards, but the results should be such that cuts are far greater.

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Stagflazione, il terrore dei mercati: ma che cos'è, esattamente?

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How wanted to demonstrate. The ECB left rates unchanged at 4% , and indeed, by the declarations of the same Trichet had even considered the idea of increasing them. And then I think I can say that it was motivated when I wrote that the hope that the ECB Visco cut interest rates was very similar to a “joke” populist .

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La BCE lascia i tassi invariati: nessuna sorpresa