Mr Bernanke upsets the markets


Before Mr Bernanke spoke about the need to curtail and then  stop Quantitative Easing the markets behaved as if there was no cloud in the investment sky. Since he spoke, they have behaved as if we would never see the investment sun again. Both positions seem unrealistic.

As the market declines have continued for longer, we need to ask could the markets talk and move themselves to a crisis?  There is no immediate prospect of the kind of credit crunch and banking crisis in the west that drove the markets down in 2007-8. There is no-one forecasting a recession in the USA to match the crashes of the last decade.  On that basis the  Stock market reactions to higher bond yields looks overdone.

There are some problems out there which in its current mood the world Stock market takes more seriously. There is the trouble on the streets of Turkey and Brazil, once fast growing emerging market economies in favour. In China, still growing at more than 7%, suddenly the authorities seem to want to teach the banks and financial instituutions a lesson about controlling their lending instead of making easy liquidity available. Will they judge that right, or could they start to do damage to the very institutions which power and finance the growth?

Worse still, in Euroland, the markets are now driving up the cost of government borrowing again. For the time being Spain  and Italy will have to pay 1% more to borrow, but the levels are still below the panic levels of the past. However, again market watchers will get more nervous if bond yields continue to rise, placing bigger  question marks over the capacity of these governments to afford the money they need to raise from the bond markets.

The Uk has seen the 10 year cost of borrowing rise from 1.7% to 2.56% yesterday. It’s still low, but means a bit more cost to taxpayers as the government continues to expand its borrowing.

For the time being the markets worries have not done enough to interest rates and to the financial system to cause justified major worries. However, the more they slide, the more we need to look at the collateral damage it does. Mr Bernanke may be pleased with his work, as the US economy is strengthening and he needed to blow away some of the exuberance. He also seems to have knocked parts of the world like Euroland that are still struggling,  and hit emerging market economies that are slowing anyway, which is not such a great result.

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  1. Nina Andreeva
    Posted June 25, 2013 at 5:53 am | Permalink

    I beg to differ with these comments which for a politician are a great hostage to fortune

    “There is no immediate prospect of the kind of credit crunch and banking crisis in the west that drove the markets down in 2007-8. There is no-one forecasting a recession in the USA to match the crashes of the last decade. On that basis the Stock market reactions to higher bond yields looks overdone.”

    (suggests problems in derivatives with a couple of non US unnamed banks-ed) This prediction comes from the same sages who warned us what was about to happen in in 2007/8, despite the establishment consensus later stating that “no one could have seen that one happening.” All that rapidly depreciating sovereign debt that the regulators force them to hold makes the banks even more wobblier too.

    The next time will be worse than the last time, because the “market” is being realistic in telling you that as soon as the diamorphine (stimulus) is withdrawn the pain will immediately return. Its obvious that the drugs are not working and the Fed, BoE and the BoJ will be forced to increase the dose to keeps those yields down and will eventually kill the patient.

    Prepare your family finances accordingly because nobody in Westminster will bother to warn you otherwise.

    Reply My piece was more balanced than you seem to suggest in your response.

    • Nina Andreeva
      Posted June 25, 2013 at 9:34 am | Permalink

      JR sorry but I forgot to add that the Euro banks have yet to be recapped like their Anglo-Saxon cousins, which makes me think that their stability is far from certain. Sorry to see you think otherwise! I would recommend XS7S for the FT portfolio

      Reply I do not like funds that go short of shares. I have not given a clean bill of health to all Euro area banks.

    • Lindsay McDougall
      Posted June 25, 2013 at 2:53 pm | Permalink

      So, Nina, follow your argument where it leads. No more bail outs, only administrators, receivers, sell offs, break ups and downsizing. If it was fully understood that that was public policy, the banks’ shareholders would force sanity on their directors. And it would create a much better climate for competition. We don’t need the EU interfering, nor to we need Andrew Tyrie and his cohort of regulators, who toil not neither do they reap.

      • Nina Andreeva
        Posted June 25, 2013 at 5:25 pm | Permalink

        Its not what I think, “bail ins” not “bail outs” are now established practice e.g. the Cypriot banks and more closer to home the Co-Op. If you are interested go to the Bank of International Settlements website and check out their stuff on “bail ins”.

        Of course the banks who are over exposed to derivatives that I referred to in my first post, are beyond being bailed in or out. While when the Euro banks get recapitalized, going on the past experience of what has happened in the UK and USA, it will be at the expense of the shareholders. So I would stay well away from investing in banks and so convinced am I of my view, that I have taken voluntary redundancy from my role within one.

      • Jerry
        Posted June 26, 2013 at 6:47 am | Permalink

        @Lindsay McDougall: If the shareholders had done the right thing in the first place they would not have allowed such casino banking, but heck the good times were really good – whilst they lasted…

  2. lifelogic
    Posted June 25, 2013 at 5:59 am | Permalink

    Of course the governments borrowing rates could be rather lower if we had a sensible government, a smaller state sector, a sensible and cheaper energy policy, fewer regulations, less EU, less tax borrow and waste and some real vision. Alas we have non of this just Cameron’s “BBC think” soft socialism. I see Switzerland has interest rates well under half the UK’s 2.56% – still we would not want to be a greater Switzerland would we.

    Obama also has the advantage that all his idiotic, expensive energy by religion agenda, is being blocked by wiser parties. I think the fall back in US stocks is rather over done.

    • uanime5
      Posted June 25, 2013 at 2:48 pm | Permalink

      Lifelogic why do you always call for the UK to be like Switzerland when Switzerland has higher taxes, more regulations, lower income disparity, and not that much less EU?

      • lifelogic
        Posted June 25, 2013 at 4:50 pm | Permalink

        I do not call for it to be like Switzerland it could be far better than that if the government had any vision. The UK is larger, flatter and has seaports. But top tax rates at 35%, functional public services, a smaller state sector as a proportion, little borrowing, outside the EU and 10 year interest rates at less than half the UKs is not a bad place to aim for. Oh and about 160% as rich.

        Alas we have Cameron who has a vision of a huge incompetent state sector and higher taxes, regulation and energy prices in all directions.

      • Bazman
        Posted June 25, 2013 at 6:25 pm | Permalink

        It is also very middle class. lihogic wants Conservatism, but when faced with real Conservatism goes to pieces, like many on this site being told to go and find a house/job and stop looking for handouts. Their Conservatism only applies top people weaker than themselves and in worse personal/financial circumstances. Ram it.

        • Bazman
          Posted June 26, 2013 at 6:51 pm | Permalink

          A reply is expected to this comment. This is not the BBC.

        • lifelogic
          Posted June 27, 2013 at 9:40 am | Permalink

          No it applies to anyone, other than the people who cannot for genuine reasons of health – just get their backside and provide for themselves and their families and lets get the dead hand of the state with its second rate “public services” off our backs.

          • Bazman
            Posted June 27, 2013 at 5:43 pm | Permalink

            Genuine reasons of health are the only reason someone could not make a living and would need the support of the state and it’s services for themselves and their family.
            Really? Is this how far out of touch with reality you are?
            Could they be peasants instead, toiling the land to provide or do you have some other ideas like a Zero hour minimum wage job in Central London with to many rights holding them back?

  3. oldtimer
    Posted June 25, 2013 at 6:27 am | Permalink

    One consequence of the rise in government bond yields is the drop in their capital values. Institutions that have been forced, by governments, to hold such bonds now face serious losses (on paper). Among those unfortunates are, I believe, UK banks that are required to hold gilts as part of their capital structure. No doubt there are many more in the EU and around the world.

    I would be interested to know what impact you expect this to have on UK banks and on their capacity to lend to the private sector. It looks like yet another aspect of the capacity of the ruling political class to screw things up – to add to its inability to control burgeoning government debt which caused this problem in the first place.

    I imagine it will not help rescue efforts in the EZ either.

  4. Andyvan
    Posted June 25, 2013 at 6:31 am | Permalink

    Think of Bernanke as a drug dealer giving away free heroin and the stock markets as hopelessly addicted junkies. The reaction to having their free high taken away is entirely predictable.
    I’d like to see interest rates at an appropriate to end the credit binge of governments, bring house prices down to affordable levels and reintroduce the almost forgotten art of saving. That would bring some very severe pain but it is pain that needs to be gone through to correct the bad investments and contradictions caused by 15 years of extremely inept and irresponsible government. I think 5 to 8% would do the job. 10% would do it very quickly.

    • REPay
      Posted June 25, 2013 at 1:18 pm | Permalink

      Re the “forgotten art of saving”, it is not surprising so few bother. Profligate governments driving down the value of money, markets provide negative or uncertain returns and hawk like noises being made by the likes of Nick Clegg about lowering the amount of money we can save into our pensions, while his own substantial and largely unfunded pension escapes unscathed, provide a major disincentive. No wonder real estate is so over valued in the UK! One pension provider wrote to me to say that for every 100k I save I will get 3,200 per annum.

      • Jerry
        Posted June 26, 2013 at 6:55 am | Permalink

        @REPay: We don’t (yet…) have Zimbabwe style inflation in the UK!

  5. margaret brandreth-j
    Posted June 25, 2013 at 6:33 am | Permalink

    There is Mr King’s ” audacious pessimism” I see. China’s problems ,over the past few years, have been our past problems and our banking institutions are now getting it together. It just depends how long and persistent banks are forced to address their own internal problems. When lending in the UK was made too easy , we fell with bankruptcies galore. When lending is controlled , that does keep a tight reign on free enterprise, but perhaps will stop the drain on the banking systems with bad debts.

  6. Peter van Leeuwen
    Posted June 25, 2013 at 6:36 am | Permalink

    Europe should press on with its banking union, it is still vulnerable.

    • APL
      Posted June 25, 2013 at 8:24 am | Permalink

      Peter van Leeuwen: “Europe should press on with its banking union, it is still vulnerable.”

      Ha ha, funny. Yea, lets merge lots of smoking black holes where the banks used to be – that’s gonna sort the problem.

    • Lindsay McDougall
      Posted June 25, 2013 at 2:46 pm | Permalink

      So instead of the Gaderene swine, we have one big bloated Gaderene pig. Brilliant.

      • Peter van Leeuwen
        Posted June 25, 2013 at 3:50 pm | Permalink

        @Lindsay McDougall: However, the cliffs are at Dover, make sure you don’t jump 🙂

    • lifelogic
      Posted June 25, 2013 at 6:24 pm | Permalink

      I assume this is intended to be satirical.

  7. Ben Kelly
    Posted June 25, 2013 at 6:51 am | Permalink

    The disconnect between markets, government and the man in the street is ridiculous.

    Tbe concerted efforts to prop up asset prices are delaying the crash and hence delaying the recovery for the man in the street. Investments can go down. House prices can reduce. Capitalism need to be punitive as well as rewarding which will protect the little people as much as regulation.

    Roll on the correction.

  8. Denis Cooper
    Posted June 25, 2013 at 7:44 am | Permalink

    I notice that the Telegraph has switched from running articles about how QE is hurting pensioners to running articles about how the end of QE will hurt pensioners … apparently the answer is that QE should never have been started, but then if the Labour government hadn’t discovered this new device to help fund its budget deficit probably state pensions would have had to be cut back in 2009, along with all other public spending …

    I also notice that today the Telegraph is reporting on recorded conversations between two senior executives of Anglo Irish Bank, (talking of their approach to ed ) the Irish government into bailing out their bank:

    Also that with rising bond yields Italy may be less than six months away from needing a formal EU bail-out; but we’ve heard that kind of thing before and I guess the ECB will once again intervene, either openly or covertly, legally or illegally, as it deems necessary to preserve the present eurozone intact so that it can later expand and eventually engulf us as well.

  9. Brian Tomkinson
    Posted June 25, 2013 at 7:56 am | Permalink

    Interesting how an announcement that QE would start to be reduced in the USA this time next year caused such an immediate reaction. On the other hand, I couldn’t understand why the stock markets had been rising so rapidly earlier this year. It seems that neither activity is based on the true performance of the companies listed. As for the UK, can you quantify the cost to taxpayers of a 50% hike in the 10 year cost of borrowing to 2.56%?

    Reply: Yes, you can quantify it if you work through the repayment schedules of existing debt. It takes quite a long time to work through as the UK has an average maturity of 14 years.

    • lifelogic
      Posted June 25, 2013 at 8:14 am | Permalink

      Quantify it? Well you can certainly be sure we would be much better off with Swiss 10 year interest rates at slightly over 1% rather than ours at 2.56% and rising.

      Still we would not want to be a greater Switzerland would we? Cameron may even tell us why at some point perhaps.

      • Bazman
        Posted June 26, 2013 at 6:58 pm | Permalink

        As pointed out this is not a middle class country and your ideas of no employment rights and no minimum wage or living standards will not help this. There is a lot of regulations and laws in Switzerland. Do you get it this time or are you going to be all ‘BBC’?

        • lifelogic
          Posted June 27, 2013 at 9:43 am | Permalink

          If the government runs out of money you will not have any guarantee of anything they do not have a “magic money tree” even Cameron accepts that.

          • Bazman
            Posted June 27, 2013 at 5:49 pm | Permalink

            How would turning Britain into over regulated and taxed Switzerland? The whole country is middle class as pointed out to you. We are an elitist working class country and all your ideas reinforce and believe in this as the way forward.

  10. APL
    Posted June 25, 2013 at 8:22 am | Permalink

    JR: “There is no immediate prospect of the kind of credit crunch and banking crisis in the west that drove the markets down in 2007-8.”

    There are commentators ( with a very good track record ) that believe that is exactly what is happening.

    Here is the real problem, there is no money in the market – its all credit.

    If you lose your money then you are broke but can try to start again. If you lose all the money you have borrowed then you are in debt and must pay off your creditors, this latter circumstance leads to a liquidity squeeze as people and firms sell everything they can in order to pay their obligations.

    Seems familiar?

    • APL
      Posted June 25, 2013 at 9:44 am | Permalink

      APL: “there is no money in the market – its all credit”

      It’s worth asking why that might be. The reason, the insane interest rate policy of the central bankers & QE – making it cheap to borrow – and so long as the market goes up a one way bet.

      The stock market has been the most recent bubble that the results of QE has been apparent.

      Now Bernanke has suggested he is going to turn off the cheap money spiggot. Given that QE and low interest rates are the only reason for the rise in the stock market, even the slightest hint that they both* might be turned off, has scared the bejesus out of everyone.

      Without QE, interest rates will rise.

      • Jerry
        Posted June 26, 2013 at 7:03 am | Permalink

        @APL: “Without QE, interest rates will rise.

        Now there is a quandary, savers want interest rates to rise, those who use debt (sometimes also called “Credit”) to fuel their lifestyle or business choices don’t, who is right, who should win through…

    • Gary
      Posted June 25, 2013 at 9:55 am | Permalink

      I think there is an ocean of money out there, but due to the distortions of the rates all that money has been misallocated into a few asset bubbles. Every bank loan is made with a corresponding deposit of money into an account. Every credit, under this system, contains an accompanying monetary deposit. Most of the money was chasing chasing govt bonds , which have been making new highs for 30 years. The rest has been going into property, chasing that bubble, or gone to China. The way inflation is measured omitted this and inflation looks misleadingly benign. But the money is still out there, and when it gets unlocked from the various bursting bubbles, then I fear it will show up in the basket of goods that make up the CPI and then the real suffering will start. In the face of this we have wage deflation because jobs were exported east. Consumers , who haven’t had a real wage increase for more than 5 years, facing rising commodity prices will not be an engine for growth. So, where will the growth come from ? I reckon they will print like they have never printed before.

      • APL
        Posted June 25, 2013 at 4:59 pm | Permalink

        Gary: ” all that money has been misallocated into a few asset bubbles.”

        Just think what that means Gary.

        Mis-allocated doesn’t necessarily mean you’ll get your money back. It may mean you bought Greek government bonds or bought into the housing market at its peak or invested in those empty cities in China that no one lives in. Housing is 20% off its highs and Greek, Spanish, Portugese bonds are next to worthless and the Chinese economy isn’t what it is cracked up to be.

        So you may have misallocated your money but like the South Park sketch, “poof! It’s gone! Next customer please.

        QE and unnaturally low interests rates have encouraged borrowing to speculate. ‘ The governments behind it, its a dead cert, yea?’

        Well, we’re just about to find out that it is not.

      • Wireworm
        Posted June 26, 2013 at 4:02 am | Permalink

        Doesn’t money from a bursting bubble just disappear? Only asking.

    • A different Simon
      Posted June 25, 2013 at 10:17 am | Permalink

      APL ,

      I think you are right that there is insufficient money in the real economy and too much debt .

      The money multiplier and fractional reserves banking is not the way to increase the money supply either .

      Essentially we have rentier’s and people close to the issuance of money wanting to make their living by taking an unrealistically large cut of the real economy and the fruits of peoples labour so that after they have done that there is nothing left for the man in the street .

      It boils down to a choice , favour the finance elite or favour the citizenry and it’s fairly clear the choice successive governments have made .

      I’m sick and tired playing against loaded dice in their bent game and being told it’s my fault for not working harder or have poli’s try to blame it on people at the bottom of the pile for “scrounging” .

      • APL
        Posted June 25, 2013 at 5:08 pm | Permalink

        A different Simon: “It boils down to a choice , favour the finance elite or favour the citizenry and it’s fairly clear the choice successive governments have made .”

        But that’s just a coincidence.

  11. Acorn
    Posted June 25, 2013 at 8:35 am | Permalink

    It is not all down to the FED, second quarter US corporate earnings are coming in low as the sequester austerity starts to take effect.

  12. Gary
    Posted June 25, 2013 at 8:42 am | Permalink

    Declining earnings, rising yields, and sluggish or no growth. If this continues the markets, still richly priced, will continue to sell off.

    The only surprise is that it took so long. Yields are at multi decade lows, they have only one way to go. The 30 year old bond bull market’s end is nigh, and so is the credit that formed it. The economy is now debt sodden. The consumer, mostly sitting on negative property equity and record credit card debt, is tapped out. The govt , already out on a limb as tax receipts fall and borrowing rises is now lined up for the perfect storm of rising costs of borrowing.

    The perpetual motion money machine of infinite growth is spluttering and seizing. The FED’s trial balloon of saying that QE will end has resulted the whiff of collapse. It looks like the next move will not be withdrawal of QE, but a panicked increase of QE in desperation to save this whole sorry mess from from falling into a heap. It won’t work, it may just us a stay of execution but the problems will multiply.

    A fine mess we are in.

  13. John Eustace
    Posted June 25, 2013 at 9:23 am | Permalink

    QE may have bought some time but the distortions it caused in the markets now outweigh the benefits certainly in the US so Bernanke is right to remind people that normality must resume at some point.
    Trouble is we in the UK have not used the time wisely to get government borrowing under control. And the EU has failed to make any meaningful progress and looks as far as ever from a resolution of its’ issues, so I fear a crisis or two bubbling up this summer / autumn.

  14. A different Simon
    Posted June 25, 2013 at 10:26 am | Permalink

    Most blue chips cannot power an economy to new heights . They are a dead end.

    Typically they are close to being maxed out so any increases in share price merely increases the P/E ratio and reduces the yield for new entrants .

    To get anywhere we need to be planting acorns to replenish the oaks which mature or are felled and flogged off to foreigners for a fast buck .

    London does not understand juniors , innovators or long termism and like a pack of dogs it will try and kill anything which is different .

    This serves the purpose of eliminating competition for it’s favoured blue-chips and denying access to credit under reasonable terms ensures that the juniors assets are transferred up the ladder at minimum cost .

  15. Kenneth
    Posted June 25, 2013 at 10:40 am | Permalink

    The prospect of Cyprus, then Greece then Italy etc leaving the Eurozone has not gone away. It has just been postponed.

    It’s easy to dismiss these prophecies as over-dramatic. However, they are just logical outcomes to the current situation where the Eurozone/eu are trying to achieve the impossible.

    The markets have been soothed by the rigging that comes of money creation. This is a false market that cannot possibly be sustained.

    Whatever the catalyst, whether they be comments from Mr Bernanke or the fall of the Italian government, the market is fragile and could break at any moment.

    My betting is that, as Cyprus realises it can never rejoin the Euro proper, it will default. Whether that will be the moment when it all unravels I do no know, but I ad certain it will all unravel.

  16. Terry
    Posted June 25, 2013 at 11:22 am | Permalink

    Years of ultra low Bond yields have paved the way for the next depression. Deflation and depression go hand in glove and we are already in a deflationary cycle.

    Bernanke and his disciple, our own, Merv the swerve, have orchestrated a plunder on future earnings. Contrary to their beliefs and their predictions, their diabolical QE programmes have suppressed money flow and all that extra phoney money has been piled into other assets. The 0.5% Government ‘loans’ to the various banks and institutions have not gone to the desired quarter (small business) but used to pump up first, the Bond markets, then the Commodities markets and now the Stock markets. The reason for this is simple. Greed.
    Bond yields were too low so they sought better rewarding alternatives. Even the High Yield Junk Bonds!! Alarmingly, some Pension Funds are also buying into these higher yield centres and I can only guess the outcome when the dominoes collapse.

    It is totally illogical for any Government to borrow and spend their way out of a recession but the most recent ones have done just that. If it was that easy, Zimbabwe would be a very rich country.And what is there to show for this money printing?
    Zilch rises in GDP, perpetual rises in total debt and much more money at risk in speculative ventures. It is no wonder that the UK has the world’s highest total debt,per capita (Public and Private Sector) . Both the Public and Private sectors have embraced this cheap money and gambled with it. What happens next is that there will be another bail out, a big bail out. This time it will be swathes of gamblers deciding to take profits and liquidate. Then the massive rush for the small exits will commence. Then we shall witness a repeat of 1929 and 2007/2008. When? Soon, on a TV screen near you, I guess. Take care.

  17. Javelin
    Posted June 25, 2013 at 11:58 am | Permalink

    Those of us in the markets have been saying since QE started that it had the side effect of supporting the banks profits and the liquidity in the markets. QE was very clever. It was basically nursing the markets back to health. If banks have not used QE profits to build their assets but simply as profits they may now be panicking. I believe a few banks have carried on taking profits and now deserve any problems they have heaped upon themselves. Thankfully all the British and US banks have now stabilized.

    I think QE was great idea and had an inbuilt moral compass. The fact the EU and Eurozone did not get their house in order but set their goals to be a power grab rather than stabilization is purely their problem now. History will show the Euro powers to have been corrupt and we are now back to looking at the Swap positions of the Euro banks. A few years ago I could see an Italian bank (financially stressed ed). Today there are several more banks in the PIIGS in that position. etc

  18. Mike Wilson
    Posted June 25, 2013 at 1:00 pm | Permalink

    Quote … ‘The Uk has seen the 10 year cost of borrowing rise from 1.7% to 2.56% yesterday. It’s still low, but means a bit more cost to taxpayers as the government continues to expand its borrowing.’

    A ‘bit more cost’ eh? Still, we can afford it! We are only spending 60, thousand, million pounds on interest (boy, what a mortgage we must have!) – and we are only borrowing 120 thousand, million pounds every year.

    A rise from 1.7% to 2.56% is a rise of almost exactly 50%. Will our interest go up from 60, thousand, million pounds to NINETY, thousand, million pounds? Sooner or later it will!

    I have told my lads they need to buckle down and get very fit. They are going to have to work like dogs all their lives to pay back my borrowing. As long as I get my public services today, I don’t give a monkey’s about my kids. They can pay tax to pay the interest on my debts, pay tax to pay the interest on their own debts, pay for my police force, teachers, hospitals etc. – and pay for their own – and pay my pension too! And try to save fourpence halfpenny a week towards their own pension which, if they are lucky, they will be able to take when they are 87 years old.

    Trouble is my lads have told me to take a running jump – they will be moving abroad so they won’t get dragged into ‘the madness and the slavery’.

    • stred
      Posted June 25, 2013 at 9:32 pm | Permalink

      Perhaps we should ask them to take us too.

  19. Terry
    Posted June 25, 2013 at 1:35 pm | Permalink

    This quotation is very old but very relevant.

    “The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome will become bankrupt. People must again learn to work instead of living on public assistance.”

    Cicero , 55 BC

    Why do the Central Bankers thinks that this time will be different?

  20. Iain Gill
    Posted June 25, 2013 at 1:45 pm | Permalink

    What happens when the banks have to revalue all those houses on their books at a lower more realistic level?

    What happens if the Chinese decide to change things, either way they could alter things big time

    What happens when the last bit of leading intellectual property has been handed over to India and there is no longer any reason to pay a premium price for UK goods and services?

    Going to be a bumpy ride and nothing at all like Cameron and his chums from school running the country think

  21. Lindsay McDougall
    Posted June 25, 2013 at 2:43 pm | Permalink

    Mr Bernanke is only confirming what he said some time ago, that when unemployment fell sufficiently, to 6.5% as I recall, he would end QE. The markets shouldn’t have been surprised. Stock market indices reflect anticipated future profits; presumably people think that profitability will be eroded after QE ends.

    I have no sympathy with the UK government. They have given up on deficit reduction after 2 years. We hear headlines of cuts in FYR 2015/16. What about FYRs 2013/14 and 2014/15? Do we rely on nothing except economic growth and rising tax revenue? What will happen to debt interest, a significant part of public expenditure, as State debt continues to grow and interest rates rise? No prizes for the answer.

    • stred
      Posted June 25, 2013 at 9:34 pm | Permalink

      Is it an FY default?

  22. Bert Young
    Posted June 25, 2013 at 4:41 pm | Permalink

    Its not just down to Bernanke . When the 2 largest economies of the world state that cheap money is the thing of the past , markets were bound to react negatively . I blogged the other day about “selling in May” and wait until October . I believe this period of time will prove true once again .

  23. Normandee
    Posted June 25, 2013 at 5:19 pm | Permalink

    So, talk is you could be back in the cabinet, will you have any red lines ? will it be party or country ?

  24. Normandee
    Posted June 25, 2013 at 5:20 pm | Permalink …
    To add to my previous comment

  25. Mike Wilson
    Posted June 26, 2013 at 10:58 am | Permalink

    It is interesting (to me, at least) that whenever cuts to pensions are mentioned – it is always the state pension.

    ‘They’ (‘them’ – ‘the state’ – ‘the government’) always say ‘we have a contractual obligation to pay public sector pensions.

    Well I say it is high time there was a contractual obligation to pay state pensions – based on contributions. So – worked for 45 years and paid your NI for all those years – that should guarantee you, say, a pension of the minimum wage (i.e. 40 hours x minimum wage – per week). No unfunded public sector pension should be more than this amount again.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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