A one-trick pony


Paul Marson


Recession, Liquidity, Leverage

While our indicators are suggesting the US is already in recession (or on the verge of it), and in a climate of ongoing concern about sovereign solvency and serious doubt particularly in Europe about the solvency of many overleveraged banks, Ben Bernanke and the US Federal Reserve (Fed) are once again focusing on monetary liquidity instead of on the real issue of excess leverage.

Their latest – and in our view ineffective – response is to swap US$400 billion of short maturity securities for a similar amount of long maturity securities.

How the Fed expects this to revive a faltering US economy is puzzling, but we have nevertheless tried to think of ways in which the policy might have even a modest beneficial impact.

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