Death Star Economics



Central bank center stage: the downside to repaying debt

In the US, the balance sheet of the Federal Reserve has exceeded $3tn in assets for the first time this week, resulting from its continuous stimulus policy. Only last week, the Fed purchased assets worth $48bn. In comparison, in the week before Lehman Brother’s collapsed, the Fed’s balance sheet measured $924bnAccording to Bloomberg:

One risk from a large balance sheet is the possibility that the Fed’s interest income could evaporate in coming years as rates rise, according to a paper released last week by researchs in the Fed’s monetary affairs division [surely, that’s the only division they have…].

Also in the US, Tim Geithner stepped down as Secretary of the US Treasury today.

Across the pond, the European Central Bank has announced that banks that borrowed cheap money under the ECB LTRO ‘funding for lending’-type scheme last year may repay some of the outstanding debt now. Estimated between €100-200bn, some reports say the repayments amount to €137.2bn. What’s disconcerting about people repaying their debt is that it will shed light on those banks that are doing poorly, throwing the EU for a loop yet again. read article

The UK sees its economy sliding in the general direction of a triple-dip recession (it’s starting to sound like ice-cream). In the aftermath of the Olympics, with lower manufacturing output and decreasing oil production in the North Sea, British GDP has shrunk 0.3% between October and December 2012. More than expected and frankly more than the UK can take if it wants to keep pretending to be a world power. read article

Another story shook the EU yesterday, with the Commission voting against actively supporting carbon prices in its emissions trading system, causing prices to collapse by 40% in just a couple of minutes. From the FT with no mercy:

The price collapse in the cornerstone of its climate policy is an embarrassment for the EU. It could also have far reaching implications at a time when other countries, such as China and South Korea, are testing or launching similar markets.

Weekend reading:

– Advance in data storage: let’s put it into DNAread article

– Tim Geithner on quitting, read article

– riding the 99%-wave – why suing Goldman Sachs doesn’t work when they’re not guilty, read article

– McSweeney’s guide to a middle manager’s principlesread article

– more on Cameron’s idea of the future EUread article

Have a good one.

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