Sept. 7, 2012

FEDERAL RESERVE STIMULUS VS EUROPEAN CENTRAL BANK STIMULUS

Federal Reserve:

  • Keeping interest rates at historically low levels.
  • Increasing the amount of money available through quantitative easing by increasing money supply.
  • Effectively lowers the value of the US dollar, and as a result, increases the potential for inflation.

European Central Bank:

  • Maintaining liquidity and low interest rates.
  • Buying bonds with maturities of less than 3 years.
  • “Sterilizing” their bond buying program by purchasing bonds of one security while selling another for a net neutral position.

Summary:

  • US can buy bonds longer than 3 years and may buy other securities in the future. They will be adding to the money supply, devaluing their currency, and fueling inflation.
  • ECB is focusing on sovereign bonds 3 years or less, net neutral, which provides currency stability and sustainable interest rates.

CHINA

  • According to Larry Jeddeloh, the political transition in China to the new government may take longer than expected and may not be completed by late October.
  • China has approved 60 infrastructure projects worth more than $150 billion.
  • It is anticipated that China’s car sales will surpass the combined sales for US, Japan, and Germany by 2015.

UNEMPLOYMENT DATA

  • Canada added 34,000 jobs in August with an increase in part time positions and unemployment rate remained steady at 7.3%.
  • Alberta added 3,900 jobs and the unemployment rate declined to 4.4% from 4.6%.
  • US added 96,000 jobs in August, less than the 125,000 expected by economists. The unemployment rate declined to 8.1% from 8.3%.