just in in-tray
the question is if this will make any practical difference to the credit markets. i rather doubt it, on the grounds that effective administered rates are already below these new 'official' rates.
also, considering yesterday's 100 bp cut by the RBA to 6% - when they did that, their 10-year government bond yielded 4,7% (it subsequently went back to 5%). so in spite of the cut, the RBA remains way behind the - still inverted - curve.
yields on government bonds have been falling for three straight months, so all these cuts are doing is 'catching up'.
that is the reality - however, the cuts may still have an effect on market psychology, especially with equity markets already severely 'oversold'.
regarding the printathon comment - that has begun in earnest about two-three weeks ago already, and i estimate we will see the 'true money supply' measure's annual growth rate double, from the previous 5% to now 10% (the narrow money supply definition used in Austrian economics; the last reported figure was 7%, but that was before last week's additions to the money supply).
meanwhile, if one annualizes the rate of change of base money growth over the past two weeks one gets annualized growth close to the 300% range i believe.
and yes, gold's long term path is thus to much higher prices, even though some of the 'emergency' additions to the money supply will be drained again once the credit crisis eases a bit. first of all, it will probably be impossible to drain all of it, and secondly, the ongoing economic recession will give the CBs inventive to continue with easy money policies for quite some time. this is due to the large time lag between policy implementation and its effects. for instance, the credit markets and the economy still feel the lagged effect of the previous tight policy stance.
gold is different, insofar as it tends to react to inflationary monetary policies without much of a lag - as market participants buy it in anticipation of the lagged effect on the economy, prices, etc. arriving at a later stage.
central bankers meanwhile , to paraphrase Mr. Saville, 'drive a car forward while keeping their eyes firmly fixed on the rear-view mirror'.
this guarantees that they will err - in the current climate, the error will be toward keeping policy too easy for too long, just as they did in 2000-2002. nothing is more bullish for gold than a bunch of central bankers scared of deflation. |
