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The Transparency Trap
January 28, 2012
The Transparency Trap
Tell Us What You Think We Want to Hear
A Very Soft GDP Number
Central Banks: A High-Wire Balancing Act
What Does It All Mean?
A Few Thoughts on LTRO
Greek Exhaustion Syndrome
Cape Town, Stockholm, Geneva, Paris, and London
This week we take a brief pause in our series on the choices facing the developed world to look at some items that are catching my attention. We will get back to the US next week, as somehow I think we will not solve our problems between now and next Friday, and there will be plenty left for us to talk about. So today we look at the "shift" in Fed policy, and at the balance sheets of central banks, US GDP, Portugal and the ECB, the LTRO policy, and yes, there's even a tidbit on Greece. Plenty of ground to cover, so with no "but first," let's get started.
The Transparency Trap
The Fed announced this week that it will keep rates low until 2014. Interest rates responded by getting even flatter. This policy change has caused a lot of negative press, for some good reasons, but I want to offer a somewhat different take on their motives.
Telling us that rates will stay low for another three years has a lot of negative implications. First, it says that the Fed does not expect a recovery of any significance during that time (more on this week's GDP numbers further on). Second, it tells any individual or business that there is no reason to hurry and borrow money to get lower rates. You can wait and see how things turn out before you decide to act.
Comstock Partners minced no words in their scathing criticism:
"In our view the Fed's new policy is an act of desperation rather than something to celebrate. The FOMC has used all of its...

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