Tuesday, October 31, 2006

money supply is running wild!

dies erklärt sehr schön die absurden bewertungen und die nicht vorhandenen risikoaufschläge.

this explains why the markets acts without fear.

Global Cash Glut Fuels Investment Boom, Rate Concern

Oct. 30 (Bloomberg) -- Markets around the world are awash in excess cash, fueling a frenzy of investment from London to Tokyo that may lead central banks to push interest rates higher than investors now anticipate.

Money remains cheaper than in the 1990s even after every major central bank raised rates this year, the first simultaneous tightening since 2000. The cash glut is reheating the U.K. housing market, while in Japan companies plan the most investment since 1990. China's biggest bank this month attracted orders for more than half a trillion dollars with its initial public offering of shares.

``Interest rates in the main economies have still not been raised enough,'' ..... ``There is a buoyancy in asset prices one gets with high-risk monetary growth.''

Without further tightening, central bankers may have new asset bubbles and inflation risks on their hands.

The European Central Bank, whose officials voice the most concern, is convening a conference in Frankfurt next week on the role of money growth in guiding interest rate policy. Among participants: Federal Reserve Chairman Ben S. Bernanke, People's Bank of China Governor Zhou Xiaochuan and Bank of Japan Deputy Governor Kazumasa Iwata. (what a waiste of time / was für eine zeitverschwendung....)

Pressure on ECB
``When monetary growth is strong, the housing markets are very dynamic and the stock markets are vigorous
, the probability of an inflationary episode within three or four years is very strong,'' says Jose Manuel Gonzalez-Paramo, a member of the ECB's executive board. (mhhh, inflation is spiking the last view years. and that despite the cheap imports from china etc, the assetpriceinfaltion is running amok since 2005/ die inflation ist doch jetzt schon am steigen und das trotz der billigen importe etc. ,die vermögenswertinflation läuft seit 2005 schon amok)

The ECB, unlike other major central banks, explicitly uses money supply to gauge inflation. Growth of M3, the bank's preferred measure for the 12 nations sharing the euro, unexpectedly accelerated to 8.5 percent in September, close to a three-year high. ....(isn´t it funny that the fed under bernanke just eliminatet the m3 figure. the called it useless and to costly to collect..../ ist es nicht merkwürdig das die fed genau diese m3 geldmengenerhebung als nutzlos und zu kostspielig eliminiert hat...)

`Pretty Lavish'
Charles Dumas of Lombard Street Research Ltd. in London calculates that money supply in the world's top economies is growing at an annual rate of 7.5 percent. Though down from a four- year high of 9 percent a year ago, ``that's still pretty lavish,'' he says. ....

``Money supply on a global basis is growing quite rapidly as is overall credit growth,'' says Drayson, a former U.K. Treasury economist. ``We don't see much evidence that monetary policy around the world is restrictive.'' look at this!http://immobilienblasen.blogspot.com/2006/09/credit-machine-is-running-amok-mother.html

Revival of Monetarism
Other central banks including the Bank of England and the Bank of Japan are starting to share the ECB's view on money growth. That's a shift from a few years ago, when following money supply was deemed a relic of the 1970s. .....

One central bank that isn't joining is the Federal Reserve, which no longer sets a target for monetary growth and stopped publishing one measure of money supply in March. (what a surprise/welch überraschung!)

``The Fed responds to the effects of asset prices, not to the prices themselves.''

For central bankers, the threat is that overinvestment pumps up asset bubbles that lead to economic busts, just as the explosion of investment in U.S. technology companies did at the turn of the decade. (and now the same with housing/nun dasselbe mit dem immobilienmarkt)

Risky Investments
Available money is encouraging ``barely profitable and highly risky'' investments, French Finance Minister Thierry Breton said last month. The average interest rate of 10 leading economies adjusted for inflation is now around 2.8 percent, below the 3.2 percent average of the 1990s,...

The Bank of England, which once shared the Fed's skeptical view of money supply as a policy guide, is now grappling with the fastest expansion of money in 16 years. After raising rates a quarter point in August, citing ``rapid growth'' of cash and credit, Bank of England officials are signaling a further quarter point increase when they convene next week. .....

Worried Governor
Growth in M4,
the broadest measure of U.K. money supply, accelerated to 14.5 percent in September from 13.7 percent in the previous month, the Bank of England said today. ....

Cheap cash means China may also be overheating. The country last year had 118 million tons of excess steel production capacity, more than the 112 million-ton output of Japan, the world's second-largest steelmaker.
Industrial & Commercial Bank of China Ltd. this month completed the world's biggest initial public offering, raising $19.1 billion and attracting more than $500 billion in orders, equivalent to twice Citigroup Inc.'s market value.

``This was massively oversubscribed,'' says John Fildes, managing director of Instinet Pacific Services Ltd. in Hong Kong. ``There is a huge pent-up wall of money.''


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