Bernanke must stand up to Wall Street

Hi all,

Its November 5th and Guy Fawkes night, fireworks, bonfires, the air reeking of sulphur yes remembering a fellow who tried to blow up the Houses of Parliament almost 500 years ago.

So Ben Benanke and the team of the Fed cut rates again last Friday by 0.25% something the markets were expecting but did it have the desired affect? The main worry for Benanke is inflation with rising oil prices and commodity prices rising he has to be careful he gets the balance right. The Fed (Bernanke) must not bow to the markets for further interest rate cuts to aggresive and he could tip the economy into a explosive inflationary boom in 2009 and 2010. Why 2009? We must remember "Lag" the time it takes for the economy to react to monetary policy. Monetary policy typically acts on economic activity with a lag of about 18 months and affects inflation another 6 to 12 months later. My major concern is that before the rate cut the growth rate of 3.9 reported for US GDP plus the employment figures made the case for monetary easing less convincing. However the markets had already factored in a rate cut between 0.25% and 0.50%. Bernanke had allowed market expectation to get so one sided that failing a rate cut might have triggered a financial meltdown.

Bernanke must be seen as being in charge, and remove expectations of future rate cuts to do this he must make some hawkish statements underlining the Fed's refusal to protect companies such a Citigroup, and Merrill Lynch from the consequences of their management mistakes. He must make it clear that the Fed will not bail out deliquent banks. Its time for Bernanke to show who is in charge.

Some days ago I wrote about the problems at Citigroup, now its seems Chuck Prince has paid the ultimate price for his banks failings. Previous estimates of $5 billion losses were in reality between $8billion and $11billion to much for the board and investors to bear, this will further spook the markets that more bank losses are being concealed, when will this sub-prime mess end? Eyes are now focused on Bear Stearns and Jim Cayne.

As the US gears up for Thanksgiving Wal-mart has started early sales a sign that they are expecting a difficult holiday season. Christmas shoppers in the UK already feeling the pinch and struggling to pay everyday bills will be forced to finance christmas on credit cards things are expected to get a little bumpy for consumers. Here are some figures to ponder for those on borrowed time, 150,000 fixed-rate mortgages deals are expected to expire this year. 40% of credit cards applications are being turned down by lenders. £1,999 the arrangement fee for the current leading mortgage deals. 43,000 house repossessions in 2008 predicted by the Royal Institute of Chartered Surveyors. Christmas is a time for giving however some of us must remember we don't want a credit hangover come January when the bills are due. The real prudent shoppers will wait until December 26th or early Jan when the real sales begin.

China has produced the world's first trillion dollar company surpassing Exxon. The company PetroChina has a value of £479billion with Exxon worth half of PetroChina at $488bn (£233.6billion) You can buy shares in PetroChina in Shanghai they are trading at 48.62 yuan.