Central bankers cannot stop this contagion


	Central bankers cannot stop this contagion

JICWyllie

3-10-2008 2:11 PM

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tags:

economy, currencies, i-interest rates, i-policy, i-consequences

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<div style="margin: 12px 0px; font-family: arial; color: #333333; background: #ffffff; border: solid 4px #e5e5e5; width: 100%; clear: left;"><div class="CM_CTB_Content_Wrap" style="margin: 0px; padding: 0px;background-color: #ffffff;"><div style="border-bottom: solid 1px #dcdcdc; white-space: nowrap; margin-bottom: 8px; background-color: #eeeeee ;background-image: url(http://www.clipmarks.com/images/source-bg.gif); background-repeat: repeat-x; height: 24px; line-height: 24px; vertical-align: middle; padding-bottom: 4px; color: #666666; font-size: 10px;" ><a href="http://clipmarks.com/clip-to-blog/" title="see clips that are hot right now"><img src="http://content.clipmarks.com/blog_embed/b19e9e21-65fe-4667-bab7-2f283cd7d9df/B69DA51E-781F-414A-8784-9A53B322D470/" alt="" width="19" height="19" border="0" style="vertical-align: middle; margin: 0px 4px; display: inline; border: none; float:none;" /></a>clipped from <a title="http://www.ft.com/cms/s/0/542027be-edde-11dc-a5c1-0000779fd2ac.html" href="http://www.ft.com/cms/s/0/542027be-edde-11dc-a5c1-0000779fd2ac.html" style="font-size: 11px;">www.ft.com</a></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.ft.com/cms/s/0/542027be-edde-11dc-a5c1-0000779fd2ac.html">The US Federal Reserve has cut short-term rates by a cumulative 225 basis points since then. Yet, borrowing costs for US consumers and companies have actually gone up. While the European Central Bank has stoically kept short-term <A href="http://www.ft.com/cms/s/0/d91985a4-ecb3-11dc-86be-0000779fd2ac.html" title="Good times are over, central bankers told" class="bodystrong">interest rates at 4 per cent</A>, rates charged to consumers and companies have increased.</blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.ft.com/cms/s/0/542027be-edde-11dc-a5c1-0000779fd2ac.html">For as long as this financial crisis persists, interest rates will be determined by toxic market conditions, not central bankers. Among the various channels through which monetary policy affects the real economy, the credit channel is one of the most important. If real-world interest rates are determined independent of a central bank’s monetary policy, the effect of monetary policy on economic growth is correspondingly reduced.</blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.ft.com/cms/s/0/542027be-edde-11dc-a5c1-0000779fd2ac.html">We may even be in a situation where low interest rates give us the worst of all worlds: no stimulus in the short run, and a rise in inflationary expectations in the long run.</blockquote></div><div style="margin: 0px 6px 6px 4px;"><table style="font-size: 11px;border-spacing: 0px;padding: 0px;" cellpadding="0" cellspacing="0" width="100%"><tr><td style="background:transparent;border-width:0px;padding:0px;">&nbsp;</td><td align="right" style="background:transparent;border-width:0px;padding:0px;width:107px" width="107"><a href="http://clipmarks.com/share/B69DA51E-781F-414A-8784-9A53B322D470/blog/" title="blog or email this clip"><img src="http://content8.clipmarks.com/images/c2b-foot.png" border="0" alt="blog it" width="107" height="17" style="border-width:0px;padding:0px;margin:0px;" /></a></td></tr></table></div></div>

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