Tuesday, March 16, 2010
Overnight federal funds rates rose to the highest since September and the cost to dealers to borrow and lend U.S. securities for one day more than doubled in the past month. Three-month Treasury bill rates rose last week to the highest since August.
The rise is a sign traders are preparing for tighter monetary policy as stimulus measures end. In the three months before the Fed started raising borrowing costs in June 2004, 10- year Treasury yields rose about 0.75 percentage point as bond prices fell. While higher rates mean increased borrowing costs for President Barack Obama, they also show growing confidence that the economic recovery is gaining traction. (more)
"American mortgage institutions encourage people to take a leveraged position in the real estate market, which is quite risky because home prices can and do decline, as we have learned so painfully," Shiller writes in The New York Time.
"Leverage a risky investment 10 to 1 and you can expect trouble — and we have plenty of it today. More than 16 million homeowners owe more on their mortgages than their homes are worth."
Yet, while the crisis in the housing market shows that our current approach is far from perfect, "there is a certain wisdom behind it, related not only to economic stimulus but also to the preservation of a sense of national identity," Shiller says. (more)
That sobering assessment, issued Monday by Moody’s Investors Service, provided a reminder that even Aaa-rated United States Treasury bonds, supposedly the safest of safe investments, could be downgraded one day if Washington failed to manage the federal debt.
Moody’s said the United States and other major Western nations, particularly Britain, have moved “substantially” closer to losing their gilt-edged ratings. The ratings are “stable,” but “their ‘distance-to-downgrade’ has in all cases substantially diminished,” the credit ratings agency said. (more)