I wish I could come up with a better tag line, maybe be ‘more of the same’, it doesn’t have the same attraction as ‘the song remains the same’, maybe ‘same day, different skit?’ We will see if that passed the moderators! 

What’s the month, oh yes, October, must be risk on then.  One of these days we will see a trend take hold again and we can get out of this range trading. 

At the time of writing the euro was having a stellar month, managing to pick up a 5.5 per cent gain, only to be outperformed by the Aussie dollar with a whopping 7 per cent gain month over month. The euro is still down on an annual measurement, off nearly 9.5 per cent, but the Aussie dollar is topping the charts again with a 9.5 per cent gain.

The last fuel to the fire was the Fed coming out with another accommodative statement, keeping their foot firmly on the gas pedal and hoping to clear the gaping chasm ahead of them by building enough speed…I’m thinking Sandra Bullock in Speed. 

The market already has near zero interest rates so there is very little the Fed can do to trim overnight rates any lower. They could reduce the rate of interest paid to banks for reserves held with them to encourage them to take more of a risk, i.e. lend, to customers. The trouble with that is banks are still in defensive mode: they are only lending money when they have a good expectation of getting it back, think top credit customers, larger deposits and stable (if there is such a thing) employment.  They want to make sure they get there money back, go figure. So, a drop in reserve returns will have no impact on lending practices, banks (in the US and UK) will not lend money as they once did.

It will take a lot more to prise open that purse. Without lending house prices are likely to come under pressure. I’m not about to predict 30 per cent falls in value, but without money there is no housing movement, a phrase often used is ‘mortgage prisoner’. The borrower wants to move and finds that they can’t release enough equity from their house sale to meet the newer deposit requirements. The Fed is then left with an expansion of its Treasury portfolio, by having an open ended discretionary programme rather than a large one-time purchase target they will be able to keep long term rates lower for longer and provide an incentive to banks to lend.

I think they should put interest rates up. Think about it: banks would earn income faster, rebuilding balance sheets from income. Once the balance sheets are healthier the purse strings will loosen, or at least that’s the theory. Look to the countries whose banks performed best: Australia with rates now at 4.50 per cent, New Zealand 3 per cent, even Canada, which is normally lock stepped with the US, have rates at 1 per cent.  As long as banks are making money they will lend; if they stop earning they withdraw.

It’s about time for radical thinking. Trouble is, it’s the same as a turkey voting for Christmas, to get the economy going, lending restarted and keep the housing market from a melt down (again), I am voting for paying the banks more in interest. Maybe easing is the way to go.