We have a cold this morning. It’s been making the rounds at the Old Hat Factory and stopped by our desk sometime yesterday morning. It’s nice to know that in the midst of one of the most important moments in recent financial history, Mother Nature could care less. Manias…panics…crashes…mobs…messiahs…markets…they’re all just parts of a larger cycle that keeps on turning.
Still, there is a kind of geeky and important drama going on behind the scenes. You know the world has become truly bizarre when the price of money becomes a subject of everyday speculation. But that’s just what’s happening.
Jacob Saulwick in the Sydney Morning Telegraph reports that, “The three-month bank bill rate – the rate banks charge when they lend to one another – punched to a decade-long high of 7.07 per cent, raising the threat of higher borrowing costs for millions of home-buyers and businesses.” You’ll notice this rate is above the Reserve Bank’s target rate of 6.5%. So what?
Well, for one this means there is a lot less pressure on the Reserve Bank to raise interest rates before the end of the year. The market has spoken. And the market price of money is higher than the government’s suggested wholesale price. The bad news is that this reflects continued distrust in the credit markets. And we keep wondering what the real long-term impact of a bear market in credit will be for stocks.
In the meantime, the Reserve Bank will have to contend with rising commodity prices, courtesy of the lax monetary policy of Ben Bernanke’s Fed. How can Australia’s central bank possibly cut rates when the price of gold and oil are going up? Hmmn. Sounds like an untenable position to be in.
Markets and Money