Friday, September 30, 2011

Tags: Gillian Tett, Financial Times, Increase Short Term Interest Rates Increases Long Term Rates Freeing Loan to Middle Small Businesses by Big Banks

Japan’s Rate Dilemma Casts Shadow Over Fed Financial Times, Gillian Tett, USA Executive Editor, Sept 29. 2011

Tett’s compares the problem Bank of Japan Governor, Masaru Hayami a decade ago when he wanted to raise interest rates, but politicians and business forced him to keep the rate low.

I will try to answer the question of why he should raise rates that Tett did not provide herself, but I can guess what she is thinking.

She asks why banks and corporation awash in cash won’t lend it out when they could get free interest money from the Federal Reserve?

What would Hayami tell Bernanke if he were alive today?

Bernanke’s goal should be to get big banks to lend money to medium and small businesses which would help increase both the economy and jobs. Banks need a spread in interest rates so they can profit from longer term loans. The ten year Treasuries are now below 2 percent, a historical low.

His current policy of selling short term Treasuries and buying longer term ones does not seem to be helping much.

By sharply increasing short term rates, longer term rates will go up even faster if I am right about what Tett and Hayami think.

Jim Kawakami, Sept 30, 2011,

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