Thermopylae was actually won as part of a great naval strategy layered onto the land war.  Athenian and allied navies block the straits of Artemisium, a critical part of the victory was, then, the integration of the two strategies.  Thus, a more appropriae argument for lining up Keynesian fiscal measures alongside Monetarist rate and system liquidity moves.  A startingly poor use of metaphorical war examples, here.

http://seekingalpha.com/article/110671-rioting-at-the-gates-of-thermopylae-the-fed-central-banks-shudder

 

Rioting at the Gates of Thermopylae: The Fed & Central Banks Shudder

by: Jake Towne December 15, 2008 | about stocks: DIA / GLD / SLV / SPY / XLF

 

Greek riots over governmental fiscal policy on December 11-12 exemplify growing worldwide economic discontent. Despite whatever cherry-topped fairy-tales that pass for news these days are delivered to the American public, the US banking situation continues to worsen. It is my guess that some of Greek rioters, per this AP article, may not have it completely figured out, but they are really rioting against the central banking and fiat money. (Rodgers quote) (photo)First, an update on the 2008 body count since my last update. Twenty-five (25) banks have now given up the ghost. The credit union failures click up to fourteen (14) closures.

• Sanderson State Bank, Sanderson, TX ($37 million in assets, $27.9 million in deposits, ~$12.5 million cost to the FDIC), Date of Demise: 12/12/2008.
• Haven Trust Bank, Duluth, GA ($572 million in assets, $515 million in deposits, ~$200 million cost to the FDIC), Date of Demise: 12/12/2008.
• First Georgia Community Bank, Jackson, GA ($237 million in assets, $197 million in deposits, ~$72.2 million cost to the FDIC), Date of Demise: 12/05/2008.
• Downey Savings and Loan Association, Newport Beach, CA ($12.8 Billion in assets, $9.7 Billion in deposits, ~$1.4 Billion cost to the FDIC), Date of Demise: 11/21/2008.
• PFF Bank & Trust, Pomona, CA ($3.7 Billion in assets, $2.4 Billion in deposits, ~$0.7 Billion cost to the FDIC), Date of Demise: 11/21/2008.
• The Community Bank, Loganville, GA ($681 million in assets, $611 million in deposits, ~$220 million cost to the FDIC), Date of Demise: 11/21/2008.
• West Hartford Credit Union, Farmington, CT ($2.9 million in assets, unknown cost to the NCUA), Date of Demise: 12/05/2008.

HAVE YOU PROTECTED YOURSELF?

First, understand the FDIC, the NCUA, and the nature of the banking system. Here’s the fastest lesson I can manage. Try my other writings or just search the net for more information. (King Leonidas of Sparta statue photo courtesy vaggelis vlahos license.)

In brief, the FDIC (Federal Deposit Insurance Corporation) is a relic of the Great Depression designed to give depositors psychological assurance that the government will bail them out if the bank fails. It is funded by small fees on all deposits its 8,384 member banks hold. The FDIC started 2008 with about $53 billion in reserves. Due to the failures at IndyMac and others, the FDIC fund has less than $34.6 billion left. Based on the closings since September 30, Captain Calculator reports less than $30 billion is left. The FDIC last reported on September 30 a reserve ratio of 0.76%, covering $4,544 billion in insured deposits, so now they are at about a 0.66% reserve ratio. Converted to English, this means that just $0.66 out of every $100 that you have on deposit is REALLY “insured.“ The FDIC reported the total assets of these banks to be $13,613 billion, so $30 billion is really a pittance.

The NCUA (National Credit Union Administration) is the FDIC counterpart for federal credit unions. Federal credit unions are cooperative financial institutions chartered by the federal government and owned by its members. Credit unions are intended to promote savings and prudent borrowing, and any group of people can start one, read this brochure. The pool of borrowers is usually constricted to its members, and generally speaking credit unions are more likely to be more conservative than larger banks since they are run as a non-profit community service, but you need to verify this for yourself. There are roughly 8,100 federal credit unions funded with roughly $7 billion in insurance for approximately $600 billion in deposits per this link. The NCUA insurance reserve ratio is roughly 1.2%, and is mandated by law to be maintained between 1.0% and 1.5%.

My warning to you is that a major bank failure will eradicate the FDIC funds overnight. As I noted here “WaMu Gets the FDIC WHAM-O!“, Washington Mutual (WM) would have cost the FDIC $31 billion if JP Morgan (JPM) had not “saved” the bank. Now, if the FDIC fails, you will probably still get your money back in dollar terms. However, to do this the government/Federal Reserve will simply print more money, and you will NOT be able to get your funds immediately. How long is anyone’s guess, my guess is months. With all of the building potential for a hyperinflation or inflation spike, by the time you get your dollars back, you may not be able to buy much with them. (”Leonidas at Thermopylae” by Jacques-Louis David.)

Our banking system operates on a fractional reserve system. This means that banks only have to keep a certain amount of deposits and can lend the rest. In the USA, the deposit requirement is currently at 10%. For more detail, “The Money Matrix - How the FED Works (PART 6/15)” is a must-read.

Next, the American banking system is in serious trouble. Of course, which banks are doing poorly is a closely guarded secret, but there are now 171 banks on the FDIC’s secret crash list, out of a total of 8,384 FDIC-insured banks. Roughly another 60 banks lost their insured status since June 30. The FDIC updates the number of problem banks monthly, but does not list any specific banks as this (obviously) would cause bank runs.

On November 5, the Financial Times reports that the Federal Reserve has altered its interbank interest rates. The analysts’ opinions seem to be solid. The United States may be headed for a Bank of Japan-style liquidity trap or “quantitative easing” strategy where the Fed’s drop earlier this year in the Non-Borrowed Reserves statistic (Google BOGNONBR) is fixed by a $500+ billion increase in the banking system’s credit (Google TOTBKCR).

What happened in Japan was that all the newly created electronic money piles up in the banking system’s servers since the banks have nowhere to safe to store the money or lend. As predicted by the FT article, the shorter-term Treasury bill interest rates have reached zero, and the conclusion “cash becomes a competitive store of value” is now valid. At any rate, the Fed’s balance sheet, which used to consist primarily of Treasury securities a year ago, is, frankly speaking, looking like polluted junk per this chart from the Federal Reserve Bank of Atlanta. This greatly impairs the Fed’s ability to control the money supply.

I also note that the Federal Reserve M1 statistic’s annualized rate for the past 3 months is at 36.9%. This is not only highly unusual; I believe it is a sign of a flight en masse to the exits. Since M1 is primarily the actual cash and coin in circulation or in demand accounts, this may mean that people (I hope Americans, but could just as well be foreigners) are removing their money from bank accounts.

DERIVATIVES - THE HOUSE OF CARDS

I recently reviewed a few documents and want to share a few eye-openers concerning major US banks and derivatives. It may be helpful to read this “The Money Matrix - What the Heck Are Derivatives? (PART 10/15)” first.

In the FDIC’s latest quarterly report, they reported (p11/22) that 1,066 FDIC insured institutions, amounting to over 75% of the assets/deposits of total banking system, hold $177 Trillion in derivatives as of September 30.

The OCC (the Department of the Treasury’s Office of the Comptroller of the Currency) in its latest quarterly report (see p22/32) reported the derivative holdings of the top 25 holding companies, of which many are banks. As you can see below (all figures in millions of dollars), the total notional amount of derivatives held is a whopping $194 Trillion, as of June 30, 2008.

The notables include JP Morgan Chase, Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), and Wachovia (WB). Based on their stock market performance, a real group of winners, eh?

Now let’s take a close look at Citigroup. On its latest quarterly (p4/33) as of September 30, 2008, the company claims assets of $2,050 Billion. If my meager brain is reading the table properly, it only has cash and deposits of $113 Billion. Also, Citigroup lost almost $21 Billion in loans just for that quarter, and from the historical, this is only continuing to worsen. Then, as seen above, Citigroup holds $40 Trillion in notional value in derivatives. Doesn’t the latest bailout on November 24 for $20 billion capital injection and the $305-or-so billion guarantee for “toxic” assets now seem like a drop in the bucket?

[TIME FOR A LAUGH: Let’s pause for a pat on my back as I successfully predicted the Citigroup bailout two weeks prior here “Bank and Credit Union 2008 Body Count at 32“. Comedian George Carlin, now deceased, left us this explanation as to why the big banks would receive best treatment from our politicians while the rest of us suffer in his “THEY OWN YOU” speech. Contemporary Saturday Night Live carries on Carlin’s tradition, to a lesser extent.]

In conclusion, I suspect this would look much the same for JP Morgan Chase and the rest of the banks on the list. This, I submit to you, is a house of cards. I believe Jim Rogers to be 100% correct in his analysis.

WHAT CAN YOU DO?

After all my research and in my last six bank closure articles, I no longer hesitate to hand out advice as, since I’ve painted a bleak picture, it’s a little senseless to not share what I think are good ideas. Otherwise I would seem a bit like Chicken Little running around with his head cut off, so here you go! (Please remember I am certainly fallible.) Take a look and decide for yourself, I view my advice as fairly conservative. Remember, this is not a time to be placid and just mull around, it is time to be realistic, do some research and take action if necessary. Please protect yourself and your family.

1. First know if your bank(s) or credit unions are FDIC/NCUA insured or not. Over the past 3 months, another 60 banks have lost their FDIC status. If not, get your money and close the account ASAP as it is a sign that the FDIC probably refused to insure it. If yes, you can read the FDIC rules here, the NCUA rules here, and see if any of the exceptions or limits apply to your family.
2. Second, consider moving your money to multiple banks or credit unions in the event one would fail. This is called diversification of risk. At any bank, you can request its financial statement and check out the status of its loans and deposits. You can check the financial statement of all federal credit unions here. In general, credit unions will be safer than larger banks, mainly since its loans are limited to only the union members, but please be careful. Large banks like Bank of America, Wells Fargo, Citibank, Wachovia, etc. loan out to a wide range of borrowers (both individual and commercial), which are subject to failure due to the housing crisis.
3. Third, withdraw enough currency to cover expenses for AT LEAST 6 months. This is roughly the time necessary to make it through the winter, and survive any financial system fallout. I also urge you to decide for yourself whether just removing it ALL is prudent and necessary. My reasoning for this is that even if all of your money is “deposit insured,” if the bank fails, there is no guarantee you will get your money immediately. It may take months. If you decide to do this, it is best to also request small bills ($20 or smaller) as if a crisis develops larger denominations some vendors may have issues with handling $50 or $100 bills. Instead of paper money, I advise taking out nickels as the worth of the metal (75% copper and 25% nickel) is worth pretty close to face value, where the paper money has no intrinsic value. It’s also fairly amusing and trust me, it will take a thief quite a while to lug out several thousand dollars in nickels.
4. Educate yourself and others on economics and that once-boring subject of monetary policy. For what is coming, the most up-to-date thinking on an inflationary outcome is here from Eric Janszen of iTulip. Mish Shedlock, a well-respected analyst and economist, supports a temporary but severe deflationary outcome. I want to add that both gentlemen are well aware of, but do not chose not to address in their latest pieces, the monetary role of gold in their articles. That, I fear, is a mistake, so I recommend checking out GATA’s work on manipulation of the gold market, and Dr. Antal Fekete’s views here. My personal outlook is a bit of a combination; in short, an inflationary tsunami on the way with deflationary riptides. Quite possibly hyperinflation as well, as I surmised here “Calling All Wheelbarrows: Hyperinflation in America? (Part 2/2)“.
5. Try reading my Money Matrix series below. Decide for yourself what to do to protect your family’s financial well-being. I also highly recommend the well-informed monetary policy articles from fellow Nolan Chart columnist Republicae. They take a little while to absorb and sometimes make my head hurt though.
6. Take a solid look at changing your cash into physical gold and also silver. Some people will tell you this will make you rich as well; for gold I do not necessarily agree, but the idea is to survive and maintain purchasing power in case hyperinflation occurs. Most of the alarmists recommend holding 25-50% of your savings in gold. I also recommend holding physical silver, preferably in the form of “junk” silver or American Silver Eagles. Please do what you like after researching, but in my humble opinion, holding none or <5% of your net assets in gold is not very intelligent. One article I wrote in September “Save Ron Paul’s Voice - A Money Matrix Addendum” has a source list of goldbug’ and silverbug’ sites. Also try my recent series on gold backwardation and the gold/silver market manipulations here “More on Gold and Silver Backwardation and Manipulation (5/5)“. It is my researched understanding that the markets are manipulated, and as such the metal prices can fluctuate, even drop precipitously. However, one troy ounce of gold today is still one troy ounce of gold tomorrow. A dollar bill is also a dollar bill the next day, but the purchasing power of the paper fluctuates madly, and its just a piece of paper that has no intrinsic worth.
7. If you decide to purchase gold and silver, visit a US Mint authorized dealer near you and buy Silver or Gold 1oz. American Eagles, or “junk” silver, aka “bag silver.” Bag Silver’ are 1964-and-earlier silver coins (Halves, Quarters, Dimes) that are 90% silver by mass. For the troy ounce (31.1 grams) they will be about the spot price of silver and so will be cheaper than Silver Eagles. (The easiest way to remember this is that $1 of Face Value = approx 0.725 TOz silver, but it is typically sold at 0.715 TOz to account for wear and tear.)
8. If you hold US Treasury debt in the form of saving bonds or Treasuries, cash them out for physical cash and coin. Of course, it may be prudent to wait until a new tax year starts on January 1.
9. Likewise, have a stock of nonperishable foods and even water. I recommend this for two reasons. 1) No Americans, including myself, fully appreciate the shocking, disorienting speed at which hyperinflation can hit. Unfortunately, our government has been priming the pump for exactly this to happen. (Remember I wrote this when they want to “save” us again.) and 2) Based on US and world food stock levels and the low prospects for increasing strength in the dollar, it makes financial sense to purchase now and hold for consumption in the future.
10. Exercise your Second Amendment privilege and peacefully bear arms.
11. Get to know your neighbors, and, if for some reason you haven’t yet, your family. The more the merrier, there is still hope. My hope is not a short-term one, it is long-term, for our children of today and to protect the lives of our parents. Sorry, my version of hope is NOT to be confused with Obama’s or Bill Clinton’s version of “Hope.”
12. Last, spread the word. For obvious reasons, you won’t find this advice from the mainstream media. Join organizations such as the Campaign for Liberty, End the FED, and Young Americans for Liberty. My fellow Americans, prepare for the worst, but always struggle and hope for the best.

THE BATTLE OF THERMOPYLAE

The gates of modern Thermopylae are not in Greece. Like the Spartans of yore that faced the Persian onslaught, modern central bankers are being assaulted by their own creation, fiat money. Like the slaves the Persians sent, the chained people of this earth are also falling in battle. 25,000 dead each day due to hunger and economic suppression when the War of Terror military funding could have fed, clothed, and sheltered each and every one. 7,328,200+ Americans are already imprisoned or on parole, many unjustly, by our “legal” system. Every American who works has her/his wages stolen by the IRS to the tune of $1.2 Trillion in 2008 (p35/342). Sure pales in comparison to the $8+ Trillion in bailouts, eh? Many other Americans will struggle as well, but the end overall economic result is likely just a severe drop in living standards. However, in my final analysis and worldview, our world leaders are clearly embarking us on a path to endless war, although this is most likely completely accidental.

At any rate, the clueless or corrupt politicians in Washington have chosen their friends, the bankers. They have raided our treasure and given them to the corrupt banks while closing it to the auto industry, which at least employs blue-collared workers. [As a free market Austrian, I should add I am against all of these bailouts so far, and the US has not had free markets for at least 90 years. Sorry, corporate cronyism does not count as free market capitalism.] (Persian warrior photo from mshamma license.)

At Thermopylae, the Greeks did win the battle. However, to a man, they were all annihilated. May the same fate await the central bankers who have so abused the world for their own ends! A final victory for honest money will one day arrive, despite the efforts of the sad command & control governments that rule this planet today.

Fed Officials Endorse ‘Big Stimulus’ to Battle U.S. Recession

By Scott Lanman and Vivien Lou Chen

Jan. 5 (Bloomberg) — Federal Reserve officials, after taking the historic step of cutting the benchmark interest rate to as low as zero, are calling for greater government spending to help revive the U.S. economy.

San Francisco Fed President Janet Yellen said yesterday at an economics conference in San Francisco that “it’s worth pulling out all the stops” with an economic recovery package. Charles Evans, president of the Chicago Fed, told the same gathering he believes a “big stimulus is appropriate.”

The remarks underscore the view of many economists that unprecedented fiscal measures are needed to combat the yearlong recession, and come ahead of meetings this week between President-elect Barack Obama and congressional leaders. They also reflect the failure of Fed efforts so far, including record rate cuts, emergency lending programs and backstops for debt markets, to halt the crisis.

Yellen, Evans and other officials at the conference didn’t specify their recommendations for the size of the stimulus. Obama is asking that tax cuts make up 40 percent of a package that may be worth as much as $775 billion, a Democratic aide said yesterday. Yellen said she favors a “diversified package of policies” that includes government spending.

“Fiscal stimulus has got to be an important part of the package” implemented by the federal government, Frederic Mishkin, a former Fed governor, said yesterday at the conference in San Francisco. The “$500 billion-plus question” is, “can they get it right?” he said.

Worst Shock

The “financial shock” that caused the current crisis is “worse than the one that happened during the Great Depression,” he said. Mishkin left the central bank in August and returned to his post as a professor of economics at Columbia University.

The stimulus that emerges from talks between Obama’s aides and Congress will be much larger than the $150 billion proposal from lawmakers in October, when Chairman Ben S. Bernanke endorsed the concept of such a program. He noted then that the impact of the $168 billion stimulus a year ago had waned.

Obama, who has picked New York Fed President Timothy Geithner as his Treasury secretary, is honing a combination of tax cuts and spending on roads, bridges and other infrastructure to create or save 3 million jobs. Economists and a group of Democratic governors led by New Jersey’s Jon Corzine have called for a $1 trillion program. Obama takes office Jan. 20.

Time ‘Is Now’

“The current downturn is likely to be far longer and deeper than the ‘garden-variety’ recession,” Yellen, who became chief of the San Francisco Fed in 2004, said in a speech. “If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now.”

Yellen was an adviser to the last Democratic president, Bill Clinton, serving as chairman of his Council of Economic Advisers from 1997 to 1999 after a stint as a Fed governor in Washington.

Last month, Fed policy makers reduced their target for the federal funds rate, or the rate banks charge one another for overnight loans, to as low as zero for the first time in an attempt to end the longest economic slump in a quarter-century.

The central bank is also shifting its focus to the amount and type of debt it buys, with announcements of new lending programs or asset purchases serving as the principal signals of policy.

Economy Deteriorates

Economic data released last week show U.S. consumer confidence sinking to the lowest level in at least 41 years and home prices in 20 major cities declining at the fastest rate on record. Another report showed that the decline in U.S. manufacturing deepened in December.

“The current downturn is likely to last much longer than previous ones,” said Harvard University economics professor Martin Feldstein, former president of the National Bureau of Economic Research. “So, fiscal policy is likely to be useful.”

Still, such stimulus would increase the long-term burden on taxpayers, Evans said in his Jan. 3 speech.

“Federal debt held by the public is 38 percent of GDP, states have large unfunded liabilities and growing numbers of retiring baby-boomers will further pressure the unfunded liabilities for Social Security and Medicare,” Evans said.

University of Chicago professor Raghuram Rajan, former chief economist at the International Monetary Fund, said in an interview at the conference that he’s “in the crowd that is a little more skeptical” about a federal effort to rejuvenate the economy, especially a proposal to provide federal funds to states.

‘Clear Plan’

“The U.S. is of course central to the world economy, and so getting the U.S. back on track I think is very important,” Rajan said. “The real issue is cleaning up the financial sector,” he said, adding he wants to see from the Obama administration a “clear plan” of how to handle “weak” companies.

The outgoing Bush administration has thrown a lifeline to the troubled automobile industry, granting loans worth $13.4 billion to keep General Motors Corp. and Chrysler LLC from bankruptcy for now. The U.S. Treasury also threw the door open to taxpayer financing for a widening array of companies and industries last week, drafting broad guidelines on aid to the auto industry.

Treasury guidelines would let officials provide funds to any company they deem important to making or financing cars. That left room for the government to provide money from the $700 billion Troubled Asset Relief Program beyond loans already committed to GM, Chrysler and GMAC LLC.

Mishkin said working as a Fed policy maker during the credit crisis is similar to serving in a wartime Pentagon.

The central bank is “fighting a war,” he said. Instead of deploying “tanks and guns,” it’s “monetary policy, credit policy and liquidity policy.”

To contact the reporter on this story: Scott Lanman in San Francisco at slanman@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

Last Updated: January 5, 2009 00:01 EST

 

 http://www.bloomberg.com/apps/news?pid=20601103&refer=us&sid=avEWG6VUe_04

 

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Both Janet Yellen, president of the San Francisco Federal Reserve Bank, and Lucas Papademos, vice president of the ECB, highlighted the risks of deflation at the annual meeting of the American Economics Association.

 

 

 

 

Fed, ECB prepare to tackle deflation head-on

Mon Jan 5, 2009 2:20am GMT

By Ros Krasny and Alister Bull

SAN FRANCISCO (Reuters) - Officials from the Federal Reserve and the European Central Bank on Sunday vowed to fight the damaging effects of deflation as the global economy suffers a deep and lengthy recession.

In just a few months, central bankers’ concerns have flipped from fighting inflation to staving off possible deflation — a condition in which falling prices cause consumers and businesses to delay purchases, resulting in an even steeper economic downturn.

Both Janet Yellen, president of the San Francisco Federal Reserve Bank, and Lucas Papademos, vice president of the ECB, highlighted the risks of deflation at the annual meeting of the American Economics Association.

“It is increasingly likely that inflation will fall to undesirably low levels,” Yellen said at the meeting in San Francisco.

She said the Fed would likely expand its raft of unconventional monetary policy measures now that its cycle of interest rate cuts has hit rock-bottom.

She also urged an aggressive spending program by the administration of President-elect Barack Obama, as she gave a dismal assessment of the economy. Yellen appeared to discount some current forecasts that U.S. growth would start to recover in the second half of 2009.

“The financial and economic firestorm we face today poses a serious risk of an extended period of stagnation — a very grim outcome,” she said. “Even with vigorous Fed action to restore credit flows, an extended period of economic weakness is likely.”

“I’m strongly supportive of a substantial fiscal stimulus package,” Yellen said. “If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now.”

The ECB’s Papademos, meanwhile, said that more ECB interest rate cuts may be needed to support the euro zone economy and keep deflation at bay.

“We will do what is necessary, in terms of the timing and in terms of the size (of interest rate policy action) to ensure that price stability is preserved,” he said.

Unlike the Fed, which in December reached the zero-bound on interest rates and is pushing headlong into a type of “quantitative easing” to support U.S. growth, the ECB still has some arrows left in its rate-cutting quiver.

The ECB has cut its benchmark interest rate by 1.75 percentage points in the past two months, to 2.5 percent. Markets now expect another 50 basis point cut at the bank’s next policy meeting, on Jan 15.

SUPPORT FOR STIMULUS

Yellen was the second Fed official this weekend to urge aggressive fiscal measures to complement the central bank’s ongoing monetary policies.

On Saturday, Chicago Fed President Charles Evans said that programs to support growth “must be large in order to be effective and to instill badly needed confidence,” given the severity of the downturn.

Yellen and Evans are both voting members of the Federal Open Market Committee in 2009.

Obama has said that signing a major economic stimulus package will be his first priority when he takes office, with a goal of creating or saving 3 million jobs over two years.

Democratic lawmakers say the plan now under consideration in Congress will cost about $775 billion, but Republicans predict a tab of up to $1 trillion.

Renowned economist Martin Feldstein, former head of the National Bureau of Economic Research, said on an AEA panel that stimulus of some $300 billion to $400 billion in both 2009 and 2010 was warranted. He forecast that the U.S. downturn would probably be judged the worst since the Great Depression, and the United States would be “lucky” to return to growth in 2009.

“Speed of the outlays is an important concern,” Feldstein said. “One that spends quickly and then finishes is ideal.”

VICIOUS CYCLE

Papademos told reporters that the ECB will not let inflation fall “significantly below 2 percent for a protracted period of time,” adding that he did not expect such an outcome based on present analysis.

Cutting interest rates to low levels has long-term implications for price stability, he said. Still, on a panel discussion Papademos said that inflation would weaken sharply in the coming months.

In the United States, Yellen referred to the vicious cycle, whereby weakness in the U.S. economy intensifies distress in the financial sector, and vice versa.

In both speeches on Sunday Yellen’s highlighted a risk that, as inflation expectations fall and benchmark rates are held near zero, “real” interest rates will actually rise, at the worst possible time.

“A decline in inflationary expectations when economic conditions are weak is pernicious … because any downdrift in inflation expectations leads to an updrift in real interest rates and a tightening of financial conditions,” she said.

(Editing by Leslie Adler)

© Thomson Reuters 2008. All rights reserved.

http://uk.reuters.com/article/burningIssues/idUKN0331900720090105?sp=true