Money and Metals

This Reuters report looks at what the worlds' central banks may be planning. "Years of super-cheap credit are coming to an end as the world's major central banks begin to act in unison to drain excess cash that many fear could have severe repercussions for economic and price stability."

"As heads of the U.S. Federal Reserve, European Central Bank and Bank of Japan meet in London this weekend with finance ministers and bankers from the Group of Seven economic powers, they are likely to conclude there is still much to do."

"By the middle of next year, all three of these central banks may be withdrawing cash from the global economy, via higher Fed and ECB interest rates or, in the case of Japan, by ceasing to pump even more cash into the system. Whether this is concerted or just coincidence is unclear."

"What is clear to many experts is Fed tightening alone has not been sufficient to dampen what many see as high levels of risk-taking in world markets, buoyant private credit growth everywhere and bubble-like behavior in housing and equity markets. To the extent there is a collective desire to drain global liquidity, it will require tightening from all three regions."

"'There's clearly concern in Washington and Frankfurt that financial conditions are still too loose,' said Jim O'Neill, chief global economist at Goldman Sachs. He added that Japan may lag, but will also need to mop up abundant global cash."

"Some say there is a gnawing anxiety that core consumer price inflation is not telling the full story. If interest rates remain so low, the risk is financial excess, more bubbles and even deep deflation down the line."

"When the G7 met in September, a central feature of that meeting was a presentation by Fed Vice Chairman Roger Ferguson on how cheap money was allowing global markets to indulge in a very high level of risk taking."

"So, if there was collective G7 concern last September that global liquidity was too high, it will not have gone away. 'I'd say relatively little progress has been made, debt spreads are still very narrow, asset prices are still very high and real and nominal long yields are very low,' said Larry Kantor, head of global economic research at Barclays Capital. 'It's not the whole story, but to some extent that must be contributing to the decision of the ECB to start tightening and the Bank of Japan to consider its options too.'"