Germany warns U.S. of new balloons

Ralph Atkins
Alino van Doina

The new finance minister of Germany joined the Chinese warnings that low interest rates and weak U.S. dollar creating new global threat of price bubbles in assets.
Wolfgang Schäuble’s comments highlighting the concerns of European leaders that the risk of further financial market turmoil is exacerbated by the exceptional measures of central banks and governments to combat the crisis. A week ago and Minka Liu, chairman of the Banking Regulatory Commission in China, criticized the Fed that nurtured a dollar carry trade, where investors borrow in U.S. currency at very low interest and investing in a high-yield assets overseas.
Bank conference in Frankfurt Schäuble called the naive notion that the next asset price bubble at will adopt the same shape as the last. „More likely it is huge global liquidity to create a new kind of market bubble in assets, he said. Should pay attention to the fact that the currencies of countries with low interest rates are increasingly used as a base for foreign exchange carry trade. If in this sudden turnaround business markets, including and foreign, are at risk of huge shocks. “
In a rare comment on the topic of dollars last week, the Fed chairman Ben Bernanke said the U.S. central bank closely monitor currency markets and will pursue its policy so as to contribute to the strong position of the dollar. Bernanke did not rule out the use of interest rates to combat the new balloons in the assets, although at this stage to clearly sees a gap between this and the actual value of the dollar.
From March onwards the euro appreciated more than 18% against the dollar. For this period, prices of higher risk assets soared, stock index S & P 500 climbed 60 percent over the value of a barrel of oil rose by 125 percent to about $ 76.
Unusual conditions in financial markets especially clearly evident last week when interest rates on short-term U.S. government bonds have become negative, which means that investors buy them at a loss. Change may be interpreted as a sign that investors expect deflation. Analysts organized the negative interest rates and business activity of banks, which pile up in certain securities balance at the end of the year – a strategy aimed at cautious investors and regulators.