More Michael Lewis

I'm a fan of his pieces. This is his latest in Vanity Fair. He also had a good one, here, at Portfolio.com.

Quantitative Easing Vs. Open Market Operations

In the Bank of Canada's statement today, they mentioned that they were open to quantitative easing. I'd heard this phrase used by the Federal Reserve in the fall, but I hadn't really understood what it means or how it is different from open market operations.

Turns out, they are quite similar. When a central bank announces a change to the target of their benchmark rate they must either buy or sell government securities in the open market. In order to lower (raise) interest rates, the bank must buy (sell) government bonds in the open market. These transactions change the size of the money supply causing the benchmark rate to approach its target.

Quantitative easing involves purchasing a wider variety of securities or accepting securities as collateral for loans from the central bank. Both buying and lending increase the amount of money in circulation.

Remember all those mortgage backed securities and collateralized debt obligations that the US banks couldn't wait to get off of their balance sheets? The Federal Reserve will accept the best of these assets as collateral for loans in order to infuse the economy with more money.

A slightly more technical, but still accessible explanation is available here.

FIrst Pass

It's refreshing to see that someone had a good year. I guess with fewer players in the market it's easier to make a profit. [Bloomberg]
Low nat gas prices are trickling through and producers are beginning to shut-in. [Oil and Gas Journal]
Debt begets more debt. [The Australian]

Canada Cuts

The Bank of Canada cut the benchmark overnight rate to 0.50%, the lowest it's ever been. The move was in line with expectations. Banks should cut the prime lending rate to 2.50%.

Large Hadron Collider

Ever wanted to inside a particle accelerator, but didn't have the requisite PhD in theoretical physics to get in? Here's your best shot.

Good Reads

Strange times in the crude market [FT Alphaville]
Interesting look at Wall Street bonuses being paid for with bailout money [Vanity Fair]
If you're looking for a car, I know a guy... [Clusterstock]

A Look Around

A big loss, matched with more gov cash at AIG. [Globe And Mail]
Sorry Eastern Europe, we've got our own issues. [WSJ]
Oooooh, and that's a bad miss. [Reuters]
Think Q4 Canadian GDP will be as bad as the US? [Bloomberg]