Bernanke says he's surprised by how cautious consumers have been - thinks a number of factors keep them from spending more: high unemployment, a temporary spike in energy prices, falling home prices and high debt burdens. Bernanke also said the Fed will consider a whole range of policy options at its next meeting later this month - but no details as yet.To sum up: Bernanke said that a "range of tools" are available to boost the economy, which will be discussed at two-day meeting later this month, and that they "are prepared to deploy these tools" if needed. But no details were given on what exactly these were, and neither were there any promises to use them - just an assurance that there would be a discussion. So, the speech is over, and it offered nothing in the way of new information or promises. But US markets have still managed to haul themselves back up a bit - perhaps looking to Obama for hope. The Dow Jones is now down 0.51pc, the S&P 500 by 0.57pc and the Nasdaq is 0.32pc off. "The Fed hasn't come out with more options or tools that the market wants or was expecting," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. "The market was disappointed because this wasn't a game changer."
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The Greek crisis has spilled over into Cyprus, raising the risk that a fourth country will soon need an EU bail-out. The island’s finance minister Kikis Kazamias said he is mulling a request for help from the ECB after 10-year Cypriot bonds rose above 13pc. "We do not have the luxury of being choosy about who is going to lend to us," he said.
While Cyprus is too small to be systemically important, its banking system is roughly nine times GDP with liabilities of €156bn, according to Fitch Ratings. This is equivalent to Iceland before it blew up. Cypriot banks have 40pc of their assets in Greece, and hold a significant chunks of Greek debt.
The ECB is facing brushfires across a string of countries. Traders say it intervened yet again on Thursday to stabilize Italy’s debt markets, acting to prevent spreads over German Bunds nearing the danger level of 400 to 450 basis points where LCH Clearnet raises margin requirements.
The bank has already accumulated more than €129bn of Greek, Irish, Portuguese, Spanish and Italian debt. It may be near its political limits within a few more weeks, given open protest from Germany’s Bundesbank.
The ECB is buying the bonds on an understanding that Europe’s €440bn bail-out fund (ESFS) will take over the task once its revamped powers are ratified by all parliaments, which could drag on until next year.
Barclays Capital said Italy and Spain have already slipped back into industrial recession, ratcheting up the pressure. The question is what will happen if the global economy fails to stabilize quickly.
Italy faces €62bn of debt redemption this month, and €170bn by the end of December. The ECB’s ordeal by fire may yet be ahead.
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