Reuters Writes: Dollar slips, bonds & shares rally as Summers drops out
SYDNEY (Reuters) – The U.S. dollar slid while bonds and shares rallied in Asia on Monday after Lawrence Summers dropped from the race to be head of the U.S. Federal Reserve.
Investors wagered that Fed policy would stay easier for longer under the other main candidate, Janet Yellen.
The surprise news comes just before the central bank meets on Tuesday and Wednesday to decide when and by how much to scale back its monthly asset purchases from the current pace of $85 billion.
Markets had perceived Summers as less wedded to aggressive policies such as quantitative easing and more likely to scale it back quicker than the more dovish Yellen, who is currently second in command at the Fed.
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Why did Larry Summers really drop out? Do you think it was because he was afraid of the confirmation fight? Guys like Summers are rarely impacted or afraid of confirmation committees or pressures associated with holding such an office.
Here is what I believe the real reason is. You see, as opposed to Mr. Bernanke who is an economic theoretician working with hypothetical economic models to drive US Monetary Policy, Mr. Summers is a market participant closely familiar with how the real world works. I believe Mr. Summers clearly understands where we are in the economic cycle and this credit infused massive financial bubble. He know what is coming over the next few years.
Simply put, he doesn’t want to be a captain of the Titanic (that is the US Economy) when it sinks and then be blamed for it. I believe Mr. Summers has enough common sense to understand that the monetary policy US Fed has instituted over the last decade cannot continue for much longer. When it ends (and it will) the markets and the US Economy will suffer though a deep recession or worse on both the main/wall street. Would you want to be in charge of a sinking ship, no matter how prestigious or powerful the job is? I know I wouldn’t.
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