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Forex Flash: US efforts to avoid cost to taxpayers ultimately led to larger bill - Nomura

FXstreet.com (Barcelona) - Nomura research Institute Chief Economist Richard Koo notes that US efforts to avoid cost to taxpayers ultimately led to larger bill.

He begins by noting that like former US Treasury Secretary Hank Paulson, who made the decision to allow Lehman Brothers to fail, Mr. Dijsselbloem is arguing that taxpayers should have to pay no more to bail out failed banks. However, he urges investors to remember that the US decision to let Lehman go under increased the ultimate cost to taxpayers several fold-over initial estimates, something that should be evident from recent fiscal deficits, as AIG and other key institutions teetered on the brink of failure and had to be bailed out.

Koo adds that both balance sheet recessions, which occur when the private sector starts to pay down debt in spite of zero interest rates, and systemic banking crises, in which many banks find themselves in the same predicament, are based on fallacy-of-composition problems. This means conditions can worsen quickly and dramatically, and the authorities need to respond with measures that are very different from an ordinary approach based on market principles. However, he writes, “Unfortunately, the recent case of Mr. Dijsselbloem highlights eurozone officials’ lack of understanding of both phenomena. Their view of the crisis appears to be similar to that of a physician who treats his pneumonia-stricken patient as if he had a common cold. I suspect this will weigh heavily on the eurozone economy going forward.”

Forex Flash: Major Diverge with GBP and EUR crashing lower - OCBC Bank

Emmanuel Ng of OCBC Bank notes that the majors diverged on Tuesday with the EUR and the GBP plumbing lower across the board while the growth-linked currencies like the AUD, NZD, and CAD marched higher against the greenback.
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Forex Flash: FX stability ahead of key BOJ decision - BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that many of the Asian equity markets are moderately lower today, although the Japanese markets are higher in part on fresh record highs in US equities, and also in anticipation of pending aggressive BoJ easing.
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