Ben Benanke is widely expected to cut the US cash rate by 50 basis points, perhaps shortly and out of season, RBA Chief Glenn Stevens is sitting tight, China’s central bank has raised interest rates again. (China’s actions to curb inflation are certain to be too little, too late, but at least they are trying.)

The RBA has reportedly been hosting one of its conferences on matters monetary, with the US Fed’s Don Kohn as its star contributor. Scott Murdoch reports:

The bank’s deputy to chairman Ben Bernanke, Donald Kohn, said on a lightning visit to Sydney yesterday the full ramifications of the sub-prime collapse were yet to be felt, as thousands of loans on cheaper “teaser rates” were due to be shifted to higher rates before year’s end.

Dr Kohn told a Reserve Bank conference the situation had been exacerbated as US households were wrongly encouraged to borrow more.

As illustrated by the recent developments among the sub-prime mortgage borrowers, excessive accumulation of debt can in some circumstances lead to financial distress,” he said. “The reaction of financial markets to these developments raises the possibility that credit availability could be hampered for a larger group of householders, which could, in turn, have effects on the broader economy.

A down night on Wall Street reminds us there is plenty of room for the current market crisis to worsen. “Tick, Tick, Tick….” says Henry’s Lex:

In the next 15 days $550 billion of short term mortgage paper and commercial paper needs to be rolled over. Watch very carefully for any failures to roll over and Bernanke’s response … Lex notes the following ominous signs de-risking continuous unabate (a polite term for panic), market volatility continues to rise with the VIX heading to 50 area (at start 2007 VIX in 10-15 area, now 40), S&P continues to violate important support levels and looks like it will retrace all gains made since low in June/July 2006, NASDAQ also rolling over. For my friends Downunder the action of the AUD and NZD versus the YEN show the unwinding ot the infamous YEN Carry Trade the principal liquidity engine. Use any short term rally to raise cash!!

The RBA will sit on its hands on interest rates until the seriousness of the current market situation is known more clearly. But the report of One Steel’s 15% rise in profits tells a story – rising selling prices offset (but not completely) by rising costs.

This was RIO’s story and when BHP reports we shall have a more complete picture of the bubbling cost pressures in the booming minerals sector.

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