Monthly Archives: September 2010

Martin Wolf argues in his column this morning that the world’s two superpowers are in conflict over the dollar/yuan exchange rate, and that “when such elephants fight, bystanders are likely to be trampled”. Yet in preparations for the G20 summit in Korea in November, there is no sign that any of the other participating countries – especially the Europeans – want to join the US in talking specifically about the question of yuan overvaluation. According to reports, the US is likely to be “a posse of one” on this question. Read more >>

There are two massive fixed exchange rate blocks operating in the world economy today, and both of them are facing severe strains and conflicts.  Read more >>

The Federal Reserve broke a taboo yesterday when it said quite baldly that inflation in the US is now below the level “consistent with its mandate”. In other words, it is too low. This is a very big statement for any central banker to make, since the greatest feather in their collective cap is that they successfully combated inflation after the 1970s debacle.  Read more >>

Although the US economy is no longer quite as dominant as it once was in the global economy, there is no sign that the Federal Reserve is losing its primacy among the major central banks – at least, not as far as the financial markets are concerned.  Read more >>

Mervyn King’s speech to the TUC this week reiterated his strong support for the fiscal retrenchment plan announced by the coalition government in the UK. Some people have said that it is not the role of the central bank Governor to comment on fiscal policy, which they argue should be confined to the political arena. However, the Fed Chairman and the President of the ECB frequently comment on government debt and budget deficits, so it is hard to see why Mr King should be criticised for expressing his opinion. A much more important question is what his speech tells us about the likely course of fiscal policy and its relationship with monetary policy. Read more >>

The August economic data for China were more eagerly awaited than usual, because there had been marked signs of a slow-down in the industrial sector during the spring and summer months. Read more >>

Anyone who has taken a basic course in the theory of taxation will remember that taxes should be designed so that they have a minimal effect on the behaviour of firms and households.

This rules out most taxes in the real world, since they tend to be directly and predictably related to income, expenditure or wealth, thus changing the incentives which people face when they determine their behaviour. Read more >>

Andrew Haldane is an economist at the Bank of England who writes some of the most interesting stuff available on the (mis)behaviour of the financial sector, and I recommend his recent speech on Patience and Finance. Read more >>

On payroll day, the markets usually focus on the the nitty gritty of the monthly data, searching for lessons on the near term movement of the US economy. This is frequently a forlorn task, since the initial estimates of US employment (covering more than 130 million workers, some of whom are just assumptions in the models of the official statisticians) are so uncertain. Read more >>

The equity markets have all enjoyed a strong bounce since the US purchasing managers’ index for August was published yesterday. Expected to decline on the month, perhaps by a sizeable amount, the PMI actually rose from 55.5 to 56.3.  Read more >>