Monthly Archives: November 2010

The events of the last few weeks have shone a very harsh searchlight on the nature of sovereign debt within the European Monetary Union. Although critics of EMU have always argued that monetary union without fiscal union is “impossible”, it was only when Angela Merkel started to call for a procedure to handle a possible default on the sovereign debt of a member state that the markets began to focus on the fact that such a default really is possible. Read more

David Cameron took a gamble yesterday with his promise that the UK will in future publish official statistics for national well being. Read more

Today’s publication of the latest FOMC minutes will probably unveil significant downward revisions to the Committee’s inflation and gross domestic product forecasts for 2011, as well as a large upward revision to its unemployment forecast. More interestingly, the minutes will show whether the FOMC is broadly united on the strategy of quantitative easing which it has now adopted.  Read more

Consumer price inflation has started to diverge sharply in China and the US in recent months. Although this may be distorted by the higher weight given to rising food prices in China’s CPI data, it may also be due in part to China’s determination to keep the yuan down against the dollar.

The policy of currency intervention is starting to bring with it some definite costs for China, and their attempts to square the circle – keeping inflation low, while simultaneously keeping the exchange rate stable – can really only work in a controlled, non-market system. As China develops further towards a market economy, squaring this circle will become more and more difficult. Read more

The twists and turns in the European sovereign debt crisis have been more than usually bewildering in recent days, so I thought it would be useful to take a step back and look at the longer term budgetary fundamentals which will ultimately decide whether the troubled sovereigns in the eurozone can avoid default.  Read more

Robert Zoellick, president of the World Bank, has said that gold is the “elephant in the G20 meeting room” and has suggested that the metal should be given a role in any fundamental reshaping of the global monetary system which may emerge from current international discussions. Although this was initially interpreted as a call for a return to the gold standard, Mr Zoellick on Wednesday said that this would be impractical. Instead, he seems to believe that gold should act as a kind of signalling mechanism, which flashes warning signs when uncertainty is rising, and confidence is falling, in the global economy. Maybe, but I am struggling to understand how this could be made to work in practice. Read more

If he were still alive today, what would Milton Friedman think of his disciple, Ben Bernanke? This is a matter of some concern to the Fed Chairman. Read more

After a week which has been replete with important economic and political news from the US, the bulk of the incoming information has confirmed what we knew already. The Fed has embarked on QE2, more or less exactly as expected. The Republicans took the House but not the Senate, and the President’s initial reaction suggests that the Bush tax cuts will probably be extended, which was the central case before the election. And the economy continues to grow at a pace which is neither fast enough to bring unemployment down, nor slow enough to threaten a double dip. While all of this was broadly as expected, there have been some interesting (and mostly encouraging) developments which are worth noting.

So what do we know today that we did not know a week ago? Three things: Read more

The Fed statement just released indicates that the central bank intends to purchase a net total of $600bn of longer term Treasury securities between now and the end of 2011 Q2, at a pace of around $75bn per month. This was almost exactly in line with what the market had been led to expect, so there was no surprise in the extent and timing of QE2. However, there was no further softening in the Fed’s statement that interest rates are likely to remain exceptionally low for an “extended period”, which may have disappointed some observers who were looking for this language to shift in a dovish direction. Overall, the markets initial reaction was a shrug of acceptance that the Fed has done just about what it told us it would do, but certainly no more. Read more

The major global manufacturing surveys for the month of October have now been published, and they are considerably more buoyant than they had been in previous months. Read more