Back to Money Supply homepageIs this the turning point? Equity indices dropped unexpectedly in Wall Street and Asia yesterday, with the FTSE following this morning, Tuesday.
Coincidentally, news and views from around the web are almost exclusively bearish the US:
(1) The pace of charge-offs (write-offs on bad debt) now exceeds the early years of the Great Depression;
(2) US interest payments are forecast to exceed defence payments by 2017 as interest rates rise (first time ever, according to the BEA);
(3) Residential property prices are likelier to follow declines in commercial property, now that the tax credit is to be phased out. Houses won’t even sell at auction in Detroit. And Goldman Sachs says credit easing measures inflated property prices by five per cent, and may have created a false bottom in the market;
(4) A former hedge fund manager who correctly called the housing crash – the only qualification worth having these days – says long-term US debt is overpriced. He is also interested in shorting agency-sold mortgage-backed securities. Eek.
Some consensus on the perils of deflation. A former chief economist at the Bank of Japan and the OECD says Japan should ward off deflationary pressure more aggressively. And the newest member of the UK’s interest-rate-setting committee, American academic Adam Posen, is worried about deflation in the UK. He compares the UK’s position to that of Japan in the mid 1990s, when the country was unable to sustain the start of the recovery. The similarity derives from a lack of credit available to non-financial institutions, especially SMEs.
China, on the other hand, should worry about inflation. Anecdotal evidence suggests inflation is running at 15 per cent, and construction in Shanghai, at least, is booming - perhaps overstimulated. Central bankers struggling with the business cycle in the Middle East can take heart, at least: new research suggests that oil prices are linked to bank performance in oil-exporting countries, and that regulators in these countries can use the price of oil to inform regulation that would mitigate pro-cyclical bank lending.
And since the start of 2009, the dollar has risen against just nine currencies worldwide, including Ghana, Pakistan and Argentina - and the latter is in such a serious situation it will struggle to re-enter the capital markets.
Tags: currencies, debt, deflation, equities, inflation, mortgage-backed securities (MBS), property
Leading economists discuss topics raised by Martin Wolf, the FT's chief economics commentator, and others.