Daily Archives: November 13, 2009

Forget carry trades, forget risk appetite: “Changes in the dollar correlate more closely to changes in international reserves than any other variable since 1999.” So China has “far more control over the price of the dollar than the US.”  The US has little control over the dollar, especially treasury secretary Tim Geithner, in spite of his oft-stated desire for a strong dollar, agrees The Economist: “Yeah, right. I have a “strong man” policy under which I intend to become world heavyweight champion. I’m just not planning to do anything about it, like train or fight someone.” Read more

There are conflicting incentives for the Treasury after the Bank of England’s (relatively) high growth forecast for Britain next year.

If the Treasury assumes BoE growth is right, they can afford to be bolder in reducing the deficit (the current plan is to halve the £175bn deficit over four years). This appears to be what the Bank would prefer: Mervyn King has criticised the lack of ambition in fiscal consolidation, and the Inflation Report insists that “reducing those [structural] deficits is part of the necessary rebalancing of the UK economy”.

But the Treasury could also bank the faster growth forecast and keep the same fiscal forecasts, effectively a loosening of fiscal policy in the run up to a difficult election for Labour. Read more