Monthly Archives: January 2010

Chris Giles Davos 2010: The art of the veiled threat

January 30, 2010 4:59 pm by Chris Giles

No one has perfected the veiled threat as well as Larry Summers, president Obama’s chief economic adviser. It was on fine display at the World Economic Forum on Saturday.

He was speaking on the main economy panel with Zhu Min, deputy governor of the People’s Bank of China, so it was a great cast list. Mr Zhu’s contribution was to say how he recognised China couldn’t rely on the US consumer for growth in the future, understood there was excess capacity in certain Chinese heavy industries and vowed policy was to make structural changes so that demand would re-balance away from exports and towards consumption.

Continue reading: “Davos 2010: The art of the veiled threat”

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Simone Baribeau Risky states

January 30, 2010 2:02 am by Simone Baribeau

Ok, so we’ve all known for some time US states have been suffering through the downturn. But take a look at this chart just released by JPMorgan economic research.
Surprisingly, it was Greece’s George Papandreou, and not the Governator, threatening to “draw blood” if necessary to implement an economic stability plan.

Shame. It would have been an apt comment from Arnold Schwarzenegger, who was elected in 2003 after his predecessor Grey Davis, became wildly unpopular after failing to fix the state’s deteriorating finances (a feat which has also, clearly, eluded Mr Schwarzenegger).

A similar situation is now brewing in Illinois, the state with the next largest CDS spread. The state is holding primaries on Tuesday to choose candidates to fill Barack Obama’s old Senate seat, and its finances (which are leading to the very wide spread) are sure to play a roll in the election. Let’s hope whoever is elected does a better job of narrowing it than Mr Schwarzenegger did.

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Simone Baribeau Argentine central bank chief saga ends

January 30, 2010 1:19 am by Simone Baribeau

It’s over.

After weeks of acrimonious fighting, Martín Redrado, the central bank president who President Cristina Fernández has been attempting to fire , accepted defeat.

Some background for those who haven’t been following the saga:

The dispute started last month, when Mr Redrado refused to hand over $6.5bn to help pay off government debt after an emergency decree from Ms Fernández. Mr Redrado argued that the move could leave the central bank open to suits from bondholders who are still trying to get paid back after Argentina’s $100bn default.

So, earlier this month, Ms Fernandez released another emergency decree: this time sacking Mr Redrado.

Problem was, Mr Redrado won’t comply with that decree either.

Continue reading: “Argentine central bank chief saga ends”

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Posted in Bank of Argentina |

Simone Baribeau Just how good are the US GDP numbers?

January 29, 2010 11:29 pm by Simone Baribeau

The economy sprung into action last quarter, growing at a whopping annualised 5.7 per cent, its fastest pace in six years. Analysts surveyed by Bloomberg were only expecting a 4.5 per cent increase. Investors initially cheered, with the S&P 500 rising 1.1 per cent in its first hour of trade.

Could anyone possibly see a downside?

Of course. Bears will be bears.

Continue reading: “Just how good are the US GDP numbers?”

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Simone Baribeau GSEs continue to add risks to financial system

January 29, 2010 9:23 pm by Simone Baribeau

It’s been a bad day for Fannie Mae and Freddie Mac. First, Hank Paulson, former Treasury secretary, says that Russia tried to spur China to sell the GSE’s securities to spark a crisis.

Then, Donald Kohn, Vice Chairman of the Federal Reserve, warns that community banks are particularly vulnerable to interest rate risk because of their holdings of Fannie Mae, Freddie Mac and Ginnie Mae mortgage securitites.

Many community banks have increased their holdings of longer-term mortgage assets, including mortgage securities guaranteed by Ginnnie Mae and the government-sponsored enterprises, in an effort to enhance both credit quality and earning asset yields. While such holidngs advance public policy interests in reviving the mortgage market, they nevertheless pose the potential for increasing interest rate risk exposures, in part because of the embedded options in residential mortgages.

At least it’s Friday guys.

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Posted in Federal Reserve |

Chris Giles Davos 2010: The G20 and the IMF

January 29, 2010 2:53 pm by Chris Giles

In a recent speech, Mervyn King, governor of the Bank of England railed against the inconsistencies of national recovery strategies, saying that, “a present there is no political mechanism for achieving that consistency”.

While he praised the G20 process so far, he added:

“Looking further ahead, the legitimacy and leadership of the G20 would be enhanced if it were seen as representing views of other countries too. That could be achieved if the G20 were to metamorphose into a Governing Council for the IMF, and at the same time acquire a procedure for voting on decisions.”

In an interview with the FT,

Continue reading: “Davos 2010: The G20 and the IMF”

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Posted in Bank of England, G20, International Monetary Fund |

Chris Giles Davos 2010: The Bard, the buck and the beast

January 29, 2010 2:35 pm by Chris Giles

I had an ulterior motive last night when I went to a dinner on Shakespeare and the crisis. I thought the session, led by Carol and Ken Adelman, founders of Movers and Shakespeares, would be ripe for ridicule and typical of some of the enjoyable nonsense of Davos. Their website, after all, does talk guff about teaching “critical business skills through Shakespeare’s greatest works”.

How wrong I was. A highly enjoyable evening was spent discussing the Bard and his works with two people who could not have been further from the caricature of vacuous motivational speakers.

Continue reading: “Davos 2010: The Bard, the buck and the beast”

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Ralph Atkins ECB to Obama: yes we can, but…

January 29, 2010 2:16 pm by Ralph Atkins

The European Central Bank’s response to Barack Obama’s bank reform proposals is taking shape. Speaking in Milan, Lorenzo Bini Smaghi, an ECB executive board member, confirmed Frankfurt’s view that the proposed “Volcker rule” – splitting traditional banking activities from high-risk proprietary trading operations – was “heading in the right direction”. It also represented “a first step to ensuring the financial system can effectively support the real economy and is not weakened by the most volatile market fluctuations”.

But Mr Bini Smaghi worried, first, that such a step might simply drive the higher risk trading operations beyond the control of regulators.

Continue reading: “ECB to Obama: yes we can, but…”

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Posted in European Central Bank, Federal Reserve |

Ralph Atkins Eurozone inflation, aims and aspirations

January 29, 2010 2:16 pm by Ralph Atkins

Eurozone inflation data just out show the annual rate creeping higher – to 1 per cent in January, up from 0.9 per cent in December. That will make life a little easier for the European Central Bank, which meets next Thursday to discuss interest rates.

Its objective is an inflation rate “below but close” to 2 per cent over the medium term. Still, ECB watchers usually assume “below but close to” 2 per cent means something between 1.7 and 1.9 per cent – so the central bank continues to undershoot by a large margin. Those on the governing council who worry about persistently low inflation might feel their case remains strong.

Or is it?

Continue reading: “Eurozone inflation, aims and aspirations”

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India increases reserves burden on banks

January 29, 2010 1:55 pm by FT writers

By James Lamont, South Asia Bureau chief

India’s central bank took steps on Friday to exit the loose monetary policy it adopted during the global financial crisis, as it tried to steady inflation expectations without hurting a quickening recovery.

The Reserve Bank of India announced a 75 basis point rise in the cash reserve ratio, the proportion of deposits that banks must keep with the central bank, to 5.75 per cent, to soak up excess liquidity.

The RBI left the repo rate, a key lending rate, unchanged at 4.75 per cent. Continue reading.

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Chris Giles Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Ralph Atkins, Frankfurt bureau chief, has been writing about European economics and politics for the Financial Times for more than 20 years following an economics degree from Cambridge. He has been watching the European Central Bank and eurozone economies since 2004. He has previously worked in London, Bonn, Berlin, Jerusalem and Brussels. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS

James Politi is US economics and trade correspondent for the Financial Times, based in Washington DC. He joined the Washington bureau in January 2008 following four and a half years as US deals correspondent covering M&A and private equity. James Politi joined the FT in London in 2000 with an MSc at the London School of Economics, and undergraduate degrees from Georgetown University and the University of Florence. RSS

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