Monthly Archives: January 2010

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. Read more

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). Read more

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. Read more

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. Read more

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. Read more

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, Read more

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. Read more

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. Read more

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? Read more

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 recoveryRead more

Just another day of deflation in Japan – Money Supply

Sarkozy’s back to the future currency plan – FT Read more

Robin Harding

Today’s consumer price index data show that “core-core” prices in Japan, that is excluding food and energy, were 1.2 per cent lower in December than a year ago. That is the biggest decline since the series began in 1971 – worse even than the numbers in 2001 when deflation was at the centre of Japan’s economic and political debate.

Yet the Tokyo economics community seems apathetic. The Bank of Japan said and did nothing much at its meeting on Tuesday, despite expecting deflation to persist through 2010 and 2011. Government ministers make pro forma calls on the BoJ to act but old hands say it is nothing like the pressure that went on in 2001. Read more

Simone Baribeau

An unexpectedly large 70 senators voted for Ben Bernanke to stay at the helm of the Federal Reserve for another 4 year term.

Mr Bernanke passed by a far wider margin than some had expected late last week and earlier this week, when his confirmation lost its all-but-inevitable status. Read more

Simone Baribeau

The vote to allow Ben Bernanke’s confirmation vote to go forward was 77 “yes” 23 “no” according to CNBC. So, procedural hurdles easily cleared (only 60 votes were needed), no one can now block the final vote on the Fed chief’s confirmation for a second term. Looks like Mr Bernanke’s reconfirmation is a go.

Simone Baribeau

Senate leaders are confident. Intrade futures give him a 97.2 per cent chance of being confirmed for a second term. The vote is expected later today. Stay tuned for more…

Ralph Atkins

Today’s European Commission confidence indicators provide further reassurance that the region’s recovery remains on track. The eurozone’s economic sentiment indicator continued its v-shape rebound, rising to the highest since June 2008. But there are some interesting divergences – and not just between the big northern European economies and Spain, Ireland, Greece etc.

I was struck by the part of the survey covering manufacturers’ expectations for exports in coming months (which is included only four times a year). German industry is seeing optimism about overseas demand for its products soaring. January’s reading was the highest since the third quarter of 2007 and noticeably better than in the other main eurozone economies. Read more

Simone Baribeau

Daniel Mminele, Deputy Governor of the South African Reserve Bank, today strongly defended its inflation targeting policy, the day after the Treasury announced a review of the scheme.

As South Africa’s economy has suffered the fallout from the global recession – the economy was hit with a whopping 7.4 per cent annualised decline in the first quarter of 2009, though it has since returned to growth and struggles with unemployment rates well in excess of 20 per cent – critics have called for the central bank’s mandate to be widened to include growth and unemployment. Read more

The debate on the eurozone was predictably full of waffle and empty rhetoric. The audience wanted answers to the financing problems of Greece, the economic woes of Spain, and the disaster that has been Latvia, countries that were each represented by their prime ministers. Answers to the genuinely difficult questions over the eurozone’s future, raised by Martin Wolf among others were not to be found.

Instead there was talk by George Papandreou, the Greek prime minister blaming speculators with “ulterior motives” for the high cost of financing his country’s debt. Read more

Simone Baribeau

Brazil posted yet another monthly budget deficit in December, and, yet again, it’s not the economy getting a Keynesian boost. Before interest payments, the budget surplus was 2.06 per cent of GDP, significant, but still far below economists’ expectations. After interest payments, the economy posted a 13.9bn real deficit, up from 2.41bn real deficit in November, the country’s central bank said today in a statement. Brazil’s debt stands at 43 per cent of GDP.

I am at a so-so lunch discussing the prospects for long-term economic growth and have just heard the best comment on global imbalances and the worst suggestion for international organisations. Both came from Angel Gurria, secretary general of the OECD.

The words of truth: “I don’t think anything of substance has been done during the crisis to correct global imbalances. It was the crisis itself that reduced imbalances”. Depressing but true. Read more