Daily Archives: January 5, 2010

Simone Baribeau

Reuters has an interesting piece on critics of the Obama administration’s Christmas Eve plan to extend unlimited credit lines to Fannie and Freddie. Critics, including Dennis Kucinich,  the Ohio Democrat who is perhaps the most liberal member of the House, called the move a “backdoor Tarp”.

With no limit on the credit line, Fannie and Freddie would be free to buy toxic assets from banks, clearing their books and leaving US taxpayers with the bill, critics argue. Read more

Ralph Atkins

Eurozone inflation figures for December have highlighted just how much prices undershot the European Central Bank’s “below but close” to 2 per cent target last year. Annual inflation in 2009 averaged about 0.3 per cent.

Before the global economic storms of the past few years, the ECB fretted about inflation “persistence” in the eurozone – how prices adjusted less rapidly than in the US. Back then, the problem was that inflation kept overshooting the 2 per cent target, even when economic growth was weak. Now the persistence problem has been turned on its head. If the ECB’s own forecasts are correct, inflation may remain significantly below 2 per cent in 2011 as well as this year. Concerns about the implications were expressed before Christmas in an interview I conducted with Athanasios Orphanides, Cyprus’s central bank governor, who worked previously at the US Federal Reserve. Read more

Romania’s central bank has lowered the monetary policy rate from 8 per cent to 7.5 per cent, effective tomorrow. The loosening is intended to tackle disinflation, which has stagnated.

The National Bank of Romania has also cut the rate on the deposit facility to 3.5 per cent from 4.0 per cent and the rate on the lending facility (Lombard) to 11.5 per cent versus 12.0 per cent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 17.25 per cent starting with the January 24 – February 23, 2010 maintenance period. Read more

British politics is obsessed with a silly row over whether the Conservative policy of “recognising marriage in the tax system” is affordable. This is an idiotic question. Anything is affordable if you are willing to raise taxes elsewhere or borrow to fund it.

The only relevant issue is whether a transferable tax allowance (or other tax breaks for marriage) are a good idea. This important debate has been forgotten. Here are some reasons why transferable tax allowances are a terrible idea: Read more

The end of a decade is a time for reflection, and people in Britain’s Labour party might want to think why the public have have fallen out of love with them. There are competing theories, but the deteriorating economic position must rank high.

My colleague Norma Cohen noted over the Christmas period that the Noughties witnessed the lowest average growth of any decade since the Second World War. The chart below takes this analysis further by looking at gross domestic product per head for every quarterly overlapping decade since 1955, when quarterly national accounts in their current form were first published. If people look back a decade now, it is as bad as the late 1970s/early 1980s when Britain was the sick man of Europe. No wonder the public aren’t relishing another Labour government. It doesn’t make the Bank of England’s record as an independent central bank look that exciting, either: the longer-term performance has been declining steadily ever since Mervyn King become governor in 2003.

 Read more

The state must stop reckless spending if the Sri Lankan economy is to avoid inflation, the governor warned yesterday in a roadmap address. Ajith Nivard Cabraal is quoted as saying the central bank may be forced to print money if the state continues to spend at its current rate.

The governor is concerned about the government’s recurrent expenditure, which in nominal terms reached 16.5 per cent of GDP, exceeding its target of 15.8 per cent. “Any reckless new public spending in hundreds of billions on recurrent expenditure will be disastrous to the economy and will reverse the sound macro-economic fundamentals as prevailing now, and put many businesses at intense risk,” he said. Read more

The People’s Bank of China will today drain 75bn yuan from the money market through 28-day bond repurchase agreements (repos). Only 40bn yuan in central bank repos mature this week, so the move will tighten up the Chinese economy.

While excess liquidity is mopped up, however, the central bank continues to issue bills. In today’s regular market operation, 12bn yuan one-year bills were bought at a yield of 1.7605 per cent. The yield has remained at this level since August of last year.