Daily Archives: January 27, 2010

Simone Baribeau

It’s been a rough day for “TFG75″ – the email name for Tim Geithner. At least, it’s been a rough day according to intrade, which is giving Treasury secretary a 40 per cent chance of losing his job by the end of June, after a day of being grilled by the House oversight committee.

For a wrap of today’s hearings, see: Read more

Simone Baribeau

The term of Ben Bernanke, the chairman of the Federal Reserve, expires on Sunday and it is, as yet, unclear who will take the helm of the Fed if he is not confirmed by the Senate before the end of the month. So where does he stand on the Wednesday before his term ends?

Senate Votes so far: Yes – 49 (36 Democrats, 12 Republicans, 1 Independent); No – 21 (6 Democrats, 14 Republicans, 1 Independent) ; UNDECIDED/UNANNOUNCED: 30 (16 Democrats, 14 Republicans). Source Reuters poll Read more

Simone Baribeau

The post-Lehman Fed unanimity has finally been broken. The Fed again voted to keep interest rates unchanged in the 0 to 0.25 per cent range for an ‘extended period.” But now, dissent!

Thomas M. Hoenig, the Kansas City Fed president, used his new voting powers to vote against today’s action, saying, according to the minutes, that “economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.” Read more

Banks should hang on to their cash, rather than handing it out to employees and shareholders: then they might be in better shape to withstand troubled times. So Andrew Haldane, Bank of England MPC member, said this evening.

“If a positive profit surprise comes along, this windfall should be pocketed, front-loading the path to higher capital without harming lending and growth,” Mr Haldane said. Had there been more of this ‘prudential opportunism’, we might have been better sheltered from the crisis. He added that he saw no evidence banks were following this path. Read more

I have a terrible problem when I listen to chief executives talking about what they do for the world:how they give people livelihoods; how their fine management has given thousands of people jobs; how families would be destitute were it not for them. My problem is that I thought slavery had ended – quite some time ago.

My contract with the Financial Times requires me to perform certain services, such as this blog – actually it doesn’t, but it requires me to do as the editor says. In return it offers me a salary and some other benefits. Though I haven’t read it for years, I am sure it does not require me to be grateful to the chief executive, or to acknowledge that I would be destitute without the fine management from which I benefit and owe my existence. Read more

The central bank has cut all its key rates by 50bp, following similar cuts last month, but warned of ‘limited room for manoeuvre’ if access to foreign capital markets is not resolved. The key seven-day collateral rate now stands at 9.5 per cent.

Inflation is falling, by 0.3 per cent in January alone, although the bank still expects to meet its inflation target of 2.5 per cent by the end of the year. The bank said there “should be scope for continued gradual monetary easing” if inflation continues to fall, and the króna remains stable or appreciates. Read more

Prices are falling in some parts of Germany and will rise more slowly than expected this year.

“A decline in January is normal but it isn’t usually this much. So we are not seeing the rise in inflation we had
expected,” said Postbank economist Heinrich Bayer. “We expected an inflation rate of 1.5 per cent this year – but it could now be a little less than that,” he added. Reuters economists’ forecasts averaged at 1.0 per cent, which might prove nearer the mark. Read more

Andrew Sentance hinted today that the UK central bank will tighten policy, saying that while current conditions persist, it “will be difficult for the MPC to keep inflation on target”.

“Through the recession, the MPC was right to relax monetary policy aggressively to provide support for a recovery that is now emerging. But as the recovery develops, the economic situation will change and the MPC must be ready to adapt its policies to the changing economic situation Read more

Ralph Atkins

Another milestone in the financial crisis: the ECB has just reported zero interest in its latest offer of unlimited seven-day dollar liquidity. If I am right, it is only the second time in its 11-year history that this has happened in an ECB liquidity providing operation. The first was in an offer of 84-day dollar liquidity last September.

The latest result was not unexpected. At the height of the economic crisis, the joint operations with the US Federal Reserve formed an important part of measures to keep financial markets working. But demand for emergency dollars by eurozone banks has tumbled in recently, as things have returned to normal. Read more

One of the joys of the World Economic Forum is the occasional real-time deflation of egos that you can witness. I am sitting in a session on asset price bubbles where one private sector speaker insisted that you can’t spot bubbles and you should not. I can’t name him because Chatham House rules apply. Then one econmics professor (not hard to guess who) and a prominent regulator, went through all the reasons why you can spot bubbles, and should think about using tools, such as capital requirements or loan to value ratios to limit the size of bubble. Back came a rather deflated first speaker, completely contradicting his earlier point, and arguing that there are some bubbles that can be spotted and need to be addressed with credit restrictions. Did he realsie his views had reversed? Sadly, I doubt it, but his ego was not what it was.

Rising inflation has made an rate rise even more likely at next week’s central bank meeting. Expectations are about 0.25 percentage point, which would take the cash rate to 4 per cent.

Australia’s consumer price index rose 0.5 per cent in Q4 from the previous quarter. While this was just half the Q3 rise of 1 per cent, it pushed the annual rate of inflation up to 2.1 per cent. Read more

It took them a while to react, but central bankers are beginning to voice their approval of US plans to limit bank trading, aka the ‘Volcker plan’.

Yesterday Mervyn King voiced his approval, saying that, thanks to Mr Obama’s plan, ‘radical reform’ was at last on the table. He qualified his support by saying any measures should be part of a ‘major structural change’; one proposal alone would not solve the problem. Read more

Let’s face it. The Davos mood at the World Economic Forum is almost always wrong. In  2007 it was euphoric; 2008 was consumed by a fear of inflation; 2009 was apocalyptic. What about 2010?

Sitting in the first economic debate this morning, the mood seems to be harder to define. It is much better than last year, obviously; it is very positive about emerging market prospects; but  it is also very cautious, with worries about the sustainability of global growth. Read more

Robin Harding

The real export data produced by the Bank of Japan (and hidden away on their website) is the best way to keep track of what is going on in the most crucial sector of Japan’s economy.

The more popular Ministry of Finance data are not adjusted for export prices, although as it happens, both sets tell the same story for December: that weaker figures the month before were a blip. Read more

Simone Baribeau

Ok, they’re not secret any more. But the New York Fed did, early on, put some effort into not disclosing the names of AIG counterparties. And so, in the run-up to Geithner’s testimony tomorrow, Darrell Issa, the Republican ranking member of the House oversight committee, has released the results of his investigation.

The report reads more like a Washington political thriller than a Congressional document. Just look at its title: “Public disclosure as a last resort: How the Federal Reserve fought to cover up the details of the AIG counterparties bailout from the American people”Read more