Daily Archives: January 29, 2010

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