Daily Archives: February 25, 2010

Venezuela plans 170 tonne gold harvest

February 25, 2010 7:14 pm by Emma Saunders

Venezuela is an unlikely taker for the IMF’s planned bullion sale.

The country plans to invest about $300m importing equipment to mine 36 tonnes per year. Tailings at a number of old mines show reserves of around 170 tonnes in the southern state of Bolivar.

Mining Minister Rodolfo Sanz said the project should create profits of $5-$6bn. If prices were to remain around $1,110 per troy ounce, his estimate would be about right. There are 32,150.7 troy ounces in a tonne.

The ministry will sign an agreement with the central bank next week to begin work, although it is unclear when the project itself will begin. It is also unclear whether the mines minister meant paper profits, with the central bank hanging on to the bullion, or whether the country intends to sell its finds. It can probably afford to: Venezuela has the seventh greatest gold security in the world.

Gold has risen significantly (almost 1 per cent) today from week-long lows.

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Posted in Bank of Venezuela |

Chris Giles UK public finances: how tough are the Tories?

February 25, 2010 4:45 pm by Chris Giles

Delivering the prestigiou Mais lecture is a feather in the cap of George Osborne, the shadow chancellor. So it is a shame that the speech, while strong on the process a Conservative government would adopt to sort out the public finances, was weak on the Tories’ ambitions for running the budget and disastrous in its use of definitions and figures.

Process of budgetary control

The FT outlined the process the Conservatives are proposing to control the public finances in the paper this morning. The Conservatives’ big idea is to create an Office of Budget Responsibility to produce independent fiscal forecasts and judge how much taxes or public spending need to be changed to allow the government a better than evens chance of meeting its fiscal ambitions. As I argued in a column in 2008, I think this is sound. It is another attempt to provide an external constraint on politicians’ desires to borrow too much or to fiddle the figures.

Continue reading: “UK public finances: how tough are the Tories?”

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Posted in Bank of England |

Double dip watch

February 25, 2010 4:42 pm by Emma Saunders

Calling a turning point is tricky, and offers ample room to make oneself look silly.

But I reckon a good indicator is surprise. If pundits expect the continuation of a trend, and are surprised, that suggests either a temporary blip or a reversal. And if there are many such related surprises, evidence strengthens for the reversal.

Well, there is a lot of surprise in this office at the moment. Every day there seems to be a new (negative) data release for the UK or US – and every day I see colleagues raising eyebrows at the size of that surprise. An eyebrow raise, in Britain, is a powerful indicator.

So I’m keeping a list, below, of the latest data releases.

Continue reading: “Double dip watch”

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Posted in Uncategorized |

Krishna Guha is to leave the FT

February 25, 2010 4:09 pm by Emma Saunders

Krishna Guha, the FT’s US economics editor, will be leaving the FT to join the Federal Reserve Bank of New York.

Sadly he will no longer post on Money Supply. His Fed-watching replacement will be announced in due course.

An FT spokesperson said:

“Krishna’s appointment at the New York Fed is testimony to the high regard in which the Financial Times and its leading writers are held by decision-makers around the globe. We are sorry to see Krishna go, but wish him well for the future.”

New York Fed press release

Posted in Federal Reserve |

Simone Baribeau Bernanke day 2

February 25, 2010 3:13 pm by Simone Baribeau

Day two of Ben Bernanke’s semiannual monetary policy report to the Congress is proving a bit more eventful than the relatively news-free day one.

The day started with the revelation that the Fed is looking into whether Goldman Sachs helped Greece cover up the extent of its budgetary problems by using derivatives. “We are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece,” Mr Bernanke told the Senate banking committee. At the end of the hearing, the Fed chairman said that any arrangements may have been made a decade ago.

After starting the second and final day with a bang, Mr Bernanke faced another generally civil, but occassionally less friendly set of questions than he had before the the House financial services committee yesterday. The Senate recently confirmed the Fed chairman for a second term, albeit not without difficulty, and some of the Senators are looking to make clear that they are still sceptical of his chairmanship.

Here are some highlights:

Continue reading: “Bernanke day 2″

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Posted in Federal Reserve |

‘No impact’: IMF loan delay for Sri Lanka

February 25, 2010 3:04 pm by Emma Saunders

The Sri Lankan central bank has dismissed the idea that the delay of an IMF payment will have any effect on investor confidence.

Following the IMF’s announcement, governor Ajith Nivard Cabraal declared: “There is absolutely no impact at all.” Of course, countries receiving IMF loans are generally in need of them. But a) the governor couldn’t really say much else; and b) post-conflict growth in the country has helped to build up forex reserves, possibly making the loan less of an issue than it was.

The $2.6bn tranche – the third of the loan – was delayed until at least May after the government missed its 2009 deficit reduction target. This tranche would be more than 6 per cent of GDP, which stood at $40.7bn in current US dollars, at the end of 2008 (Reuters). The IMF did back the island’s monetary policy, however.

In recent news, Sri Lanka is to lose preferential trade tariffs with the EU, because of concerns about human rights.

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Posted in International Monetary Fund |

Economics news headlines

February 25, 2010 1:18 pm by Emma Saunders
  • Freddie Mac likely to need further support this year – FT
  • Northern Rock loses savings guarantee – FT
  • All lent out: Chinese banks in $11bn cash call this week – FT
  • The great Chinese FX reserve injection – FT Alphaville
  • Unwinding dollar carry trade would derail economy – Money Supply
  • Cenbank sanctions against Iran by June? – Money Supply
  • California apparently cancels $2bn general obligation bond – zero hedge
  • One explanation for India’s troubling food price inflation – FT
  • Brazil starts to mop up $39bn; rate rise likely – Money Supply
  • UK govt: vulture fund legislation may be justified – Felix Salmon
  • Bank lending to Eurozone shrinks and UK business investment down sharply
  • UK: change the way banks work, don’t just raise reserve requirements – FT
  • Can developing markets leapfrog industrialisation straight into service provision? – VoxEU
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Posted in Uncategorized |

Cenbank sanctions against Iran by June?

February 25, 2010 12:25 pm by Emma Saunders

China is one of 32 central banks in a group that released a statement last week, saying there would be further restrictions on Iranian banks if no action is taken on nuclear proliferation and terrorist financing.

The Financial Action Task Force had been asked to identify ‘unco-operative’ jurisdictions by the G20. On Tuesday, the US Treasury reiterated its interest in sanctions against Iran’s central bank.

It is maddening but I cannot find a copy of the FATF statement. The Washington Times reports it thus:

A little-noticed statement released Thursday from a coalition of 32 central banks, including China’s, promises to crack down on Iran’s banks if the Islamic republic does not meet the international standards of the global financial industry on money laundering and terrorism financing.

Patrick Clawson, the deputy director for research at the Washington Institute for Near East Policy, said the statement from the Financial Action Task Force (FATF) was significant.

“This is the harshest statement FATF has ever issued,” he said. “The Chinese signed on to this statement that unless Iran acts by June, there will be further restrictions on Iranian banks. That is a big deal, because the Chinese financial system is in a position to undercut any financial restrictions the U.S. places on Iran.”

Meanwhile, the US Treasury reiterated its interest in sanctions on Iran’s central bank. “The Iranian central bank is implicated in promoting the regime’s proliferation efforts and terrorist activities … it would be a logical target,” Avi Jorisch, Treasury spokesman and former policy adviser on terrorist financing, is reported to have said.

Sanctions of this kind are aimed at financial isolation. If no country were to perform transactions with Iran, the state and its businesses would need to pick up cash physically. The US has been trying to convince Europe and other countries to join in. If they do not, Iran could switch payment currency to the euro or the renminbi, for example. Iran’s biggest trading partner is China.

Russia has reiterated its opposition to severe sanctions against Iran. But since I am unable to find any trace of the FATF statement or signatories, for all I know, they signed it.

Related posts: West seeks sanctions against Iran’s central bank, Feb 2

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Posted in Uncategorized |

Markets expect further falls in lira

February 25, 2010 11:40 am by Emma Saunders

Faith in the lira has slipped as the political power struggle continues, with accusations of an attempted coup, which some say dates back to 2003 and others say never existed. No clarity is needed for traders to want to exit the currency, however. Uncertainty is sufficient incentive.

The lira has fallen about 2 per cent against the euro and dollar this week (see chart). It is likely to continue falling. Bloomberg is reporting a surge in demand for put options on the currency. Put options give the holder the right, but not the obligation, to sell the currency for a specified amount on a set date in the future.

Continue reading: “Markets expect further falls in lira”

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Posted in Uncategorized |

Unwinding dollar carry trade would derail economy

February 25, 2010 10:49 am by Emma Saunders

Topically, it was Zhu Min who raised this troubling issue at Davos recently. “The big risk this year is the dollar carry trade,” he said. “Estimates are that the dollar carry trade is $1,500bn – which is much bigger than Japan’s carry trade was.”

A carry trade is where investors borrow in a low-interest currency to invest in a high-interest currency. Historically, the borrowing currency of choice was the yen. Recently the dollar, with record low interest rates, has apparently become popular.

The practice weakens the borrowed currency (yen, dollars) and strengthens the bought currency (RMB, rupees), as borrowing increases the supply of a given currency, reducing its price. So, the argument goes, the dollar is artificially low at the moment.

If $1,500bn were to be removed from the money supply, the dollar would rocket, and asset prices denominated in dollars would fall. For comparison, broad money (M2) in the US is currently around $8.5bn (more from Peter Garnham).

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Posted in Uncategorized |
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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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