Daily Archives: March 22, 2010

Simone Baribeau

The year was 2002. The US was on shaky economic footing, still reeling from stock market declines and the as-yet uncertain prospect of a two-pronged conflict in the Middle East. And Alan Greenspan, then Fed chairman, was worried about consumer spending.

Alan Greenspan addressed the FOMC. According to his recently-released draft paper, published by the Brookings Institution, he was aware that “almost all market participants” were aware of the growing risks in the mortgage market:

I expressed my concerns before the Federal Open Market Committee that ‘. . . our extraordinary housing boom . . . financed by very large increases in mortgage debt – cannot continue indefinitely.’ It lasted until 2006.

The transcript from the meeting shows Mr Greenspan was even more downbeat than his recent recounting. Read more

An hour or so ago, Mervyn King recognised that the Bank of England’s communication of its forecasts could be improved. This is a big step forward for transparency and the Bank of England governor deserves to be heartily congratulated.

He had been digging himself deeper into a hole defending the existing fan charts, but in a lecture to the Royal Society today, he stopped digging.  This shows courage and intellectual honesty that is rare among the heads of powerful institutions such as central banks.

As readers of this blog will know, I have been extremely critical of the Bank’s fan charts, particularly the published forecast in February which failed to convey the message the MPC wanted, and critical of the governor for refusing to acknowledge their weaknesses. I suggested alternative presentations, to meet both my needs as someone in the business of wholesale information dissemination and to meet the Bank’s needs of conveying uncertainty in its forecasting.  The Bank is thinking along the same lines as I suggested.

Let’s look at what is being proposed. Read more

One Swiss franc can buy more euros than at any time since the launch of the currency in 1999. At 15.47 today, the currency traded at 1.4309, breaking its previous record of 1.4315 reached in October 2008.

Significant strengthening occurred last week, following comments from central bank board member Jean-Pierre Danthine. Read more

Labour is planning to lose the 2010 election. That is the only sensible interpretation of the mood music two days before the Budget.

What would a government be planning if it were confident of victory or thought it had a fair chance of being in power in six weeks’ time? It would be preparing a Budget that told the British public how it had reasonably successfully weathered the financial and economic storms of the past two years and it would prepare the public for the inevitable pain of fiscal consolidation in the years to come. In short, it would start to clean up its own mess. Read more

It’s safer to borrow from Aa2-rated Warren Buffett than from AAA-rated US government, if bond markets are correct. From Bloomberg:

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg… Berkshire Hathaway’s 1.4 per cent notes due February 2012 yielded 0.89 per cent on March 18, 3.5 basis points, or 0.035 of a percentage point, less than Treasuries, composite prices compiled by Bloomberg show. Read more