The US will have one major advantage before it starts using its term deposit facility in earnest. It gets to see how effectively a similar facility mops up excess liquidity in Europe.
Tomorrow, the ECB will look to attract €35bn to be deposited for one week for an interest rate of up to 1 per cent. The move comes as the eurozone’s central bank looks to reduce the inflationary pressures that could be created by its recent bond purchases. Read more
The eurozone’s financial sector and economy are facing “hazardous contagion” effects from the region’s debt crisis, according to the European Central Bank, which has also predicted another €195bn in bank writedowns this year and next. Read more
Raise or hold?
Russia has chosen the third option: cut. Read more
By Bernard Simon in Toronto
Mark Carney has not faced a decision whether to raise interest rates since he took the reins at the Bank of Canada in February 2008. But he will on Tuesday when the bank issues its regular monetary-policy review. Read more
Sure, sounds good, but will it be effective?
That’s the question everyone’s asking today about BP’s latest effort to stem the tide of oil gushing into the Gulf of Mexico. But it could just as appropriately be asked of the progress of the US HIRE Act, past in March, which gives employers tax credits of up to $1,000 per worker and provides a payroll tax exemption for employer social security payments. Read more
The Fed is taking a Shakespearean attitude toward the exit: monetary tightening, a necessary end, will come when it will come.
But while the US central bank has made clear that the timing of the exit is still unknown, it’s taking steps to get ready for it when it comes. Read more
The eurozone crisis rages on.
Fitch downgraded Spain’s debt ratings today, cutting the country’s long-term foreign and local currency ratings by one notch to AA+ from AAA. Read more
The boyish* Tim Geithner was in Europe this week blowing strangely warm about financial regulation and praising Germany’s leadership in the area. Given the short-selling ban imposed by Berlin, and the hedge fund directive currently passing through the bowels of the European decision-making process, this looks a bit odd.
Consensus among Treasury-watchers in DC is that it’s almost certainly a tactical move designed to get the EU and particularly Germany onside for future issues, akin to the ratcheting down of pressure on the Chinese which preceded Mr Geithner’s trip to Beijing. No point in poking Angela Merkel in the eye unnecessarily. But what issues? A likely candidate is the Basel III capital accords. If the US (particularly some elements in Congress) gets its way in toughening the standards, European banks are going to have to hold more capital. Not the easiest time to encourage European banks to accept another hit. Read more
Lorenzo Bini Smaghi, European Central Bank executive board member, has attacked financial market analysts for not doing their homework properly on Greece. Many have jumped to the conclusion that the country will default or have to restructure its debt at some point, he said in a speech in Morocco today. But the International Monetary Fund, eurozone governments and the ECB have taken a different view. “They all consider that a default is not a viable solution.”
His explanation is that private sector economists have simply looked at horrific projections for Greek debt-to-GDP ratios and not studied carefully enough the details of the country’s rescue package. “I have not seen a serious analysis of the 120-page report produced by the IMF which looks at the various aspects of the programme, including the impact of structural measures on growth, the sustainability analysis or other features of the programme”. Read more
Evidence is growing that the European Central Bank sees the euro’s weakness positively. Christian Noyer, governor of the Banque de France – who always chooses his words carefully – has just told French TV that the currency is now trading at a “more normal” level. “Certainly, we are benefiting from it in terms of exports,” he added.
Earlier, Ewald Nowotny, Austria’s central bank governor, had told a news conference in Vienna that the euro’s fall would be welcomed by industry (although Mr Nowotny added: “We’ll have to see how long this development will be seen as acceptable by the US.”) Read more
US lawmakers may not be known for paying too close attention to every twist and turn in economic indicators.
But as the House of Representatives prepares to vote on a new jobs bill worth $150bn – the biggest stimulus package since the mega-stimulus approved in the early days of the Obama administration last year, members might consider today’s downward revision to US GDP. Read more
Since global central banks widely expanded their roles in the financial crisis, their leaders have been warning about the dangers of attacks on their autonomy. Earlier this week, Ben Bernanke, US Federal Reserve chairman, said that undue interference can “impair inflation-fighting credibility” and “worsen the economy’s longer-term prospects”.
And over the past few months central bank leaders warned of attacks in Argentina (where the central bank chief was fired after refusing to transfer foreign exchange reserves to the government), South Korea (where a vice minister attended a monetary policy meeting), Japan (where the central bank faced pressure to increase lending) and Mexico (where some viewed the appointment process of the new Bank of Mexico governor as politicised). Read more
From the FT’s beyondbrics blog
Faced with increasingly skittish investors worried about contagion from the Greek crisis Poland is looking for a safe pair of hands – and one of the safest are those of Marek Belka, a former prime minister and now European director of the IMF who is being proposed as the new governor of Poland’s central bank. Bronislaw Komorowski, the speaker of parliament and acting president, made the announcement this morning.
Komorowski is acting to fill the vacancy left by Slawomir Skrzypek, the central bank chief killed in the April 10 air crash that also killed Poland’s president and many other senior government officials.
Skrzypek was temporarily replaced by Piotr Wiesolek, who had been his deputy, but there were questions about the legality of Wiesiolek taking over Skrzypek’s role as a voting and tie-breaking member of the
interest-rate setting Monetary Policy Council. One of the MPC’s 10 members, Andrzej Bratkowski, has been boycotting MPC meetings over concern about the legality of its decisions. Read more
Today, marks the death of evidence-based policymaking in the British government. According to your tastes, you can either mourn its passing or celebrate the new, more ideological decision making. But dead it is. This is clear from today’s Cabinet Office document -the State of the Nation report – a report mostly about social policy.
We will have to see whether the explicit disregard for evidence in the report is continued into UK fiscal and monetary policy. Read more
For fans of data and big numbers, here are the BOJ’s latest figures on Japan’s stock of investments overseas.
Economics majors are no less likely to vote than other majors, but if we do, we tend to cast our ballots for Republicans.
This according to a new study from the NY Fed that tests to see if those with undergraduate degrees in economics tend to incorporate our lessons on acting in rational self interest into our day-to-day lives.
Voting is, in economic terms, not very rational. A single person’s vote is unlikely to change the results of an election, so the costs (for instance, the opportunity cost of going to vote) outweigh the benefits.
And yet, it seems, we still do it as frequently as other majors. (On the other hand, one of the school’s polled is Florida Atlantic University – perhaps former students there, remembering the 2000 election, were acting rationally – voting because they thought the election could come down to a single vote).
But when we head to the polls, we vote Republican. Read more
Brad Sherman, a Democratic representative from California, wants you to pay more for your home.
Mr Sherman today objected to the FHFA’s plan to roll back the temporary increase in the conforming loan limits put in place during the housing market crash.
“Nothing could destroy this recovery more than a double dip in home prices,” he told Edward J. DeMarco, Acting Director of the FHFA, the group that controls Fannie Mae and Freddie Mac, the government sponsored enterprises, at a hearing. Read more