… and the Aussie dollar is set to crash, relative to the greenback. This is the surprising implication of analysis from a former chief economist at Wamco.
Scott Grannis has essentially compared currency movements with the ‘true’ value of that currency. He’s done this by picking one exchange rate he considers fair, and then adjusting both currencies for inflation and working out the resulting exchange rate over time. Read more
By Michael Mackenzie in New York
The two big clearing banks in the US tri-party repurchase or “repo” market will no longer bear significant credit risk to dealers under proposals made by an industry taskforce and endorsed by the Federal Reserve Bank of New York. Read more
Staff at the Federal Reserve Bank of San Francisco, home to Janet Yellen, the freshly-nominated Fed vice-chair, have just offered some fresh insight into their thinking on the shape of the US recovery.
In a 4-page letter published today, researchers Justin Weidner and John Williams took a close look at the pace of economic rebounds from previous recessions, starting in the post-second world war period, and conclude that this time around, US growth will reach nearly 4 per cent this year, and about 3.5 per cent next year. Read more
The European Central Bank has announced it has bought €16.5bn worth of eurozone government bonds so far as part of the eurozone rescue plan announced last week, and unveiled how it will make good its pledge to counter any inflationary side effects.
The scale of the ECB’s intervention was at the low end of analysts’ expectations, but still broke new ground for the guardian of the euro currency, which had previously forsworn buying government bonds outright.
The move split the ECB’s governing council amid fears the move would undermine polices aimed at ensuring price stability. Read more
The hyperbole over the new Office for Budget Responsibility is overdone. It is welcome because it removes some of the temptation for chancellors to massage the forecasts. It should add something to confidence in UK sovereign debt markets. And it should help restore some trust in government. But I will spend a little longer on criticisms, since the welcome aspects were covered in depth today in the FT’s interview with George Osborne, the chancellor.
The Financial Times reported this morning that the new Con-Lib government has established the Office for Budget Responsibility in order, as Mr Osborne put it, to “change the way Budgets are made forever, [and] … restore confidence in the numbers that underpin the budget”. Er.. not quite.
- The OBR does not stop politicians misrepresenting fiscal policy. I am not often shocked by the words coming out of politicians mouths, but I was genuinely surprised and disappointed by both Mr Osborne and David Laws, chief secretary to the Treasury, on the morning they were announcing what is billed as a revolution in transparent government.
Austerity round-up Read more
European Bank of Reconstruction and Development shareholders have chosen to increase the Bank’s capital by 50 per cent to €30bn. Expecting “continued high demand for the Bank’s investments,” governors have approved the measure, setting the scene for more investment over the next five years. Indeed, investments from 2010 to 2015 are expected to exceed all investments made since the Bank’s inception in 1991 (see chart).
€9bn of the additional €10bn funds will come in the form of ‘callable capital’, making this decision essentially a pledge by the 63 owners to cough up the cash should they need to. More than 50 per cent of current subscriptions come from six countries: US, France, Germany, Italy, Japan and the UK. Read more
From Man in the News: Jean-Claude Trichet.
Frenchman Jean-Claude Trichet has adopted a German saying of late: Wir teilen ein gemeinsames Schicksal. It means: We share a common destiny. In a crisis, Mr Trichet “is one of the people you want to have around”, says Goldman’s Jim O’Neill. “You certainly don’t want an orthodox Bundesbanker type because they don’t understand the subtleties – or don’t care.” Read more