Today’s news that durable goods orders jumped by 2.9 per cent in April, which was almost double the rate expected by economists, was the latest reminder that US exporters are among the stars of this recovery.
Coming out of the global recession, demand for big-ticket items including cars, aircraft, and heavy equipment with a long shelf life has been steadily picking up not only in the US, but also in many of America’s largest export markets. So to what extent will the eurozone crisis affect their competitiveness, as the dollar strengthens against the euro and US products become more pricey? Furthermore, to what extent will slower growth and fiscal retrenchment in the eurozone undermine demand for US goods? Read more
Reuters has an interesting interview with the Nigerian central bank chief warning that the government should not count on oil prices of more than $60 per barrel. His comments come as the country’s legislature is currently considering cutting its estimated price of oil from $67 to $55 – which would slash some 15 per cent from the country’s budget, even before cutting estimates for output. Worth a read.
Nigerian central bank chief Lamido Sanusi added his weight on Wednesday to discussions on a review of the 2010 budget, questioning current assumptions both for the price of oil and on domestic output levels. Read more
Why no public/private solution?
The Congressional Oversight Panel convened a hearing to speak with the lawyers from the Federal Reserve and NY Fed (and others) about the decision to bail-out AIG.
By all accounts, the Fed was blindsided by AIG’s liquidity situation. Though Michael Finn, the Office of Thrift Supervision’s northeast regional director, said there had been an OTS/NY Fed staff meeting to discuss the OTS’s concerns about AIG’s liquidity, representatives from the Fed and the NY Fed said they were unaware of the risks AIG posed to its counterparties until the Lehman Brothers weekend. Sarah Dahlgren, an executive vice president of the NY Fed, said that, until a couple days before the group’s collapse, it was not believed to be one of the top ten risks to counterparties.
And even then, AIG seemed to be a problem with a private sector solution. Read more
Much secrecy surrounds US Treasury secretary Tim Geithner’s trip to Frankfurt this evening, after his London stop-off. The European Central Bank is not saying when or where he will meet Jean-Claude Trichet, ECB president (although it is safe to assume Mr Geithner will not be enjoying the local beers and sausages). Instead, the theatre will be left until Thursday, when Mr Geithner will talk to journalists in Berlin.
But this does not mean it will be a tough meeting. When, earlier this month, the US was urging a vigorous European response to the eurozone debt crisis, Mr Trichet was on message and the ECB president has played a big role in cajoling the German government into supporting effective emergency measures. Mr Trichet, a former French Treasury director, thrives at times of crisis – even if some on the 22-strong governing council have worried about the loss of the ECB’s reputation for conservative, gradual decision making. Read more
Martin Wolf’s column today is brilliant even by his normal high standards. This won’t make sense unless you read it but his conclusion is:
What is the moral of this fable? If you want to accumulate enduring wealth, do not lend to grasshoppers. Read more
Finance Minister to Bulgaria: You want the euro? You can’t handle the euro.
Seems the EU’s poorest country is facing stumbling blocks on its way to the eurozone. Read more
Today’s speeches by Fed chairman Ben Bernanke and BOJ governor Masaaki Shirakawa are available on their respective websites.
There was also a brief Q&A session, however, during which Mr Bernanke was asked to comment on Olivier Blanchard’s suggestion of a 4 per cent inflation target to increase the scope to cut rates in a crisis. I’ve transcribed his response below: Read more
Both Federal Reserve chairman Ben Bernanke and Bank of Japan governor Masaaki Shirakawa were speaking today at the BOJ’s annual international conference.
Mr Bernanke’s speech was a by-the-numbers defence of central bank independence. It was interesting that he felt the need to mount it but there wasn’t much new in what he said. Read more
Is this the beginning of a Federal Reserve versus regional bank split?
Three regional bank presidents indicated they thought the discount rate should be increased by 25 bp to 1 per cent, according to the minutes of the discount rate meetings, released today. None of the Fed governors voted for the action and the nine regional bank presidents also recommended against increasing the rate. Read more
Nope, I won’t be quoting bail-out critics. There was literally a theft.
Via Reuters Read more
In which US cities are home prices likely to fall?
One measure is to look at the amount home prices have fallen, relative to the increases in their rental prices. Moves in rental prices tend to represent fundamental changes in the value of a property (people are paying only what it’s worth to stay there) rather than bubble-induced speculation about the future value of the property. In markets where there are bubbles, eventually, home prices should fall back in line with rental prices. Read more
The Brookings Institution and the Financial Times are today launching a new index to take the pulse of the world economy. It is a wonderful online tool which allows the user to look at trends in the world economy, in each G20 country, and in its component parts all on a consistent basis.
Devised principally by Eswar Prasad, professor at Cornell University and Senior Fellow at the Brookings Institution, the index show how emerging markets are leading the global recovery, how growth in trade and industrial production has risen back to pre-crisis levels, while employment still lags. It also shows how finanical indicators were leading the real economic recovery until the past month, when they have dived. Read more
The National Bank of Poland today announced (as expected) that it would hold its policy rates for the eleventh straight month.
No surprise, though the country is suffering with above target inflation. But few European countries (notably Norway) have raised rates, and the eurozone crisis is causing others, who may have been on the cusp of following suit, to hold off. Read more
That’s the amount the Congressional Budget Office estimates the Federal Reserve’s credit programmes cost US taxpayers.
Of course, that’s not on a cash basis. The CBO has previously estimated that the Fed will be paying the Treasury around $70bn a year in 2010 and 2011 (compared to payments of between $18bn to $34bn from 2000 to 2008) because of the expected higher yields of the riskier-than-normal assets the US central bank bought to stabilise the economy during the crisis.
But, of course, there is risk. They might pay out less. They might not pay out at all. And, in many cases, the price the Fed paid for them wasn’t discounted for the associated risk. Now the CBO has estimated the amount the Fed overpaid – $21bn. Here’s there breakdown. Read more
The Federal Reserve released its annual monetary policy report to Congress today.
It’s good reminder of the year-that-was and provides some modest new insights into the Fed’s plan for the coming years. Here are the highlights:
1. The wealth catch. The Fed reiterated in its annual report that “households’ desire to rebuild wealth” will probably be one of the headwinds to the recovery. And wealth rebuilding – at least in the form of a higher savings rate, has yet to start in earnest. While personal savings as a per cent of disposable income are off their lows (see the graph from the BEA) they’re well below their pre-bubble levels (and trillions in wealth have been lost since then). On the upside at the end of the third quarter, the ratio of debt service payments to disposable income had fallen back to their 2001 levels (See graph from Fed’s report). It’s a positive sign, no doubt, but the figures don’t break out how much debt service people aren’t paying because they’ve lost their houses to foreclosure, and how much represents genuinely lower payments.
2. The report said that ABS backed by private student loans was almost entirely dependent on Talf financing. At first blush, this might seem obvious – you can’t repossess someone’s college degree, so the loans have no practical collateral. But it’s extremely difficult to avoid paying your student loan debt in the US – even in bankruptcy, a former student typically can’t be relieved of their loans. But a quick glance of Sallie Mae’s quarterly report shows that – though people may remain saddled with the debt, many still aren’t paying – some 12.2 per cent of loans through private education loan trusts were expected to default from settlement to maturity.
3. It ain’t over til it’s over. Read more
What timing. On the day that the new coalition government starts down the road of rapid deficit reduction, Adam Posen, external member of the Bank of England’s Monetary Policy Committee, throws a well-aimed grenade into the mix. The questions he asks should make everyone pause for thought.
Today, the new government was displaying its new fiscal probity and claiming this was the route to economic happiness. George Osborne, chancellor, said: Read more
The Bank of Japan reiterated this morning that the country’s economy was beginning to “recover moderately, induced by improvement in overseas economic conditions.”
Changes in Japan's real GDP, compared to other recessions. I added in the red line – an approximate update from the GDP figures released last week.
The travails of the euro and the US’s soft-pedalling on the renminbi having emptied Tim Geithner’s trip to China of much potential drama, the revaluation lobby back in Washington have tried a new tack. Charles Schumer, senator for Stronger Renminbi, and some of his colleagues have demanded that Beijing authorise the release of the staff report which forms part of China’s annual “Article 4″ IMF healthcheck for last year and includes the fund staff’s views on the exchange rate. More than 80 pc of IMF member countries publish staff reports, but China, as it is entitled to do, is not among them. It releases instead something at one remove, a rather more opaque summing up of the IMF executive board’s discussion of the report.
The IMF has been embroiled in these rows before, and for a while went so far as to refuse to discuss the Chinese economy in the executive board to avoid disputes. But it has also stated pretty clearly that it thinks the renminbi should be liberalised, and still not much has happened. While it’s good to have US senators pressing the cause of transparency within the IMF, with whatever motive, it’s pretty unlikely that what the fund thinks is going to tip the policy balance in Beijing.