The Beige book backs Bernanke. The economy’s improving, albeit modestly, according to the aggregation of anecdotal evidence of economic activity in the 12 Federal Reserve districts. No big shockers in the report, but a few interesting items:
- BP spill. Tourism’s up almost across the board, but the oil spill may be a drag. Atlanta reported “that the Gulf oil spill and Tennessee floods had already resulted in some vacation lodging cancellations. The potential exists for a much greater impact, although contacts are quite uncertain as to the ultimate effects.”
Ben Bernanke failing to blaze like a news comet in front of the House budget committee just now: US recovery steady but unspectacular; limited impact from Europe crisis so far; need to do something about the deficit in the medium term. The usual. One query came up from Paul Ryan (R-WI), the committee’s hawk-in-residence: why is gold hitting an all-time high? Is it a general flight from fiat currencies because investors think central banks are going to inflate the debt away?
Bernanke, predictably, thought (i.e. promised) not, offering the observation that gold was out there on its own “doing something different from the rest of the commodity group” and confessing that he didn’t fully understand movements in gold prices. Looking at long-term yields almost across the board, except for the default risk countries like Greece, it’s hard to argue he’s wrong. There are some anomalies that encourage investors to hold government debt, like the UK pension regulations which created artificial demand for gilts for a long time (one of the reasons the Debt Management Office was able to flog so many long-dated bonds), but not to this level. Gold still looks like the outlier, not the bellwether.
The United Arab Emirates plans to raise $2.7bn within a year of offering Sharia-compliant certificates of deposit. The deposits will be available from the UAE central bank by the end of the year, if all goes to plan. Business Week reports:
The U.A.E. is working to pass a law establishing a federal debt market by the end of the year, central bank Governor Sultan bin Nasser al-Suwaidi said in March. That will enable the central bank to issue Treasury bills, bonds and Islamic notes.
Amid great confusion, the suspended Venezuelan forex market will reopen today, under far greater control from the central bank. Quite how the trading band will be determined and defended is not known.
The unofficial “parallel” forex market was suspended on May 19, with authorities blaming speculators and enemies of Hugo Chavez for the depreciating bolivar and rising inflation. This has left importers struggling for a fortnight. As the FT’s Benedict Mander put it: “One is left wondering why they couldn’t have decided how the new system was going to work before casting out the old.”
The market is expected to work as follows:
This is the question I do not want to have to ask George Osborne on Budget day, 22 June. As the chancellor will know, it is also the question he repeatedly asked the previous chancellor, Alistair Darling, each time Mr Darling refused to divulge the implications of the then government’s budgetary forecasts for spending departments.
Mr Osborne asked the question last December after the pre-Budget report.
Mr Osborne asked the same question in Parliament in the debate on the March Budget.
It was the same question Mr Osborne asked on the radio last September when he revealed a leak of internal Treasury documents. “It’s about trust and honesty,” Mr Osborne said.
And in March he wrote to Sir Nicholas Macpherson, the permanent secretary to the Treasury, to explain why its projection for departmental spending was vital to a public debate on the public finances.
“Given the absence of a spending review, this information is the very least that should be provided in order to facilitate proper scrutiny of the government’s plans at the election”.
Before being in government, it seems that Mr Osborne was almost obsessed about getting an answer to the DEL/AME split question. So, a simple test for the Budget will be the degree of transparency Mr Osborne introduces to projections for public spending. Given this past commitment to trust and transparency, I fully expect the following:
- The chancellor will publish Treasury projections for total government spending
- The chancellor will publish projections for debt interest
- The chancellor will publish projections for other spending over which he has no control such as accounting adjustments
- The chancellor will publish projections for social security bills on the basis of unchanged policies
- The chancellor will publish the implications for the former for departmental spending totals.
Anything less than this would
What can we expect from Thursday’s European Central Bank governing council meeting in Frankfurt? These days there are lots of possibilities – but that does not necessarily mean much will happen.
A change in the ECB’s main interest rate appears highly unlikely. Council members appear to have agreed that the current 1 per cent is the floor – although they have encouraged market interest rates to fall lower. One good reason is that revised ECB forecasts could well show eurozone inflation returning next year back within its target of an annual rate “below but close” to 2 per cent, on the back of higher oil prices and the effects of a weaker euro. The ECB is wary about the pace of the economic recovery – but there are no signs yet of a second dip.
No doubt there will be lots of discussion about the ECB’s government bond purchases, which reached €40.5bn at the end of last week. The Bundesbank and German media are alarmed at the
Some of the broader measures of Japan’s money supply are now rising at their fastest rate since the current series started in 2003.
In the few days since Naoto Kan took over as Japan’s prime minister an economic narrative has emerged: he’s a deficit hawk who’s going to put up consumption tax and end Japan’s huge and enduring budget deficits.
Mr Kan’s comments and actions have certainly helped. On Tuesday he said that “rebuilding the nation’s finances is a prerequisite for growing the economy,” and he has appointed Yoshito Sengoku as chief cabinet secretary and Yoshihiko Noda as finance minister, both reputed to be deficit cutters.
But hang on a minute. Mr Kan’s focus on Japan’s debt is a clear break from previous prime ministers, but I think it’s only part of the story, and I wonder whether it’ll survive an encounter with the enemy.
Only part of the story
Mr Kan has just ended five months as finance minister. The main feature of those five months was Greece’s debt crisis. It’s hardly a surprise that Japan’s debt is at the top of his mind.
Fiscal policy is hardly the defining issue in Mr Kan’s career, however