The terror of bad economic policy.
Some 79 per cent of Americans think the budget deficit is an extremely or very serious threat to the future of the country: the same percentage as for terrorism, according to a USA Today/Gallup poll.
US residents also tend to prefer Republicans to Democrats when dealing with these issues.
Is this preference fact-based? Are Republicans, in fact, better than Democrats at keeping America’s shores safe and its budget in line?
There’s no easy way to measure terrorism, but budget deficits are quantifiable. So who’s done a better job balancing them?
Here’s the chart for the last 40 years.
The Bank of Italy said yesterday its debt interest payments were subject to great uncertainty, but be reassured: on the same day UniCredit published a report entitled “Why Italy is different”.
UniCredit’s reasoning, in a nutshell, was this:
- Italy’s growth in Q1 outperformed that of its peers, though is likely to slow;
- External imbalances affect Italy less than its peers, though dismal exports mean structural reform is required to address issues of competitiveness;
- Public finances and pensions appear in relatively good health;
- Relatively low private sector leverage;
- and national debt with longer maturities and high domestic consumption.
Italy’s economic health matters: the eurozone depends upon it, argues the report:
Italy is probably the “swing factor” in the current European crisis: as the largest of the vulnerable countries, and the most vulnerable of the large, its ability to withstand current market tensions will likely determine whether and how the eurozone can weather the storm.
Italy accounts for nearly one fifth of
Fans of Donald Kohn, second in command at the Federal Reserve, have a temporary reprieve today. Mr Kohn, who was slated to leave the Fed in a couple weeks, will now stay on perhaps until September.
Here’s the Fed’s statement:
Vice Chairman Donald L. Kohn announced on Friday that, at the request of Federal Reserve Chairman Ben S. Bernanke, he plans to remain on the Board until a new Governor is appointed but to leave no later than September 1. He had announced in March that he intended to resign at the expiration of his term as Vice Chairman on June 23, 2010. While he remains on the Board as a Governor, he will continue to participate in all Board and Federal Open Market Committee meetings.
Janet Yellen, now San Francisco Fed president, was nominated by President Barack Obama back in April to fill the soon-to-be vacant slot, but so far, there have been few visible moves to get the Senate confirmation process in motion – and Republicans have been actively obstructionist in confirming Obama picks to any government post.
George Osborne won immediate plaudits for the early establishment of the Office for Budget Responsibility to take the politics out of government economic forecasts. The hyperbole that surrounded the announcement was overdone, but the new OBR should increase trust in government forecasts and underpin UK sovereign debt markets if its performance in practice meets its promise. Monday marks its first test.
Sir Alan Budd, OBR chairman, needs to move from the easy task of reveling in the OBR’s establishment to the more difficult task of building long-term credibility for the new body and demonstrating it has not been captured by the Treasury in its short life.
Note that Monday’s announcement is a new economic and public finance forecast, based on unchanged policies. It will not include the OBR’s assessment of whether the government’s tax and spending plans give ministers a 50:50 chance of meeting their own ambitions for the public finances.
If the Office meets or exceeds the following basic requirements on Monday, it will have got off to a good start.
- Clarity on forecast changes
The OBR must make it absolutely clear why forecasts for the economy and growth are different from those in the March 2010 Budget. This means deconstructing forecast differences into changes in assumptions and new information received. Any merging of the two would be a disaster for transparency. The forecasting changes for growth must flow clearly into forecasting changes in tax revenues and public spending on items linked to the health of the economy such as social security.
- Publish its assumptions on the link between growth and the public finances
The Treasury has been keen to speak privately over the past year or two about how it decoupled its growth forecasts from its public finance forecasts. Sensible though this was as ammunition for the Treasury in the fight between Gordon Brown and Alistair Darling, it was no way to run a government or a forecast.
Jean-Claude Trichet headed off to Vienna after his Frankfurt press conference yesterday to give a dinner speech to the banking industry’s International Institute for Finance. His topic was “the changing world of global governance”, which was an opportunity to stress the importance of co-operation between policymakers. But I got the feeling the ECB president was also keen to take a shot at those in on the other side of the Atlantic who like to tell Europe what it should be doing. “Europe has been remarkably effective during the 2007/2008 financial crisis,” he argued. “Not a single systemically important institution has failed, not a single recovery programme has been refused by any parliament.” Surely, he wasn’t taking a dig at the US, Tim Geithner etc, was he?
Price stability is no longer a sufficient target for central bank policy, according to South Korean central bank governor Kim Choong-soo. “Perceptions as to the desirable role of the central bank are now shifting greatly,” he said at a speech commemorating the 60th anniversary of the bank.
Changes ahead for the Bank include expanding its remit to include financial stability; fostering closer ties with other central banks; and calling in consultants to help with the restructure. A key task was to work out how the goal of financial stability would fit with the “prime” goal of price stability.