Daily Archives: June 15, 2010

James Politi

We’re in the last throes of the battle over financial regulatory reform, and Barney Frank, the chief congressional negotiator on the legislation and chairman of the House financial services committee, today suggested a possible compromise on the Federal Reserve – one that would strip the three banker board members of the right to select regional bank presidents, but would safeguard the position of NY Fed president from political appointment.

It still needs to be voted on by the conference of lawmakers charged with reconciling the Senate and House versions of the bill, so nothing is etched in stone. But his proposal merits attention because it could be an elegant way to resolve the remaining differences.

Gone would be the controversial proposal to make the president of the Federal Reserve Bank of New York a political appointee – which was seen by some critics of the measure as a misguided attempt to politicise the US central bank. Read more

A plan to place the appointment of the New York Federal Reserve president under the jurisdiction of the White House and Senate, which the central bank fears will lead to its politicisation, could be abandoned on Wednesday.

The House financial services committee, chaired by Barney Frank, announced on Tuesday that it would seek to remove the proposal – which was included in a bill passed by the Senate last month – and replace it with an alternative that removes banks’ say in Fed appointments. Read more

Poland’s government can expect tough scrutiny of its efforts to cut the budget deficit from Marek Belka, the country’s new central bank governor.

In an interview with the FT today, Belka says: “I will remind the government to keep its promises.” For Belka, a deficit hawk and a former Polish prime minister and finance minister, even the 3 per cent budget deficit target of the Polish government and many other European countries is not ambitious enough.

“We should not forget that the growth and stability pact talks about 3 per cent not as a goal but as a maximum,” he says. “The real goal is a balanced public sector budget over the economic cycle. Over the longer term we should be aiming at a surplus.”

For Belka, the model of fiscal probity is Germany, Read more

As the US Treasury releases data on major foreign debt holders, the Council for Geoeconomic Studies has a cautionary tale on the foreign ownership of debt. Hank Paulson apparently claims Russian officials approached the Chinese in the summer of 2008 suggesting both countries sell off large amounts of debt issued by Fannie and Freddie. The Chinese apparently declined (see chart).

CGS warns on the dangers of relying on foreign banks to buy one’s debt. In addition to food security and energy security, should we now fret about debt? Maybe the Japanese have the right idea, encouraging their menfolk to buy bonds….

The day after the Office for Budget Responsibility produced its initial forecasts for the UK economy, here are five things that are still worth noting.

1 Funniest treatment of a serious issue
For this you must go to the Daily Telegraph. It splashed this morning on a mathematical error. The paper calculated that public service pensions “commitment reaches £9.4 billion in 2014-15. This equates to almost £4,000 for each of Britain’s 26 million households”.

Any fool with a calculator knows that £9,400,000,000/26,000,000 is £362, which is not very close to £4,000 unless the Telegraph has a very loose definition of the word “almost”.

For those who like analysis, the real question is: why is the OBR forecasting that the cost of pensions for health workers teachers, the police and military is projected to rise from £3.4bn in 2008-09 to £9.4bn in 2014-15?

The Treasury does not have a perfect answer, but it does have a good initial explanation. The rise is

 Read more

Price stability is a function of two things: a central bank’s power to refuse to buy government bonds, and whether a governor can be fired (without cause). These two variables “have all the predictive power for inflation associated with central bank independence,” said the BoE’s Adam Posen in a characteristically punchy speech yesterday.

This simple formula is quite shocking. Many common indicators of independence are omitted. Central bank mandates have little explanatory power. Neither does a bank’s technical independence from the political process; legislation, after all, can be ignored or rewritten. Topically, a central bank’s purchase of government bonds has no impact on inflation, according to Mr Posen, as long as the purchase was voluntary. Indeed, more harm than good may come from a bank obstinately refusing to enter the fray Read more

The Bank of Japan unveiled the framework of its new ¥3,000bn ($33bn) lending programme on Tuesday in its latest effort to spur economic growth to help end deflation.

The temporary lending programme, to be introduced by the end of August, will supply one-year loans at the bank’s overnight rate against eligible collateral to financial institutions to lend to companies with the objective of raising productivity and creating consumer demand. Read more