Daily Archives: June 28, 2010

Robin Harding

It takes some doing to get four or five economists into a speech on reform of the wireless spectrum but Larry Summers, director of President Barack Obama’s National Economic Council, was up to the task.

Here is part of his speech today explaining the president’s plan to make available an extra 500 Mhz worth of wireless spectrum via auctions over the next ten years.

Mancur Olson famously wrote about the tendency of stable democracies to become sclerotic as the accretion of entrenched interests blocked progress. In a similar vein, the great economic historian Alexander Gerschenkron took as his central theme the ironic advantages of what he termed ‘economic backwardness’. Gerschenkron suggested that countries that were late to industrialise were sometimes able to bypass many of the dead-ends and outdated practices that encumbered the early industrialisers. These countries, he stressed, could start with an open canvas free from what John Stuart Mill once called “the slavery of antecedent circumstances”.

The argument here is that because America’s wireless spectrum is already heavily used, it may lose out to rivals with emptier airwaves, which they can quickly use for innovative technologies.

A couple of points. First, an implication of Mr Summer’s logic is that the president is removing a competitive disadvantage here, not creating a competitive advantage. That would suggest this kind of measure is needed to sustain – rather than increase – the trend growth rate.

Second, the link Read more >>

James Politi

Kevin Warsh, a governor at the Federal Reserve, has just delivered a very interesting speech in Atlanta.

His main point is that the Fed could start selling mortgage assets it bought to sustain the housing market during the crisis independently of its moves to raise interest rates, putting him squarely in the camp of inflation hawks on the Federal open market committee. Ben Bernanke, Fed chairman, has suggested that any asset sales should come only after monetary policy tightening underway, but Mr Warsh seems to disagree. “Any sale of assets need not signal that policy rates are soon moving higher. Our policy tools can indeed be used independently. I would note that the Fed successfully communicated and demonstrated its ability to exit from most of its extraordinary liquidity facilities over late 2009 and early 2010, even as it continued its policy of extraordinary accommodation,” he said.

The Fed governor, a former Morgan Stanley investment banker and George W. Bush administration official, also attempted to quash the rising talk that the Fed might actually start buying assets again in response to continued weakness in the housing sector and the sluggish recovery, saying that such a move “should be subject to strict scrutiny”. Read more >>

James Politi

For several months, Ben Bernanke, Federal Reserve chairman, has increased the drumbeat of warnings from the US central bank about America’s soaring deficit.

Although the Fed typically shies away from entering the politically-tricky terrain of fiscal policy, officials also have the duty to speak up if they feel that the fate of the economy could be at stake – and Mr Bernanke has not been shy about pointing out that rising debt levels are a long-term threat to the US economy.

His message seems to be resonating more loudly on Capitol Hill, where conservative Democratic lawmakers joined Republicans in blocking an extension of unemployment benefits and other measures to help stimulate the economy on the grounds that government spending had to stop.

Indeed, Steny Hoyer, the House majority leader and frequent ally of fiscally conservative Democrats, today said America’s debt level was a huge national security problem. “It’s time to stop talking about Read more >>

If rumour is true, things are looking up for the 100,000 Hungarians more than 90 days past their mortgage due date. What’s left of Hungary’s international loan may end up in a mortgage-relief fund, intended to allow people to rent their homes, reports Reuters.

The new fund – reported in daily Magyar Hirlap and not yet confirmed by officials -  would buy property (that would otherwise stand to be repossessed) from commercial banks, allowing mortgage-holders to rent the property. The paper also said that the bad loans of households would be replaced by state loans, though it did not name a source. Read more >>

New faces and some brand new roles announced today by the Central bank and Financial Supervisory Authority of Ireland:

James Politi

Finally, there is something to celebrate in US economic data.

Last week brought us a downbeat policy statement from the Federal open market committee, which followed a string of unimpressive, if not discouraging, data on the US recovery. And today in the markets, the 10-year treasury yield fell to 3.04 per cent, its lowest level in more than a year and a clear sign that bond investors believe in very slow economic growth.

But let’s not despair: the commerce department’s monthly gauge of personal spending, income and saving today performed better than expected.

The good news is on two fronts. Personal spending, which was flat in April, moved up 0.2 per cent, as income increased by 0.4 per cent - a sign that albeit modest job creation is beginning to translate into more confident behaviour by American shoppers.

Meanwhile, the personal saving rate, Read more >>

Ralph Atkins

It is not just financial markets that have become more volatile in recent years. So has the economic mood in Germany. Since the start of the football world cup earlier this month, the apparent upswing in optimism has been extraordinary.

The German team’s success – so far – in South Africa is part of the story (even if it has relied on a disallowed England goal). The mood is bearing an increasing resemblance to 2006, when Germany surprised the world with the relaxed efficiency with which it organised the last football world cup.  Then the atmosphere was summed up in the feature length documentary “Deutschland. Ein Sommermärchen” (Germany: a summer’s tale), which became a cinema hit.

But Germans also believe their economy is back on a roll. This morning, Handelsblatt, the German business daily, led its front page with a story on “the new German economic miracle,” which drew together the latest news on booming exports, rising corporate profits and improving labour markets. The contrast with the mood even a few months ago, when Greece’s debts were about to bring down the whole of the eurozone, could hardly be greater. Read more >>

Fiscal austerity is needed; monetary tightening might be needed sooner than thought; and capital controls won’t work in the medium-term. Cheerful prognosis courtesy of the Bank for International Settlements, which has just released its Annual Report.

Chapter one is candid on the threats: “The combination of remaining vulnerabilities in the financial system and the side effects of ongoing intensive care threaten to send the patient into relapse and to undermine reform efforts.”

Stimulus is dead, long live austerity, says the Bank. In line with the G20: “The limits to fiscal stimulus have been reached in a number of countries. Immediate, front-loaded fiscal consolidation is required in several industrial countries.” The policy is not without its risks, of course: Read more >>

After 14 consecutive rate cuts, Alexei Ulyukayev, first deputy chairman of the central bank, says the economy no longer needs the stimulus of rate cuts. Rates may be held for several months, he said. The announcement follows a 1 percentage point cut less than a month ago, taking the refinancing rate to 7.75 per cent. Rates have been cut a total of 525bp from 13 per cent in April of last year.

“On the one hand, inflation is still … easing compared with last year. On the other hand, there is a recovery in the economy, which is becoming more sturdy — this relates both to lending and to industrial output,” Moscow Times reports Mr Ulyukayev saying. Read more >>