Finally, here is the Treasury report on international exchange rate policies.
Originally, the document had been scheduled to be released in mid-April, but it was delayed by the US government as it attempted to negotiate an appreciation in the renminbi while holding off mounting pressure to punish the Chinese from infuriated members of Congress.
As expected, the US is once again not naming China a currency “manipulator”, but only stating that its currency is “undervalued”. That outcome was a foregone conclusion since June 19, when China depegged from renminbi from the dollar, the first step towards appreciation.
In a statement yesterday, Tim Geithner, US treasury secretary, was cautious about the implications of the move. “What matters is how far and how fast the renminbi appreciates,” he said.
David Levy, chairman of the Jerome Levy Forecasting Center, based in the northern suburbs of New York, is described on his website as the world’s foremost expert in applying the “profits perspective” to economic analysis.
It’s not entirely clear to me what that means, but he claims to have a reasonably good track record.
His latest report, released today, seeks to dismantle the argument being made by many US economists and politicians – as well as the Federal Reserve – that the US budget deficit needs to be kept under control and ushered towards a more sustainable path.
Calling it “sovereign debt hysteria”, he proceeds to offer several reasons why mounting debt won’t be a problem for the US economy, even if it rises much higher than its current level of 62 per cent of gross domestic product. Below are his key points:
Auction results imply falling 10-year inflation, down from 2.2 per cent in April to about 1.65 per cent now. Market inflation expectations can be worked out by subtracting the inflation-protected yield from the regular yield, since this is the only variable between the two bonds.
Today’s 10-year TIPS auction had a median yield of 1.25 per cent, 1.9 percentage points lower than the last regular 10-year yield of 3.2 per cent in June. The next regular 10-year auction is in a few days, on July 13. Assuming yields continue to fall as they have done in the past two auctions, the difference between the yields would be 1.65pp. So the market’s inflation expectations are probably somewhere around 1.65 per cent.
The latest warning on the fate of the global economic recovery today came from the International Monetary Fund, which rather ominously stated that the risks of a slowdown have risen considerably in recent months.
In that context, I came across a fascinating – and worrying - note by John Makin, a visiting scholar at the American Enterprise Institute, a Washington think-tank, and former consultant to the Treasury department.
Mr Makin, who is also a partner at Caxton, the hedge fund, is firmly in the camp of economists who believe deflation is emerging as the biggest danger to the economic recovery, and he eloquently lays out his case.
Breathtaking research from an ECB paper, stacking up the measures taken and bodies set up by central banks around the world. An invaluable resource – high praise to authors Stéphanie Marie Stolz and Michael Wedow.
For data junkies, see tables on pages: 25, 30, 37 and 58.
Another hold, another short, sweet statement:
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 1.00%, 1.75% and 0.25% respectively.
A short and sweet statement from the Bank of England (well, there isn’t much to be said):
Malaysia’s central bank has raised the overnight policy rate again, by 25bp to 2.75 per cent. The floor and ceiling rates of the corridor for the OPR have been correspondingly raised to 2.50 percent and 3.00 percent respectively. Bank Negara Malaysia described their policy stance as “accommodative and supportive of economic growth”, and cited steady recovery and moderate inflation as reasons behind the move.
We’ve got details on purpose and sample, but methodology is thin on the ground. See the table: there are two scenarios and at least five variables, but only one of the ten resulting methods is supplied. Sigh.
The aim of the tests are described in the statement:
1) to assess the banks’ ability to absorb further shocks on credit / market risks, including sovereign risks;
2) to assess current dependence on public support (read: can we exit safely yet?)