Daily Archives: September 27, 2010

James Politi

Better late than never. After months of congressional wrangling, Barack Obama, US president, finally signed into law a bill designed specifically to help small businesses.

Although their importance is sometimes overstated – many small companies make their money off the health of large corporations – they are nonetheless an important source of economic output in their own right, and that energy has definitely been lagging in this economic recovery.

The Obama administration’s answer to the problem is a $30bn fund that allows banks to receive capital injections with increasingly favourable interest rates the more they can prove that they are lending money to small businesses. This should offer some relief against the lack of credit that is hampering some small companies. In addition, there are also some $12bn in tax breaks in the legislation, which will hopefully lead to more hiring.

“So this law will do two big things. It’s going to cut taxes, and it’s going to make more loans available for small business,” Mr Obama said. “It’s a great victory for America’s entrepreneurs.”

But whether or not this moves the economic needle in any way is very much open to debate. Read more

Rising inflation expectations, and ‘steeply’ increasing house prices have encouraged the Bank of Israel to raise its policy rate, continuing a programme of rate normalisation. October’s interest rate – not shown on the chart as we are still in September – will be 2 per cent.

Inflation expectations calculated from the capital market for one year ahead and those of the private forecasters remain in the area of the upper limit of the target inflation range, with the interest rate expected to rise to about 2.7 percent in a year’s time.

Low interest rates are also encouraging housing loans: Read more

Chris Giles

The IMF tends to be a bit sniffy about countries’ economic policies in its annual report on countries’ economies. That often helps finance ministries in domestic political battles to do the right thing.

But with the new government adopting Fund-friendly fiscal policy, the Bank of England insisting it is ready to act either way on monetary policy and a strengthening of financial policies on the way, the Fund has been reduced to a schoolkid’s crush in its latest assessment of the UK economy. I understand from the Treasury that the chancellor is pleased.

Here are some highlights. On the immediate economic outlook:

“This progressive strengthening of private and external demand should underpin a moderate-paced recovery, even as the public sector retrenches.”

Even though the IMF said Read more

ECB bond purchases have moderated again, down to €134m last week from €323m the week before. This is well within tolerance, as the chart shows. So while there may be renewed concerns over the eurozone periphery, the central bank’s covered bond purchases do not yet hint at structural support.

Related post: ECB bond purchases are noise (Sep 14)

Ralph Atkins

The health of eurozone banks faces a fresh test this week when they are due to roll over €225bn in loans, the largest amount at the ECB since early July, when €442bn of one-year loans matured.

The return of liquidity could put upward pressure on market interest rates, while the volumes that are converted into new loans will be an important guide to levels of financial market confidence within Europe’s monetary union. The results could help determine the pace at which the ECB pursues its “exit strategy” to unwind exceptional measures. Read more

Europe’s central banks have all but halted sales of their gold reserves, ending a run of large disposals each year for more than a decade.

The central banks of the eurozone plus Sweden and Switzerland are bound by the Central Bank Gold Agreement, which caps their collective sales. Read more