Daily Archives: October 20, 2010

Robin Harding

Attention Federal Reserve banks: when it is your turn to compile the Beige Book, please help us lazy reporters out and include a summary of whether there was contraction or expansion in each Fed district.

In September’s Beige Book the first paragraph included this:

Economic growth at a modest pace was the most common characterization of overall conditions, as provided by the five western Districts of St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The reports from Boston and Cleveland also pointed to positive developments or net improvements compared with the previous reporting period. However, the remaining Districts of New York, Philadelphia, Richmond, Atlanta, and Chicago all highlighted mixed conditions or deceleration in overall economic activity.

Whereas in October all we got was this

Imagine that in January, you will become your country’s chief firefighter, but that the very best reports of smoke currently available are unreliable and intermittent. Scared?

Well, the European Systemic Risk Board is due to launch in January, and the ECB’s vice president has just pointed out that, on current data availability, the Board would struggle to do its job. That job, as a quick reminder, is to “assess and prevent potential risks to financial stability in the EU.” No small task, with markets febrile and bank bail-outs still in vogue.

The ECB has a fair bit of data already, but it is geared towards monetary policy rather than macro-prudential regulation. So, what’s missing? 

Chris Giles

As far as Britain’s economy is concerned, the spending review, just published, changes little. There was the “reprofiling” predicted first in the Financial Times, but it amounted to only £2bn a year of additional gross capital expenditure. This will not make the difference between stagnation and recovery. The Treasury is right: there is no Plan B.

The big news is pretty much as expected:

  • It’s not a good time to be working in the public sector. You have a good chance of losing your job, you will have a pay freeze over the next two years and you will see your take-home pay cut by an increase in your pension contribution averaging 3 per cent.
  • The chancellor has found another £7bn of further savings from social benefits, which have limited (to some extent) the cuts to public services.
  • After this small mitigation of cuts, departmental budgets will still face the most severe constraints in the post-War period. These will be noticed. They act to bring down the deficit significantly so that public borrowing is expected to be 2 per cent of national income by 2014-15.
  • Health, schools and overseas aid have been relatively protected. Recipients of benefits, public sector employees and local government are the big losers.
  • The government claims the measures are fair. Because fairness is in the eye of the beholder, it has chosen a method of presenting fairness to give this result. This is policy-based evidence-making on heat.

What has really saddened me is the presentation of the spending review. 

Chris Giles

The recent battle of words on the MPC translated into a 1-7-1 vote at the October meeting with Adam Posen voting to increase quantitative easing by £50bn over an unspecified period and Andrew Sentance continuing to vote for a rise in interest rates to 0.75 per cent.

Between these two now entrenched positions, the rest sit in no-man’s-land, unsure whether the risk that high inflation will dislodge expectations is greater than the risk that significant spare capacity will bring medium-term inflation sharply lower.

The bias of this mushy middle was slightly dovish:

“Some of those members felt the likelihood that further monetary stimulus would become necessary in order to meet the inflation target in the medium term had increased in recent months. But, for them, the evidence was not sufficiently compelling to imply that such a course of action was necessary at present.”

What will be fascinating is