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Monthly Archives: November 2010
Fed chairman Ben Bernanke is taking his QE2 outreach on the road to Columbus, Ohio, tomorrow for a ‘conversation on the economy’ with business leaders. It’s supposed to focus on the job market but I imagine it will turn to monetary policy. Businesspeople scheduled to attend include:
Alan Mulally, President and CEO, Ford Motor Company, Dearborn, MI
Samuel Palmisano, Chairman of the Board and CEO, IBM Corporation, Armonk, NY
Curtis Moody, President and CEO, Moody•Nolan, Inc., Columbus, OH
Jeni Britton Bauer, President, Jeni’s Splendid Ice Creams, Columbus, OH
Dwight Smith, CEO, Sophisticated Systems, Columbus, OH Read more
There is inevitably a focus on forecast revisions when any official body produces new predictions about the future. Today the Office for Budget Responsibility, Britain’s new fiscal watchdog, raised the 2010 growth forecast to 1.8 per cent and dropped the 2011 forecast from 2.3 per cent to 2.1 per cent, as the FT reported in recent days.
Robert Chote, the OBR’s new chair, also gave his endorsement to the deficit reduction plan, saying the government had a greater than 50:50 chance of wiping out the hole in the public finances within five years. All of this was incredibly easy to predict.
The interesting decisions taken by the OBR were on its estimate of the fiscal multiplier and its view of the degree of spare capacity in the economy. The first matters because it determines the official view of the effect of budget consolidation on growth. The latter matters because the degree of spare capacity determines the OBR’s view of the size of the hole in the public finances, but has the annoying problem of being impossible to measure. On these two issues, Mr Chote is gung-ho on the multipliers, but displays wise caution on sounding too certain about spare capacity. Read more
Berlin’s approach – and that of the European Central Bank – to handling the eurozone crisis, has come under strong attack from Peter Bofinger, economics professor at Würzburg university and an independent adviser to the German government. Without a profound change of strategy there was a “major risk of an unraveling of the euro area,” he has said.
A “dangerous” adjustment process is being forced on eurozone countries, he told a Financial Times/Credit Suisse conference in Frankfurt. The weakest spot is Greece, which faces rising unemployment and debt levels. As a result, political opposition to euro membership would grow, according to Prof Bofinger. “Sooner or later we will have a discussion in Greece: ‘why not leave the euro?’” A new currency could then be devalued and much of the government’s debt cancelled out. Once Greece had left, others would follow. Read more
When the FT reported that senior Bank of England staff including Monetary Policy Committee members thought Mervyn King, Bank governor, had overstepped the line separating monetary and fiscal policy, the governor was dismissive.
He rounded on my excellent colleague, Daniel Pimlott, who asked him whether he had the unanimous support of the MPC in endorsing the political decision on the speed and scale of the new government’s deficit reduction.
“And, just for the record, I’ve spoken far less on this than almost any other central bank governor around the world; less than Ben Bernanke, less than Jean-Claude Trichet, both of whom have given speeches in great length and regularly. I haven’t spoken on this except in response to direct questions at the Treasury Committee, and when asked by the Coalition. So perhaps we’ll move on to a serious question about the economy.”
There is still little sign of a change of direction in the inflation data. Core PCE in October came in at 0 per cent month-on-month at an annualised rate and 0.9 per cent year-on-year.