Daily Archives: January 5, 2011

James Politi

Gene Sperling, the adviser to treasury secretary Tim Geithner, appears increasingly likely to be appointed director of the US National Economic Council on Friday.

In recent days, his candidacy has risen in standing as the prospects for Roger Altman, chairman of Evercore, the investment bank, and Rick Levin, president of Yale University, appear to be waning. The White House still hasn’t confirmed that a decision has been made however. Read more

James Politi

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, has just offered a tutorial of sorts on the merits of dissenting opinions within the Federal Open Market Committee. In a speech, Mr Hoenig argues that the role of dissents in formulating policy is misunderstood, with too many believing that they are counterproductive and confuse the central bank’s message. On the contrary, Mr Hoenig says dissents are a very good thing, because they increase transparency, boost the institution’s credibility, and, incidentally, have been used previously – most notably in the 1980s when Paul Volcker, then Fed chairman, came close to losing a vote.  Read more

Minutes just out show that South Korea’s last rate rise decision was unanimous as central bankers worried about inflation gathering pace. The country is rumoured to be buying dollars to weaken the won, which reached a two-month high yesterday.

Upward pressure on the won came courtesy of “offshore players”, the WSJ reports. Could these be the same foreigners Chile has blamed for its appreciating peso? The country’s finance minister said openly yesterday that the Fed’s $600bn stimulus programme was strengthening the peso, as he welcomed central bank intervention to try to weaken it.

China has openly and repeatedly made the same accusation, warning of QE2-fuelled asset bubbles. Thailand is rumoured to be intervening to weaken the baht, and Venezuela and Viet Nam have both recently devalued their currencies. Read more

Rumour has it that the ECB is buying Greek bonds again. Bloomberg news wire quotes a single person with knowledge of the transactions, who said purchases were mostly in maturities of five years.

The news comes as yields on 10-year Greek government debt surpass the record levels last seen in the May bail-out. Back then, yields spiked from about 8 per cent to more than 12 per cent, before falling equally sharply back following bail-out talks. This time, yields have grown slowly and steadily (see chart). These yields are what the market charges on reselling government debt: they are not the actual cost of debt to the government as at auction. In the absence of continuous auctions, however, they are a good proxy.

The cost of debt in the four “peripheral” countries – Greece, Portugal, Spain and Ireland – all reacted strangely to Ireland’s bail-out. The bail-out was intended to reassure markets, but yields did not fall as much as expected and since then have risen in all cases. Only in Spain are yields now tempering. Read more

Indonesia’s inflation is running 2 percentage points above target and 1 point above tolerance, but the central bank has still decided to keep rates on hold.

Consumer prices rose 6.96 per cent in the year to December, well above the 2010 target of 5 per cent ± 1 per cent. Bank Indonesia will not want to encourage further inflationary capital inflows by raising rates, but while rates are kept at the record low of 6.5 per cent, consumers are encouraged to borrow and spend. Read more

European economic policies will come under more scrutiny from this month when the European Central Bank takes the lead in a new financial police authority with whistle-blowing powers to prevent future crises.

The European systemic risk board (ESRB), chaired by Jean-Claude Trichet, ECB president, will have powers to issue warnings and recommendations when it sees threats to economies or financial systems. But it could have a tough time proving that such limited powers, wielded by European officials, can prevent financial market turmoil on the scale seen in the past three years. Read more