Daily Archives: March 8, 2011

Ralph Atkins

A warning for central bankers around the world from Masaaki Shirakawa, governor of the Bank of Japan: their bold interventions to help crisis-hit economies risk undermining the vital trust of the public.

In a speech just delivered in Frankfurt, Mr Shirakawa did not single out any central bank in particular – and made many references to the exceptional policy steps the Bank of Japan has taken. But his comments could be seen as applicable also to the US Federal Reserve, the European Central Bank and the Bank of England.

So far, emergency measures such as asset purchase schemes have ”been relatively effective,” Mr Shirakawa said. But he went on: 

Robin Harding

It looks like the Nobel-prize winning MIT economist is going to get blocked by the Republicans again in his nomination to the Fed’s Board of Governors. Either the Democratic majority is going to have to force a vote on this, and see if there are 60 votes to overcome a filibuster, or Mr Diamond’s nomination is going to fall by the wayside. Here is Senator Richard Shelby at the nomination hearing today:

“Today we are considering the nominations of three economists.  Two to be members of the Council of Economic Advisors and one to be a member of the Board of Governors.

 

Robin Harding

Macroadvisers have put out their estimates of the economic effect of passage of the House Republicans $61bn of FY11 spending cuts. They are lower than Goldman Sachs, higher than the Fed, and look pretty solid to me.

  • Our simulation analysis suggests this near-term fiscal drag would reduce annualized growth of real GDP during the second and third quarters of this year by ¾ percentage point, with smaller impacts for a few subsequent quarters.

 

The tests on 88 EU lenders holding 65 per cent of the bloc’s total assets over the coming months are structured to determine how well banks would hold up in a severe economic crisis. Criteria for banks’ passing or failing the test are due to be set next month.

The documents, seen by Reuters, show that the adverse scenarios include: 

In an effort to tame inflation, Vietnam has increased both the refinancing and discount rates to 12 per cent. This is a huge increase of 5 percentage points for the discount rate, which was last raised from 6 to 7 per cent in November of last year. (Note: The chart, right, shows only the refinancing rate, which has been raised by a still-large 1 percentage point.) The statement made no mention of the base rate, which has been used as the benchmark and which appears to remain at 9 per cent.

The move comes hot on the heels of a raft of tightening measures last month, including a 2 percentage point rate rise in the refinancing rate and a 1 percentage point rise in the reverse repo rate

The European Central Bank was guilty of a “major failure of supervision” in not restraining lenders from fuelling the property bubble in Ireland, says a former prime minister.

John Bruton, premier in the 1994-97 centre-right, Fine Gael-led coalition, on Monday accused British, German, Belgian and French banks of “irresponsible lending . . . in the hope that they too could profit from the Irish construction bubble.” Mr Bruton said in a speech to the London School of Economics that banks had “lots of information available to them about spiralling house prices in Ireland”. They were supervised by their national central banks and by the ECB which “seemingly raised no objection to this lending.” 

Markets are showing signs of stress over Portugal following Moody’s three-notch downgrade of Greece as we approach a significant bond auction on Wednesday.

Yields on the ten-year government bond reached 7.65 per cent today – a euro lifetime high – indicating Lisbon would need to pay these sorts of levels if it tried to issue ten-year debt now. (Or Wednesday.) If it goes ahead, the auction is intended to raise €0.75-1bn. This is optimistic, however. The last two auctions raised just €1.25bn between them.

So, assuming Wednesday’s auction raises €0.75bn (optimistic), the IGCP will have raised about €2bn since the start of the year from the market in bonds. Rumour has it that the agency has about €4bn in cash. So that’s €6bn, excluding bills. So what does Lisbon’s debt management agency, the IGCP, need, and by when? The answers are sobering.