Monthly Archives: September 2012

If you want to cause major discomfort at a meeting of European policymakers, just try mentioning “OSI”, or official sector involvement. The notion that official creditors may need to accept a reduction in their contractual claims on Greece is anathema to many. Yet the issue will surface repeatedly, given the current overly-constrained approach to solving Greece’s deep problems. Continue reading »

The US central bank has now embarked on a very dangerous strategy, buying $40bn of mortgage-backed securities each month for an indefinite number of years. That could lead to high inflation, to destabilising asset bubbles and to legislative changes that limit the Federal Reserve’s future powers. Continue reading »

Poverty is on the retreat. Despite the global economic downturn, the number of people living in extreme poverty has dropped in every region of the world for the first time since record keeping began. Though progress on the UN’s Millennium Development Goals has been uneven, we should be heartened that we have already reached the first of these eight goals – that of halving the number of people living on less than $1 a day. However, we risk allowing these gains to come undone if we fail to strengthen the rule of law in developing countries.
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It would seem obvious that both sides have more to lose in disrupted economic relations than they could gain from controlling a few mostly inconsequential islands. But if combative rhetoric and political grandstanding prevail, then the economic calculus may shift from protecting mutual benefits to assessing which side will be hurt more if economic pressures are brought to bear. Continue reading »

It is now over 30 years since Paul Volcker came into the US Federal Reserve and unambiguously put crushing inflation at the top of his agenda. What followed was a period of price stability – by the middle of the last decade, many people had bought into the concept of “the great moderation” and the “Goldilocks” economy (not too hot, not too cold).
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One of the few issues on which Barack Obama and Mitt Romney agree is the need for tax reform. Since the last overhaul in 1986, loophole after loophole has been added, producing a tax system that is complex, unfair, inefficient and detrimental to growth. Today, tax reform must also address three major challenges: escalating federal debt, rising income inequality and intensifying global competition. Continue reading »

Eurozone leaders have decided to create a banking union to help break the vicious circle between banking fragility and state insolvency. This is a bold response to the growing financial fragmentation of the single currency area. Discussions on concrete proposals for a single supervisory mechanism will start soon. They are bound to be highly complex, technical and controversial, because mistrust prevails and participant countries hold different views. However, it is important they succeed. Continue reading »

An effective policy approach to Britain’s economic problems must start with the recognition that the principal factor holding back the British economy over both the short and medium term is the lack of demand. It is true that Britain also faces important structural issues ranging from difficulties in promoting innovation to deficiencies in the system of worker training. Still, it is apparent from the relatively low level of vacancies, the reluctance of workers to leave jobs and the pervasiveness across industries of increased unemployment that it is lack of demand that is holding the economy back. Testimony from companies on their investment plans also supports this view. Continue reading »

The affair began with The Satanic Verses going up in flames in Bradford. Western Muslims lit the spark. Ayatollah Ruhollah Khomeini fanned it into a global blaze and, with American embassies under attack in the Arab world, the fatal dialectic between Islamic rage and western free speech once again leaves death in its wake. Continue reading »

I don’t know if these results are unprecedented, but they are certainly remarkable given that Mr Obama has now been president for almost four years. One would think that as the years have gone by memories of Mr Bush would have faded, and as Mr Obama’s policies were implemented that he would in essence “own” the economy. Continue reading »

Through both its actions and what it refrained from doing, the Federal Reserve confirmed on Thursday that it is operating in policy purgatory: incapable of delivering the good economic outcomes it desires, yet unable to exit from an experimental policy stance that risks a widening array of collateral damage and unintended consequences. Continue reading »

Mario Draghi’s bond buying plan has restored some control over interest rates in those parts of the eurozone which, it seemed, were in danger of becoming detached from the European Central Bank mothership. While many in the private sector harbour doubts, the ECB president has to be fully signed up to the euro’s survival. It can therefore justify purchasing assets that others might regard as untouchable. And with yesterday’s qualified ratification of the EU bailout programmes by the German constiutional court, the ECB can look back on an effective week. Continue reading »

Regaining the confidence of the markets, once it has been lost, is extremely demanding. Regaining the confidence of the people is nearly impossible. Continue reading »

The question at the core of America’s upcoming election isn’t merely whose story most voting Americans believe to be true – Mitt Romney’s claim he can pull it out of its stall because he’s a businessman who has turned around failing companies, or Barack Obama’s claim the economy is slowly mending from the worst downturn since the Great Depression because his approach is working.

If that were all there was to it, Friday’s report from the Bureau of Labor Statistics showing that the economy added only 96,000 jobs in August, relative to July’s respectable 160,000, would appear to bolster Mr Romney’s claim.

The deeper question is what should be done starting in January to boost a recovery that by anyone’s measure is still anaemic — and on this neither candidate has offered specifics. Continue reading »

This year, the critical question in Europe has changed from whether policymakers could find the required policy instincts – they have – to whether they are moving fast enough to get ahead of the deleveraging by the private sector. By announcing a new conditional bond purchase program on Thursday, the European Central Bank took a major step to close what, at one time, seemed a near-insurmountable deficit in this race. It now needs the support of other policymaking bodies to fully eliminate the gap. Continue reading »

Having recently declared that I am not likely to vote this year here in the Financial Times, I should have added that that is just how I feel now. I am certainly open to persuasion and my feet are not set in concrete. Continue reading »

The choices of the size of government and how we pay for it are fundamental ones. They are also the ones we should be analysing and debating. Mr Romney has proposed a plan of fiscal consolidation and tax reform. Accomplishing it will require reducing the growth of federal spending and broadening the tax base. These changes will not be easy. Mr Obama proposes a larger government with explicitly higher taxes on high-income taxpayers but, by the arithmetic of higher spending levels, eventually higher taxes on all Americans. Continue reading »

The expression of a dissenting opinion, especially when the opinion coincides with the view of a large part of the population of the respective country, generates the impression that discussions within the Governing Council are politicised, and that all members reflect national views. This may encourage pressures by national constituencies on the different ECB Council members to act on the basis of national interests, rather than the broader European ones. Continue reading »

What should one make of the indicators coming out of Beijing that have regularly fallen short of market expectations; the most recent being an August PMI — further revised downwards this morning — showing manufacturing intentions hitting a nine-month low? Continue reading »