UK inflation belies central bank’s claim to care 18 Oct 2011 If the Bank of England thought controlling inflationary psychology was priority number one, it would not be printing money when prices are rising at a 5.2 pct rate. But the BoE is more worried about slow growth and financial tension. Inflation is, at worst, a tolerable evil.
Good aim needed for ECB’s covered bond sortie 7 Oct 2011 The euro zone central bank will buy another 40 bln euros of covered bonds. The amount looks pitiful, far from enough to relieve the sovereign crisis or banks’ dire funding problems. But if the ECB focuses on Spanish and Italian banks, the programme may not be a total waste of time.
U.S. government has chance to borrow very long 30 Sep 2011 Thanks to the Fed’s maneuvers, Uncle Sam could sell bonds maturing decades from now at uncommonly low yields. Moreover, pension funds need the paper. The Treasury has kicked around the idea of 50 or 100-year bonds before. Maybe it’s time to actually issue some.
Economists shouldn’t bask in woes of physicists 26 Sep 2011 Theorists on production and consumption, often jealous of their hard-science counterparts, may be tempted to gloat if neutrinos really do travel faster than light. But ignorance by economists is more harmful. It contributed to the financial crisis and subsequent policy paralysis.
Fed’s Twist puts Wall Street in a spiral 22 Sep 2011 Extra stimulus pushed 10-year Treasury yields to a new low and could leave them under 2 pct for a while. That doesn’t just crimp interest margins for retail banks; it also squeezes already struggling debt traders. Financials now look nothing but a super-long-term investment.
Monetary moves have lost their magic 22 Sep 2011 Markets spurned the Fed’s latest love offering. The Twist was seen correctly as a small manoeuvre that can do little to speed up growth. It could even be more dangerous than helpful. Central banks should not try too hard - the pains of economic rebalancing cannot be avoided.
Bernanke’s twist may not be much to shout about 21 Sep 2011 The Fed’s revival of a 50-year-old idea to reduce long-term interest rates is four times heftier than the original. It adds to Fed balance sheet risk and to price pressures; more helpfully, it could boost small business lending. Overall, though, it’s unlikely to achieve much.
IMF issues timely warning on ultra-low rates 21 Sep 2011 Just as Ben Bernanke and his crew contemplate further easing, a new IMF report lays out the multiple threats created by such loose monetary policy. In rich nations, small firms suffer while in emerging markets, capital inflows produce bubble conditions. The FOMC should pay heed.
Central banks dive in where markets fear to tread 15 Sep 2011 The Fed, ECB and other major central banks will give embattled euro zone lenders a boost by offering longer-term dollars. The move should ease fears of a funding crisis in the money markets. But it mustn’t incite banks to delay the restructuring of their weak funding profiles.
Stark resignation won’t alter ECB policy 9 Sep 2011 The unexpected departure of its chief economist is only the latest sign of ECB divisions on the debt crisis. His opposition to bond buying was already public. Stark’s decision will accelerate the changing of the guard in Frankfurt, but it won’t affect the ECB’s course.
Canada’s economy hampered by troubled neighbor 8 Sep 2011 The Bank of Canada has stopped raising interest rates at 1 percent, largely because of deteriorating U.S. conditions. That’s a pity - Canada would benefit from rates above inflation. But sluggishness and policy wrangling south of the border sap growth and push up the Loonie.
ECB keeps still in fast-changing world 8 Sep 2011 The central bank signalled an end to interest rate increases, and acknowledged a global slump is now a higher risk than inflation. President Jean-Claude Trichet sees the ECB as an “anchor” in financially troubled times. But there’s a fine line between stability and immobility.
ECB should cut rates now 5 Sep 2011 It would be an embarrassing U-turn but the European Central Bank should swallow its pride and reverse its recent interest rate rises. The euro zone risks falling back into recession even in its core economies, worsening the crisis in its weaker members. Rate cuts are essential.
Brazil can’t solve fiscal woes with rates alone 2 Sep 2011 Cutting the benchmark Selic rate to 12 pct isn’t inflationary, since CPI is only 7 pct and global rates are ultra-low. However the government runs big deficits in a huge boom with high commodity prices. That could boost prices down the road - or worsen any downturn.
EU bank funding backstop may need fine tuning 23 Aug 2011 As euro zone liquidity becomes more strained, the European Central Bank’s ability to cover any gaps with an unlimited supply of euros and dollars is vital. Yet that support can backfire if investors spot which banks are getting help. Lessons from the UK could be helpful here.
Downgrade of U.S. debt upgrades risk to raters 19 Aug 2011 Credit rating firms have somehow alienated both parties in Congress. And government investigations of S&P may spur legislative efforts. On partisan lines, these range from tightening Uncle Sam’s grip to removing his helpful imprimatur. Either result could change the rating game.
Finnish favouritism could unravel Greek rescue 19 Aug 2011 Greece’s bailout allows Finland to secure its loans with cash. Now other member states want the same deal, which would undermine the whole exercise. With either the rescue package or euro zone unity at stake, the EU’s biggest players may have to knock some heads together.
China’s bank rules promise safety, not stability 19 Aug 2011 Lenders will end up well padded against bad debts under new plans - a good job, since lots are coming. But the distortions that promote risky lending remain. With capital scarce, banks may also push more loans through China’s worryingly large “shadow” banking system.
EU banks’ summer funding lull may bring autumn woe 18 Aug 2011 Post-crisis reforms and central bank backstops mean Europe’s lenders are less vulnerable to a short-term funding freeze. But if markets do not reopen in the autumn, or if wholesale borrowing costs remain high, the economic fallout for the euro zone could be nasty
ECB’s dollar-swap safety net should cap bank pain 17 Aug 2011 The central bank has activated a facility that allows EU banks to access dollar funding. An unnamed lender has highlighted the stress in bank funding markets by paying up for seven-day liquidity. But the ECB’s ready supply of dollars should help prevent a Lehman-style crunch.