Central Banks

U.S. deficit drama needs to play well overseas

3 Nov 2011

Foreign central banks, among America’s most reliable lenders, have been cutting their exposure to Uncle Sam’s debt since August. As Washington readies “Deficit Debacle: The Sequel” for primetime this month, legislators should keep foreign audiences in mind.

ECB on track to waste a good crisis

2 Nov 2011

Draghi will chair his first meeting of the central bank on the week of the euro zone’s great Greek scare and as all data point to a recession. The ECB should lower rates and make clear it’s prepared to be a lender of last resort to responsible governments – but probably won’t.

New ECB chief must shake off the Italian curse

31 Oct 2011

The incoming president of the European Central Bank inherits a strong currency in a weak monetary union. As Mario Draghi steers the bank through a series of crucial decisions, he needs to tackle Italy’s problems without worrying too much about what the Germans will say.

Berlusconi opts for risky ECB row with Paris

21 Oct 2011

Ignazio Visco is highly qualified for the job as head of the Bank of Italy. But choosing Lorenzo Bini Smaghi, a member of the European Central Bank’s board, would have allowed France to nominate its candidate to the ECB’s top body. Berlusconi doesn’t need a fight with Paris now.

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.