Economics

Consumer defaults bring risk of financial relapse

21 Apr 2009

Anyone seeing the green shoots of recovery shouldn't lose sight of soaring defaults on US consumer debt. The level of such debt is far higher than in 198082 or in the Depression, and credit losses much exceeding banks' profits could deal the financial system another blow.

Americans learn to buy less and save more

14 Apr 2009

The 1.1% drop in March retail sales showed US consumers are filling their piggybanks. The savings rate was 4.2% in February; it should rise further in March and April when stimulus tax cuts kick in. Some economic imbalances are disappearing at last. Pity about the new ones.

Japan’s stimulus risks worsening its recession

7 Apr 2009

For believers in fiscal boosts, Japan is a paradox. With no bursting bubble and relatively larger stimulus plans than the US, it still has a deeper recession. It could be that public debt at 175% of GDP is suffocating private investment that might otherwise restore growth.

Eurozone doesn’t need new member troubles

6 Apr 2009

The IMF suggests that Eastern Europe would benefit from a speedy adhesion to the euro. That s doubtful, especially with eurozone authorities already struggling to keep fiscally troubled members in line. Expanding in a hurry would weaken the euro, but not help Eastern Europe.

US jobless rise portends drop in real wages

3 Apr 2009

Job losses now total 5.1m and the increase in unemployment is now topped by only one postwar recession. Only the over55s are adding jobs, forced to work by the hit to their savings. Real wages are still rising, but they are likely to drop, probably through resurgent inflation.

Mexico can find better advisors than US or IMF

1 Apr 2009

Its wish to have the buffer of a $47bn IMF credit line makes sense. It always hated tied loans, which came with gratuitous IMF or US advice. Mexico s economic policies need changing, but this time it can get help from less patronizing sources: Latin friends Brazil and Chile.

Two ideas to solve global imbalances

31 Mar 2009

The G20 looks like it is going to shirk the issue of massive trade surpluses in China and deficits in the US. That s largely because confronting the issue would cause a diplomatic row. But these imbalances are a principle underlying cause of the crisis. A solution is needed.

Gloomy OECD figures show danger of debt spiral

31 Mar 2009

The OECD forecast of a 2.7% decline in global GDP is gloomy enough. However, its growth forecasts for the US, Britain and Japan are much worse than those countries own budget assumptions. That means their high fiscal deficits will be worse than forecast.

Latin America for once exemplifies sound policy

30 Mar 2009

Brazil and Chile have recently followed sounder policies than most rich countries as both their presidents have pointedly told Gordon Brown. A country with Brazil s monetary policy and Chile s fiscal policy would have been insulated against this downturn.

Faint US housing market dawn is a big global plus

25 Mar 2009

Upticks in home sales suggest the US housing market may be approaching bottom. Prices are close to their longterm average in terms of multiple of buyers earnings, and may decline only modestly further. That s good news for US banks asset portfolios and the global economy.

Japanese political mess threatens economic future

24 Mar 2009

Prime minister Aso is at 10% in the polls, while the DPJ s Ozawa faces a funding scandal. Both party leaderships favour 1990s Keynesian spending while their freemarketers are sidelined. Elections in September need to provide a shakeup and new policies but that looks unlikely.

Fed stimulus accelerator is inflationary

18 Mar 2009

The Fed is increasing its balance sheet by another $1 trillion, including $300bn of Treasury bonds. Yet the pace of US economic decline seems to be slowing, while deflation is nowhere visible. Fed policy is now highrisk, and resurgent inflation may strike sooner than expected.

Mexico’s tariff pebble threatens trade avalanche

17 Mar 2009

Its levy on $2.4bn of US exports is modest and permitted under Nafta. But it runs two risks: that protectionists both sides of the border will use it to pick apart the trade agreement, and that resulting economic problems could further stoke antiUS feeling and harm relations.

Unfashionable monetary policy strengthens Brazil

12 Mar 2009

At 11.25%, Brazil s shortterm interest rate is still over 5% in real terms. That gives it massive room to stimulate its economy further by monetary means. Brazil has shared other countries fate during the global decline, but its recovery should be quicker and more robust.

G20 must keep trade on the agenda

11 Mar 2009

Global trade has so far fallen a third of the way towards the 65% drop seen in the Great Depression. Whether the problem is scarce finance, inventory backup or weak demand, arresting the decline is a component of economic recovery the industrialised nations need to pursue.

Bernanke offers hope that there’s a real plan

10 Mar 2009

The US central bank chief still blames Asia s excess savings for America s woes. But otherwise, his diagnosis of the roots of the economic crisis too big to fail banks, ad hoc financial infrastructure, procyclical regulation, fractured oversight makes sense.

Allocation of scarce capital is key to world growth

9 Mar 2009

The World Bank s estimate of negative global growth in 2009 looks right. Even if stimulus programmes and natural recoveries turn rich country economies round by midyear, emerging markets may well suffer capital shortages that cause their economies to deteriorate further.

US Congress shouldn’t foment economic nationalism

9 Mar 2009

A committee plans to criticise Treasury officials for allowing US banks to invest money abroad after receiving government infusions. Such grandstanding could further impede the effective functioning of international capital markets at the worst possible time.

US jobs data could herald approaching bottom

6 Mar 2009

The 651,000 decline in US employment is nasty, but the rate of job loss has stopped accelerating. Stimulus moves should provide a shortterm boost soon, so a bottom to the economic downturn may be approaching. Sorting out the budget deficit and inflation will come later.

Obama’s honeyed words on trade may conceal a Smoot

3 Mar 2009

The US president s agenda appears to include more obstacles to free trade than incentives. New trade deals, for instance, must satisfy tough standards on workers rights and the environment. Obama s trade rhetoric may sound soothing but his practice could prove protectionist.