Economics

Renminbi not the answer for dollar diversifiers

4 Jun 2009

Malaysia may follow Brazil in denominating more Chinese trade in the Chinese currency. The symbolism pleases Beijing and diversifying foreign currency holdings out of dollars makes sense. But the overcontrolled renminbi is a less suitable store of value than the freemarket yen.

Germany may get pain but little gain

3 Jun 2009

Germany used less stimulus and runs lower deficits than other big economies. That made its slump deeper, but raised hopes of a healthier recovery. Regrettably, its chancellor is right to fear that central bank easing may cause inflation, depriving Germany of austerity s rewards.

Would California work better as four states?

21 May 2009

China pays Taiwan geopolitical dividend

4 May 2009

Financial turmoil has brought the two closer. Taiwan, its economy slammed by a 30% fall in exports, will gain from opening up to Chinese capital and tourists. Investors will welcome the reduced political risk. China may yet win with finance what threats of force didn t get.

US GDP is not as dismal as it looks

29 Apr 2009

Q1 consumption turned positive, inventories dropped and weak government spending which won t be a problem going forward depressed growth. Yes, capital investment plummeted, but the slowing decline suggests the economy is nearing a bottom. However it may stay there.

Is Fed stretching numbers to justify looser money?

27 Apr 2009

The US central bank has calculated the optimal interest rate based on inflation and GDP. But its conclusion minus 5% doesn t add up. The socalled Taylor rule suggests a rate around 2%. The Fed is either underrating current inflation or overrating the output gap.

Asian trade figures suggest global decline slowing

22 Apr 2009

Japan s March exports were down 46%, but that still beat February. Overall, Asian trade figures have bounced somewhat, suggesting their previous drop resulted from inventories and finance, not a deeper problem. This is not the end of recession, but maybe the end of its beginning.

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.