Posts filed under 'The Global Economy'
Richard Smith, a London-based capital markets information technology manager, was kind enough to provide an advance copy of his review for the book ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism by Yves Smith, the author of the well-known financial blog Naked Capitalism.
Mr. Smith (real name, and no relation to Yves) helped in the proofing of the copy and fact searches, so he was already well familiar with the text. Perhaps this makes him a not entirely dispassionate source, given the regard that even copy editors can obtain for their associated works. But I thought it was a very nice summary of many of the salient points, and that you would enjoy having the opportunity to read it.
I intend to read the book in order to both learn something, and to be entertained as well. I love reading accounts of this period of time that are both authoritative and well-written, and understandable by the non-expert. Given the author’s performance on her blog, and her detailed industry knowledge and experience, it looks to be a ‘must read’ for those following the financial crisis and its associated developments.
Reading ECONned
By Richard Smith
http://jessescrossroadscafe.blogspot.com/2010/03/guest-post-econned-book-review.html
March 6th, 2010
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| Flagging: a US sailor stands on the flight deck of the aircraft carrier USS George Washington |
If a week is a long time in politics, a decade is starting to look like an age in geopolitics. Comparing the America that began the 21st century with the America of today is to witness a country that has in some ways quite radically altered its view of itself and its relationship to the world.
In short, the metallic rust of decline has crept into the American soul. “You could argue that the first decade of the 21st century was the last decade of the American century,” says David Rothkopf, a former Clinton administration official and student of US foreign policy. “We are now entering the multipolar century.”
January 16th, 2010
My essay in today’s American Spectator Online looks at why Ben Bernanke should not be confirmed to a second term as Chairman of the Federal Reserve:
Two planks in Bernanke’s recovery strategy: Expand the money supply like a banana republic dictator and throw sackfuls of cash at failed companies with a proven track record of mismanaging their assets. The justification? According to the late John Maynard Keynes, this is supposed to restore the “animal spirits” of the cowed consumer, the benighted creature who foolishly imagines that after a period of prodigality and mismanagement, maybe a country should rediscover its inner Dave Ramsey.
The full essay is here.
December 19th, 2009
By Richard W. Rahn
Assume you had put much of your savings into U.S. government bonds and then you learned the following. In just the last eight months, the Congressional Budget Office estimates of the amount of additional federal debt to be held by the public grew by an astounding $4 trillion for the 2010-19 period; and that the amount of federal debt held by the public grew from $5.9 trillion to $7.5 trillion in just the last 12 months.
In addition, you learned that the federal government (i.e., taxpayers) now owns (primarily through Fannie Mae and Freddie Mac) or insures (through the Federal Housing Administration and other government programs) about 80 percent of the $14.6 trillion of home mortgages outstanding in the United States. Last week, Congress passed a bill requiring all student loans be made by the federal government rather than banks, which means the taxpayers will be 100 percent liable for any student loan defaults.
You also learned that the Federal Deposit Insurance Corp. is considering tapping its Treasury credit line for up to $500 billion. It needs to do this because of the high number of bank failures and because each bank account is insured by the government (i.e., taxpayers) up to $250,000. The president and many in Congress are calling for a roughly $1 trillion health care bill – paid for by additional debt and/or more taxes, which will further slow economic growth, eventually leading to even more debt.
Finally, you also became aware of the following facts: Federal government expenditures are growing far faster than the economy, and thus the government is becoming a larger and larger share of gross domestic product. Obviously, this cannot continue forever because eventually the government would totally drive out the private sector.
The entitlement programs (i.e., Social Security, Medicare, Medicaid, etc.) all continue to grow faster than the economy, and they will take more than 100 percent of all federal tax revenue this year, requiring that virtually all of the other government spending programs, including defense and interest payments on the debt, be funded by more borrowing.
You are also aware that the government cannot tax its way out of the deficit situation, because increasing income tax rates on the upper income people will both slow the economy and cause them to find legal or illegal ways to avoid the tax increase, and the politicians have pledged to not increase taxes on those making less than $250,000, which includes all but a very few Americans.
Even if the politicians break their pledges not to increase taxes, they still cannot solve the deficit problem as long as they refuse to cut back on the growth in Social Security, Medicare, and Medicaid – because any new tax revenue will be quickly absorbed by the growth in spending. The best that any tax increase could do is delay the explosion of the debt bomb by, perhaps, a couple of years while further weakening the economy and job growth.
Now suppose you are not an individual bondholder but the Chinese government official responsible for the Chinese economy, and you know your government holds about $1 trillion in U.S. government securities. You have watched Congress and the administration become less and less fiscally responsible – more spending, more taxes, and more debt.
Then suddenly the administration puts punitive tariffs on your tire manufacturers while at the same time refuses to approve the trade treaties with Colombia, Panama and South Korea that have been negotiated.
You understand that these foolish and destructive actions by U.S. government officials indicate it does not understand the importance of free trade in fostering economic growth, and seem to be intent on replicating the mistakes of the 1930s.
The Chinese are not stupid, and they have been vocal in saying they are concerned that U.S. policies will lead to a further fall in the dollar and higher rates of inflation, both of which undermine the value of their investment in U.S. government securities.
The Chinese are now trying to diversify their holdings – and their recent activity in buying large quantities of tradable commodities is probably, in part, a hedge against a falling U.S. dollar. Thus, at the same time, the U.S. government needs to sell trillions of dollars of new bonds. It is by its own actions driving away foreign purchasers of bonds, which can only result in higher interest rates in the United States, which will further slow economic growth.
What is particularly frightening is that neither political party has offered a serious plan to defuse the debt bomb. The Democrats are just piling up more debt as if there were no limit, and the Republicans, to date, are only proposing measures to reduce the increase, rather than reverse it. When the debt bomb explodes – within the next one to three years – expect to see record high real interest rates and/or inflation, coupled with a collapse of many “entitlements.” It will be like the neutron bomb, the buildings will be left standing, but the people will not.
Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.
The Growing Federal Debt Bomb – Richard Rahn, Washington Times
September 22nd, 2009
On the Peterson Institute for International Economics Monitor, Michael Mussa sits down with Steve Weisman and says that while Asia surges economically, the recession appears to be bottoming out in Europe as well as the United States, but it is too soon to determine the strength of the coming global recovery. See Economic Recovery in Europe?
September 4th, 2009
Economic Freefall Ends in Germany and France
Germany and France, Europe’s two largest economies, on Thursday revealed they are officially no longer in recession. Signs of economic green shoots bolstered the euro — and surprised both policymakers and economists. The euro zone economy, however, continues to contract.
August 15th, 2009
Export Jump Brings Hope for End of Crisis
German’s Federal Statistics Office released export figures for June on Friday, and they have a lot of people smiling. Exports grew to 68.5 billion euros, a 7 percent rise over May’s figure. The data is the latest in a string of positive economic news being released around the world.
August 8th, 2009
In Spain: Bleak forecast puts unemployment at 22% in 2010, Edward Harrison relates that the recovery in Spain will be later than elsewhere in Europe because of the extent of deleveraging, and unemployment will continue to rise.
August 5th, 2009
Gary Clyde Hufbauer and Jeffrey J. Schott provide detailed analysis in a policy brief on the Buy American provisions of the economic stimulus plan. They look into the three main issues that arise from the provisions in each bill: U.S. jobs, U.S. trade obligations, and U.S. foreign policy. Don’t miss Buy American: Bad for Jobs, Worse for Reputation
August 4th, 2009
Bertrand Delgado and Italo Lombardi analyze economic events in Latin America for the weeks between July 20th and the 31st and their impact on macroeconomic conditions moving forward. They focus on monetary policy, inflation, economic activity, labor dynamics, trade accounts, industrial production, and fiscal data. Please read: Latin America – The Week Ahead July 27– 31.
August 3rd, 2009
As U.S. deficits increased, global investors edged away from the dollar into the German mark, the Japanese yen, the Swiss franc, the Euro, and more recently baskets of Asian currencies.
Which brings us to today. Only goodwill (defined both as an accounting term and as political deference to military might) now supports the U.S. dollar as a reserve currency, which is what allows the United States to issue dollar-denominated bonds in world money markets.
It is this borrowing capacity that allows the Obama administration to bailout the banking industry, offer to pay for universal health care, fight colonial wars in the Middle East, stimulate the economy, send billions to Egypt and Israel, buy out General Motors, and subsidize every windmill start-up company in Nancy Pelosi’s home district. (Madoff’s problem was that he failed to set himself up as a country. He otherwise understood deficit spending.) But the shell game requires full faith in the dollar.
For those riding out financial storms by “sitting on cash,” here is what’s under your seat: in recent months U.S. federal debt has grown to $11.3 trillion, almost equivalent to gross domestic production. About one quarter of this indebtedness, or $2.8 trillion, is held abroad, and China and Japan hold just under half of those assets (liabilities to Uncle Sam).
Elsewhere on the American balance sheet is another $11.4 trillion in household debt, an annual trade deficit of about $725 billion, and a federal budget deficit that is estimated in 2009 to be approaching $1.8 trillion. That’s if the economy grows at 3 percent.
Off-balance sheet risks, what accountants call contingent liabilities, include about $10 trillion in new bailout guarantees (Fannie Mae, Bear Stearns, Countrywide, and whatever the administration launches as its New Deal of the Day). None of the above includes the unfunded liabilities of Social Security ($41 trillion), which, by comparison, make the shares of Lehman Brothers and AIG look like Scottish bonds held for widows and orphans.
The geese laying the golden eggs of U.S. financial stability are the printing presses of the U.S. Treasury, and, for now, those collecting them in their Easter baskets include a number of countries and regions perhaps tiring of American arrogance, if not of the drop in the dollar’s value. Who would blame such popular targets of moral abuse as China, Russia, Switzerland, Arabia, or Latin America for dumping their dollar-denominated assets?
All that lies between the U.S. dollar and a financial Armageddon is the Faustian house of credit cards under which Asian economies invest their trade surpluses in U.S. Treasury instruments — to keep the dollar strong, their own currencies weak, and purchases brisk between the likes of Wal-Mart and the Asian Greater Co-Prosperity Sphere.
Sooner than we think, China and Japan, like all nervous creditors, may send the United States a letter, suggesting that, henceforward, if Washington needs to borrow money, the bonds be issued in renmimbi, yen, or a basket of Asian currencies (a Pacific Euro).
Wall Street bankers did the same to the farm interests in the late nineteenth century, when they insisted that debt be based on a gold standard, as opposed to “free silver.” President Obama may be as eloquent as William Jennings Bryan. But at that point he will need to use all his oratory for the business of selling junk bonds.
The Dollar: Running On Reserve – Matthew Stevenson, newgeography
August 2nd, 2009
Is there a clandestine understanding between the world’s two most powerful central banks, the Federal Reserve and the People’s Bank of China?
Naturally, no one can talk about it, let alone confirm or deny anything. But it’s not too difficult to make out the broad outlines of how Chinese-American monetary cooperation may be working.
People’s Bank governor Zhou Xiaochuan and other figures in the Chinese leadership seem to use every opportunity to broadcast finely calibrated skepticism over the dollar’s future. Such Jeremiahs feed on and — in turn — feed doubts about potential American inflation caused by the Fed’s quantitative easing and exploding budget deficits.
But both Washington and Beijing appear to recognize — whatever the saber-rattling — that large-scale shifts in the currency composition of Chinese currency reserves are more or less impossible. Roughly two-thirds of Chinese reserves of more than $2 trillion are thought to be held in the greenback.
Heavy Chinese sales, or even a deliberate policy of diverting export proceeds into Euro or yen by re-dominating sales contracts, would depress the U.S. currency and lower the value of Chinese reserves. It’s the well-known Beijing dollar trap. And it has to be said: the Chinese have maneuvered themselves into it of their own volition, and in full knowledge of the potential problem.
So Governor Zhou’s strictures are, to a certain extent, shadow boxing. However, in return for a tacit standstill agreement on the currency composition of reserves, the Americans have to acknowledge that the renminbi’s value will rise only moderately.
If the Chinese continue taking in dollars, logic tells us the Chinese currency can hardly revalue strongly. A signal of the U.S. authorities’ acceptance of this state of affairs is that the word “manipulation” for Chinese currency management now clearly is banned.
There is another, still more intriguing, side to Chinese currency pronouncements. The doubts voiced from Beijing on the dollar’s stability, far from unsettling the U.S. monetary authorities, are actually manna from heaven for the Federal Reserve. The Obama administration hardly can go in for years of reckless deficit spending when the country’s largest creditor is emitting so many warning signals.
More importantly, the Fed is getting a certain amount of cover from Beijing for its eventual “exit strategy” — a reversal of quantitative easing and a rise in interest rates as soon as economic recovery gets under way.
The Chinese even are giving a strong tailwind to Fed Chairman Ben Bernanke’s bid for re-nomination after his initial four-year term ends in January. The reason? With the Chinese appearing to turn the knife through gloom-laden dollar prognostications, President Obama knows that appointing a heavily political successor to Bernanke would be fraught with great risks.
Any Fed chairman who looks less than squeaky-clean on currency stability is likely to send dollar holders heading for the exits — and could spark the full-scale currency collapse that Wall Street bears have been growling about for months.
So, if Obama wishes to replace Bernanke, he can do so only by bringing in a full-scale monetary hawk — a step that he must rule out on domestic political grounds. The conclusion is that the Chinese maneuverings leave Obama with no choice but to re-appoint Bernanke, whatever the doubts about his stewardship that have arisen in recent months.
When Bernanke a little later this year eventually is confirmed in a second term of office, what’s the betting that a laconic red-rimmed telegram from Governor Zhou will turn up in his in-tray?
The missive and its contents, of course, will remain secret. We can only guess at the possibility that the two men, just for a moment, will share the opportunity for a modicum of discreet self-congratulation.
David Marsh is chairman of London and Oxford Capital Markets. The Marsh on Monday column appears in German in the newspaper Handelsblatt.
A Deal Between the Fed and Bank of China? – David Marsh, MarketWatch
July 20th, 2009
Despite the administration’s aggressive and costly economic policy initiatives, there is trouble all around.
Barely six months in office, President Obama already finds himself in an economic box. For despite his aggressive and costly economic policy initiatives, the jobs market shows no sign of healing. At the same time, the housing market foreclosure crisis continues apace, while renewed questions are again surfacing about the soundness of the U.S. banking system. To complicate matters, financial markets are now starting to fret about the longer-run inflationary consequences of the unusually large budget deficits in prospect for as far as the eye can see.
In January 2009, on presenting its $780 billion fiscal stimulus package, the Obama administration assured the public that because of that stimulus package U.S. unemployment would not exceed 8 percent. Yet already by June 2009, unemployment had risen to 9.5 percent; including part-time workers, who would prefer to be working full time, unemployment rose to a staggering post-war high of over 16 percent. Worse still, the jobs market shows every sign of being far from bottoming out.
The degree to which unemployment has exceeded the administration’s forecasts has to raise basic questions about the appropriateness and coherence of President Obama’s economic policy approach.
The degree to which unemployment has exceeded the administration’s forecasts has to raise basic questions about the appropriateness and coherence of President Obama’s economic policy approach. These questions pertain not simply to the very poor design of the fiscal stimulus package. Rather they pertain to the adequacy of the measures aimed at stabilizing the housing market and at resolving the country’s most wrenching credit crisis in the post-war period.
At the most basic level, one has to question how much sense it made for President Obama to allow the fiscal package to become excessively back-loaded at time when the economy needed immediate large scale support. If a large fiscal stimulus was indeed needed, why has only $60 billion of that package been dribbled out by June? And why is less than a third of the package scheduled to come into effect in 2009, the year when the package is most sorely needed?
Similarly one has to wonder about the heavy price that the Obama administration paid for effectively outsourcing the package’s design to House Speaker Nancy Pelosi and the rest of the Democratic congressional leadership. Should it really have come as a surprise to us that the resulting stimulus package would be laden with pork and with expenditures that are going to be very difficult to roll back? Or should we now be shocked that the package fell sadly short of including fast acting and effective fiscal stimulus measures that might have gotten the most bang for the buck?
Perhaps the most troubling aspect of the Obama fiscal stimulus package is the serious way in which it compromises the country’s long-run public finances and fans long-run inflationary expectations. The nonpartisan Congressional Budget Office estimates that the Obama budget not only implies unusually large budget deficits over the next two years but it implies that, even when the economy eventually fully recovers, the deficit will remain in the region of between 4 and 6 percentage points of GDP. As a result, over the next decade, the public debt will rise in a manner that has never occurred before in peacetime, from around 41 percent of GDP in 2008 to 82 percent of GDP by 2019.
Over the next decade, the public debt will rise in a manner that has never occurred before in peacetime from around 41 percent of GDP in 2008 to 82 percent of GDP by 2019.
The rising tide of unemployment must also raise questions about the Obama administration’s efforts to stabilize the housing market, which the administration correctly views as a necessary condition for producing a meaningful economic recovery. One has to expect that a weaker job market will only exacerbate the country’s present foreclosure crisis, which is adding supply to an already glutted housing market. The Center for Responsible Lending estimates that 2.4 million homes could be in foreclosure in 2009 and as many as 8.1 million homes over the next four years. Yet, the Obama administration’s loan modification program announced earlier this year has to date only resulted in 190,000 offers at mortgage loan modification.
Rising unemployment also has to raise questions about whether the Obama administration is not being overly sanguine about the health of the U.S. banking system. For it would seem that unemployment will now well exceed the worst-case scenario in the bank stress test presented by the administration earlier this year. Yet, despite a weakening unemployment outlook that is sure to boost bank losses, the Obama administration is now cavalierly backing away from its earlier initiatives to reduce the toxic assets that remain on the banks’ balance sheets.
Less than six months into his term, President Obama already faces difficult economic policy choices. He can choose, as he now seems to be doing, to counsel patience and assure us that all is well at considerable cost to his credibility on economic policy management. Or he can own up to the facts that he misread the economy in January and that his economic team now needs to go back to the drawing board. For the sake of the U.S. economy, one has to hope that he has the courage to review the overall coherence of his policy approach before it is too late.
Desmond Lachman is a resident fellow at the American Enterprise Institute. He was managing director and chief emerging market economic strategist at Salomon Smith Barney and a deputy director in the International Monetary Fund’s policy and review department.
Obama Is Stuck In an Economic Box – Desmond Lachman, The American
July 15th, 2009
Our current economic crisis has revived economic and political discussions about the Great Depression. One reader wrote to me that Google citations for both the “Great Depression” and the “New Deal” have increased by several million since just last year. And while our current crisis remains far milder than the Depression, many nevertheless compare the two episodes, particularly when it comes to discussions about what the government should–or should not–do to promote economic recovery. And comparisons between today and the Great Depression will not end soon, as our crisis continues, and as some have called for a second round of federal spending to promote recovery.
A number of commentators and some in Congress have cited some of my research on the New Deal to caution against large-scale government programs to spur recovery, while research by other economists, including Dr. Christina Romer, chair of President Obama’s Council of Economic Advisers, is cited by others in Congress for the need for large-scale stimulus programs. (Both Dr. Romer and I presented our views during recent testimony before the U.S. Senate Banking Committee. Hers can be found here and mine here. )
Why Are Economists Divided About the Depression? – Lee Ohanian, Forbes
July 15th, 2009
What’s the best way to express just how bad the job market is? You could look at the soaring unemployment rate, or perhaps the ever-shortening work week. How about this: Total nonfarm payrolls, notes economist James Hamilton, are now back to where they were in mid 2000, and in a few months they’ll certainly be back to pre-2000 levels. 21st century job creation: gone.
All Jobs Created in the 21st Century Are Now Gone – Clusterstock
July 10th, 2009
uly 3 (Bloomberg) — So you think China’s 6 percent growth will power a global recovery. Think again.
Economists, for example, can’t put a gloss on how ugly Japan’s data are getting. Exports and output are plunging, unemployment is at a 25-year high and those all-important summer bonuses are evaporating. The best we can say is that sentiment among large manufacturers was less gloomy in June than expected.
Where is that smidgen of hope coming from? China, which rarely misses a chance to declare victory over the global recession. Officials in Beijing say stimulus spending and record lending are sparking a recovery in the third-biggest economy.
Export-led Japan would seem perfectly placed to benefit. That is, until you check the evidence. Shipments to Japan’s biggest trading partner fell 29.7 percent in May, more than April’s 25.9 percent. It suggests China’s growth isn’t helping the rest of Asia very much.
China acted quickly to shield its economy from the global crisis. Manufacturing in May expanded for a fourth month. Central bank Governor Zhou Xiaochuan says things may keep improving in the third and fourth quarters.
It’s also worth noting that Japanese exports to China are falling less severely than elsewhere. Shipments to the U.S. fell 45.4 percent in May. Exports to Europe slid by the same amount.
No Engine
China isn’t turning out to be an engine of growth for Asia.
One possible explanation is protectionism, as China works to encourage exports while curbing imports. The country objects to the “Buy American” provisions in U.S. stimulus efforts, yet it is using similar tactics. Another reason may be that China’s revival is more spin than reality.
Either way, talk that China would feed the “green shoots” dynamic that Federal Reserve Chairman Ben Bernanke introduced into Wall Street’s lexicon four months ago isn’t working out. Nor will the Asia-decoupling theory that’s being resurrected.
Yes, Asia is less reliant on the U.S. than it was a decade ago. Its fortunes are still intricately tied to what happens in the $14 trillion U.S. economy. The longer the U.S. is on its back, the harder it will be for Asia to maintain modest growth.
One reason for a resurgence of the decoupling argument so convincingly debunked last year is actual growth. Even with the U.S., Europe and Japan mired in recession, economies in China, India, Indonesia, the Philippines and Australia are still expanding. That’s impressive given the state of credit markets.
Fast Forward
Fast-forward one year, though. If the U.S. economy is still weak in July 2010, Asia will have a hard time supporting growth from within. At the moment, stimulus efforts are starting from a low base. Over time, government spending and low interest rates may get less traction.
The Asian market won’t close the gap. Much of the region’s internal trade involves intermediate goods used in the production of other products — many of which go to the U.S. and Europe. A world without growth will force Asia to retool economies toward greater domestic consumption without the cushion of robust demand.
What’s more likely is an inward-looking period as opposed to regional cooperation. Groups such as the Association of Southeast Asian Nations talk a lot about linking their combined fortunes and outlooks. Meetings, photo opportunities and communiques don’t hide the stark reality that Asian economies compete more with each other than join hands.
‘Buy China’
China has been expanding efforts to help exporters with bigger tax benefits, loans from state-owned banks and other steps. Many “Buy China” directives are coming from Beijing. And don’t expect China to allow the yuan to appreciate much in the second half of 2009, regardless of market pressures.
Such policies suggest China is losing confidence in its 4 trillion-yuan ($585 billion) stimulus plan. They are also a reminder of the limits to governments’ ability to boost growth with public largess alone.
Growth may slip as stimulus spending wanes amid political opposition to a widening fiscal deficit, says Ma Jun, Deutsche Bank AG’s Hong Kong-based China economist. That casts doubts on predictions that Chinese gross domestic product will expand 8 percent in 2010.
The omnipotent reputation many assign to leaders in Beijing is being challenged. Take this week’s Internet fiasco. China postponed the deadline for personal-computer makers to include state-backed anti-pornography software on new PCs after U.S. officials and business groups urged it to scrap the rule.
China is normally a model of implementation. The speed with which it builds state-of-the-art airports, high-speed rail lines and Olympic stadiums is impressive by any scale. Its censorship efforts were exactly the opposite: sloppy and ill-considered.
Economic-stimulus efforts appear to be benefiting from greater competence. That may be a boon for 1.3 billion Chinese trying to get a share of the nation’s growth. The benefits for those outside China are much more limited.
China Will Not Power a Global Recovery – William Pesek, Bloomberg
July 6th, 2009
Last Tuesday, Brazil, Russia, India, and China–the so-called BRIC nations–met in Yekaterinburg, Russia, for what was supposed to be an anti-American gabfest. The main agenda item for the first formal meeting of the four largest developing economies was the future of the dollar. In recent months, Beijing and Moscow have led a global charge against the greenback, and Brasilia has been a willing co-conspirator in the effort. The BRIC post-summit communiqué referred to the world’s currency problems but, to the surprise of observers, did not attack the dollar head on.
What happened? Beijing, apparently, stopped the other nations cold. The Chinese called the tune at the Moscow meeting–their economy is almost as large as the other three combined–and so the surprisingly nonconfrontational tone of the BRIC official statement mirrored Beijing’s recent climbdown on the currency issue.
The Chinese government in the last few weeks seems to have radically changed its tune on this issue. In March, Zhou Xiaochuan, the head of China’s central bank, called for the replacement of the dollar as the world’s reserve currency in a widely reported text released to the public. In May, however, Beijing officials took a different tack, going out of their way to talk about the dollar’s unique status.
Beijing: The Dollar’s New Best Friend – Gordon Chang, Weekly Standard
UPDATE: 1:28 PM EDT
China Reiterates Call for New World Reserve Currency
FROM BLOOMBERG:
June 26 (Bloomberg) — China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.
“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.
The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.
“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.
President Barack Obama needs the support of China as the U.S. tries to spend its way out of recession. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.8 percent to 79.779 at 1:11 p.m. in London. U.S. Treasuries were little changed with the 10-year yield at 3.53 percent.
‘Unlikely’ Shift
“It’s extremely unlikely the dollar will be replaced as the reserve currency,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “A currency needs to be internationalized and that requires a fully convertible capital account, which China doesn’t have. The second is that it needs to be adopted.”
At the end of 2008 the dollar accounted for 64 percent of global central bank reserves, down from 73 percent in 2001, according to the IMF in Washington.
On June 13, Russian Finance Minister Alexei Kudrin reassured investors of the country’s confidence in the greenback by saying it was “still early to speak of other reserve currencies.” Brazilian Finance Minister Guido Mantega said on June 10 the government’s decision to switch some reserves into IMF bonds wasn’t aimed at weakening the dollar.
Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show.
Diversifying Holdings
China has started to pare its holdings, trimming them by $4.4 billion to $763.5 billion in April, the first monthly reduction since February 2008, according to U.S. Treasury Department data. Figures for May have yet to be released.
“There may be signs here of tensions mounting between the PBOC’s economic concerns over China’s holdings of dollars and the Chinese government’s diplomatic reasons for doing so,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, wrote in an e-mail.
Russian President Dmitry Medvedev, Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva called for a “more diversified” monetary system to reduce dependency on the greenback at a June 16 meeting in the Russian city of Yekaterinburg. In May, China and Brazil began studying a proposal to move away from the dollar and use yuan and reais to settle trade instead.
Group of 20
Group of 20 leaders on April 2 gave approval for the IMF to raise $250 billion by issuing Special Drawing Rights, or SDRs, the artificial currency that the agency uses to settle accounts among its member nations. It also agreed to put another $500 billion into the IMF’s war chest. This month, Russia and Brazil announced plans to buy $20 billion IMF bonds, while China said it is considering purchasing $50 billion.
“Special drawing rights of the IMF should be given full play, and the international body should manage part of its members’ reserves,” the central bank report said.
IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible to take the “revolutionary” step of making SDRs a reserve currency over time.
SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.
Widening the Basket
The value of SDRs are based on a basket of currencies, shielding them from swings in a single currency. One SDR is valued at $1.54. China is proposing the basket be broadened. The current weighting is: 44 percent for the dollar, 34 percent for the euro and 11 percent each for the yen and the pound. It doesn’t include the yuan.
The dollar’s dominance of global finance buffeted developing nations last year. Investors abandoned emerging markets after the September bankruptcy of Lehman Brothers Holdings Inc. eliminated demand for all but the safest, most easily traded assets, such as Treasuries and the dollar. A shortage of the U.S. currency forced central banks to pump reserves into their economies.
“The excessive reliance on the credit of several sovereign currencies have added to the extent of risks and crises,” the central bank report said. “A currency with stable value in the long term is required.”
Last Updated: June 26, 2009 08:35 EDT
June 26th, 2009
Keith Bradsher’s New York Times story on the recent evolution of China’s foreign portfolio gets — at least in my view — the story right. Of course, that may be because I was — rather obviously — a source for the story. Check out the charts that accompany the article!
The basic story of China’s foreign portfolio is simple: it is trying to reduce the amount of (credit) risk in its fixed income portfolio while simultaneously taking on more commodity risk.
China’s purchases of Treasuries (especially short-term bills) have gone up even as China’s reserve growth has slowed, as China shifted money out of Agencies and — in all probability — out of money market funds that are taking credit risk and other privately managed accounts. The failure of Reserve Primary had a big impact on China. Bradsher:
“Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars. This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. ….
China was the world’s biggest buyer of [securities issued by government-sponsored enterprises] a year ago, splashing out more than $10 billion a month. But in the 12 months through March, it actually had net sales of $7 billion, and ramped up purchases of Treasuries instead. China has also changed which Treasuries it buys. It has done so in ways calculated to reduce its exposure to inflation or other problems in the United States. As recently as a year ago, China actively bought long-dated bonds, seeking the extra yield they could bring compared to Treasury securities with short maturities, of which China bought virtually none. But in each month since November, China has been buying more Treasury bills, with a maturity of a year or less, than Treasuries with longer maturities. This gives China the option of cashing out its positions in a hurry, by not rolling over its investments into new Treasury bills as they come due should inflation in the United States start rising and make Treasury securities less attractive.
At the same time, China has sought to ramp up its exposure to commodities. China’s government clearly is adding to its strategic stockpiles — and perhaps encouraging state firms to build up inventory as well. China’s government is encouraging Chinese state firms to invest more abroad, especially in the mining sector. And China’s government is providing financing to cash-strapped commodity exporters (Russia, Kazakhstan, Brazil and no doubt others) to help tide them through a rough patch and, China hopes, to secure future supplies. Bradsher:
“This spring China has also been stepping up its purchases of commodities, which are usually bought in dollars. Iron ore has been piling up on Chinese docks, government stockpiles of crude oil and grain are being expanded and stockpiles are being started for products like gasoline, diesel and sugar.”
The basic story of China’s foreign portfolio is simple: it is trying to reduce the amount of (credit) risk in its fixed income portfolio while simultaneously taking on more commodity risk.” (Brad Setser)
May 28th, 2009
This recession is now the worst since at least 1958, which is as far back as the index of coincident indicators stretches back.
The Conference Board reported today that the index, which is intended to measure how the economy is doing on an overall basis, slipped a little in April. The decline was smaller than in previous months, and two of the four indicators edged up, which could be taken as a sign that the economy is at least getting worse at a slower pace.
As I noted last month, the index was nearing the 5.6 percent decline that it experienced in the 1973-1975 recession. Now it is down 5.7 percent.
One way to put that into perspective is that the decline so far in this recession is more than the maximum falls combined in the two previous recessions, in the early 1990s and then in 2001.
“..the decline so far in this recession is more than the maximum falls combined in the two previous receptions, in the early 1990s and then in 2001.” (Floyd Norris)
May 27th, 2009
A total of 1 million people get help every day from Germany’s “Deutsche Tafel” food banks — and that number is set to increase because of the recession. The organization’s head, Gerd Häuser, talks to SPIEGEL ONLINE about Germany’s new poverty and the dangers of social unrest.
http://www.spiegel.de/international/germany/0,1518,622965,00.html#ref=nlint
May 8th, 2009
From Bloomberg:
May 7 (Bloomberg) — The current global crisis is “vastly worse” than the 1930s because financial systems and economies worldwide have become more interdependent, “Black Swan” author Nassim Nicholas Taleb said.
“This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb, 49, told a conference in Singapore today. “Navigating the world is much harder than in the 1930s.”
The International Monetary Fund last month slashed its world economic growth forecasts and said the global recession will be deeper than previously predicted as financial markets take longer to stabilize. Nouriel Roubini, 51, the New York University professor who predicted the crisis, told Bloomberg News yesterday that analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.”
“Certainly the rate of economic contraction is slowing down from the freefall of the last two quarters,” Roubini said. “We are going to have negative growth to the end of the year and next year the recovery is going to be weak.”
Federal Reserve Chairman Ben S. Bernanke told lawmakers May 5 that the central bank expects U.S. economic activity “to bottom out, then to turn up later this year.” Another shock to the financial system would undercut that forecast, he added.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avf2KVFwU8xQ
May 7th, 2009
AT THE FINANCIAL TIMES: http://www.ft.com/cms/s/0/3d89a930-220d-11de-8380-00144feabdc0.html?nclick_check=1
The rare nature of this recession precludes a cyclically normal US recovery. Instead, we are consigned to a slow, painful climb-out, as are nations such as Japan and Mexico that depend on US demand. The implications for US policy include a likely second round of stimulus, much more federal capital for the banking system and stunning budget deficits that will slow key initiatives for President Barack Obama, such as healthcare and energy reform.
What is unusual is that this is a balance-sheet driven recession, centred on the damaged financial condition of both households and banks. These weaknesses mandate sub-normal levels of consumer spending and overall lending for about three years.
In contrast, most postwar recessions had a different sequence – rising inflationary pressures, a monetary tightening to counter them and, then, a slowdown in response to higher interest rates. This was the pattern of the sharp 1980-81 slowdown.
None of that happened here. Instead, we saw a housing and credit market collapse that caused enormous losses among households and banks. The result was a steep drop in discretionary consumer spending and a halt to lending. To see why recovery will be slow, we can look at the balance sheet damage. For households, net worth peaked in mid-2007 at $64,400bn (€47,750, £43,449bn) but fell to $51,500bn at the end of 2008, a swift 20 per cent fall. With average family income at $50,000, and falling in real terms since 2000, a 20 per cent drop in net worth is big – especially when household debt reached 130 per cent of income in 2008.
This debt derived from Americans spending more than their income, reflecting the positive wealth effect. Households felt wealthier, despite pressure on incomes, because home and financial asset values were rising. Now that wealth effect has reversed with a vengeance. The crisis and unemployment have frightened households into raising savings rates for the first time in years. They had been stagnant at 1-2 per cent of income but have surged to nearly 5 per cent. With reduced incomes, only cutting discretionary spending can produce higher savings. This explains why personal consumption expenditures fell at record rates at the end of 2008.
Consumer spending, however, has approximated 70 per cent of US gross domestic product for the past decade and dominates our economy. But household balance sheets will not be rebuilt soon. Home values will keep falling through mid-2010 and there is no precedent for equity markets, still down 45 per cent from their peak, to make those losses up in just two years. It is illogical, therefore, to expect a full snap-back in the consumer sector in 2010 or 2011. This alone mandates a drawn-out, weak recovery.
The second key sector is the financial one. According to the International Monetary Fund, western financial institutions, mostly in the US, have realised $1,000bn of losses on US-originated assets since the crisis began. The IMF has estimated that unrealised losses may amount to another $1,000bn. With residential and commercial real estate steadily declining, this is possible. This is why the banking sector cannot make new loans. These losses are eating into banks’ capital and shrinking their capacity to add assets. Funds from the Troubled Asset Relief Program are only replacing lost capital, not increasing it. When might they end? With key categories of toxic assets still losing value, the answer is: not soon. The scale of lending needed to support a normal cyclical recovery will not materialise.
A third constraint on recovery may involve the federal balance sheet. The fiscal and monetary engines are currently on full throttle. But, within two years, concerns over budget deficits and inflation may revive, compelling the Federal Reserve to raise interest rates and Congress to adopt deficit reduction steps. These actions, contractionary by definition, could occur before a full recovery has asserted itself. On that basis, the federal balance sheet would also limit a full recovery.
This weak outlook is likely to force a second injection of spending rises and tax cuts in 2010 to prod demand. Despite public opposition, substantially more federal capital will be required for banks. The deficit outlook will worsen, perhaps to $1,000bn annually over 10 years. That will force a slowing of Mr Obama’s investment plans. That is a shame, because those investments are needed, but this balance sheet recession will be too deep.
The writer is chairman and CEO of Evercore Partners and former deputy Treasury secretary in the Clinton Administration
April 6th, 2009
The United States treasury’s plan to deal with “toxic assets” relies on the very financial institutions that created the economic whirlwind. The young presidency is already in a vice, says Godfrey Hodgson.
President Barack Obama joked in his press conference on 24 March 2009 that the euphoria of his inauguration two months earlier had lasted only a single day. The hope he had the audacity to proclaim is not yet dead. But – even as he prepares to leave for a trip to Europe that will encompass the G20 summit in London (2 April), the Nato anniversary summit jointly hosted by France and Germany (3-4 April), and visits to the Czech Republic (4-5 April) and Turkey (6-7 April) – the future prospects of his presidency are already in the balance.
Among openDemocracy’s articles on the economic crisis:
Willem Buiter, “The end of American capitalism (as we knew it)” (17 September 2008)
Ann Pettifor, “The week that changed everything” (22 September 2008)
Will Hutton, “Wanted: a fairer capitalism” (6 October 2008)
Avinash Persaud, “Europe’s financial crisis: the integration lesson” (7 October 2008)
Paul Rogers, “A world in flux: crisis to agency” (16 October 2008)
Andre Wilkens, “The global financial crisis: opportunities for change” (10 November 2008)
Simon Maxwell & Dirk Messner, “A new global order: Bretton Woods II…and San Francisco II” (11 November 2008)
Larry Elliott, “From G8 to G20: the end of exclusion” (16 November 2008)
Krzysztof Rybinski, “A new world order” (4 December 2008)
Paul Rogers, “A world in revolt” (12 February 2009)
Katinka Barysch, “The real G20 agenda: from technics to politics” (16 March 2009)
Krzysztof Rybinski, “There is no zombie free lunch” (18 March 2009)
Sue Branford, “The G20’s missing voice” (26 March 2009)
Will Hutton, “A G20 deal: power bends to protest” (29 March 2009)
With great courage, Obama has insisted that he would stick to his promises to tackle long-term failings in American society, even as he struggled to heal the economic crisis. He continues to press for these reforms – in climate-change policy, healthcare, public education, dependence on imported oil, and growing inequality – even as he grapples with the blocking of credit and the terrible unemployment that is one of its consequences.
The week of 23-29 March saw a new twist: the emergence of a deadly dilemma that the president has to resolve. He has learned that he cannot unblock credit without going a long way to appease the interests of the bankers who caused the problem in the first place. At the same time he has become aware of the rising fury among everyday Americans triggered by the huge bonuses paid to executives at AIG, the giant insurance company that in 2008 posted the biggest losses in American business history.
Everyone agrees that the knot that has to be cut is the astronomical quantity of “toxic assets” poisoning the balance sheets of American banks – as well as those European banks (the Royal Bank of Scotland, Paribas, Deutsche Bank and UBS among them), which thought it was clever to copycat every Wall Street fashion.
The plan unveiled by Obama’s treasury secretary Timothy Geithner on 23 March hands to the banks the juiciest of “sweetheart” deals to persuade them to buy up what Geithner calls “legacy assets” (the financial crisis has given free rein to American public life’s culture of euphemism).
The president’s vice
Geithner’s plan distinguishes between securities based on truly valueless loans and those whose value has simply been depressed by the economic downturn. It proposes that the treasury and “private investors” – which in practice can only mean the investment banks, commercial banks and hedge-funds which created and invested in the toxic assets in the first place – will buy equal amounts of the unsaleable assets. But private investors will only be able to do so thanks to a far larger injection of money to be lent by a government agency, the Federal Deposit Insurance Corporation (FDIC).
Altogether it is calculated that private investors will contribute 6% or 7% of the money to clean up the banks’ balance-sheets. The taxpayer, in the shape of the treasury and FDIC, will put up more than 90%. That, in the good old days before Wall Street collapsed, used to be called “leverage” of perhaps thirteen-to-one. With government standing behind them to that extent, why wouldn’t the banks buy trash at prices kited with government money?
Timothy Geithner makes much of the importance of keeping the rescue in the private sector, which it patently is not. He also speaks warmly of the professional skills that will be devoted to the task by the very speculators who brought the economy to its knees.
The liberal economic intelligentsia don’t like it. Jeffrey Sachs calls it a “massive transfer of wealth from taxpayers to bank shareholders”. In a deadly back-of-the-envelope calculation he estimates that the plan will hand $276 billion – even today a not inconsiderable sum – directly from the taxpayers to bank shareholders (see Jeffrey Sachs, “Will Geithner and Summers Succeed in Raiding the FDIC and Fed?“, VoxEU, 25 March 2009).
The Nobel laureate and New York Times columnist Paul Krugman dismisses the plan as not much more than a revival of the George W Bush administration’s plan to absorb the banks’ toxic assets: just more “cash for trash”. The economist and former labour secretary, Robert Reich, and the Columbia University scholar Joseph Stiglitz are equally acerbic (see Edward Luce, “America’s liberals lay into Obama“, Financial Times, 27 March 2009).
The co-editor of The American Prospect and respected commentator, Robert Kuttner, says the Obama administration has chosen “the most expensive and risky way of trying to recapitalise the banks, and the least likely to succeed”. Kuttner also identifies a point that is likely to be the target of much angry criticism, namely that the president has turned to “the same Wall Street crew” who failed to handle the situation under the Bush administration, and indeed who were largely responsible for what went wrong in the first place: Robert Rubin, Laurence Summers, and their protégés (see Robert Kuttner, “Geithner’s last stand“, Huffington Post, 22 March 2009).
If anyone had any doubts about who would benefit from the Geithner “public-private partnership”, they had only to watch how the stock market responded. Bank shares overall rose by 10% in the aftermath, but the biggest banks that have survived did better than that. Citigroup was up 19%; Bank of America shot up 26% in heavy trading; Wells Fargo’s shares rose by 24%, and J.P. Morgan Chase’s by 25%. A day later, however, the wave of market enthusiasm had subsided.
The truth is that Obama now finds himself in a new vice. He feels he needs people from Wall Street to solve the street’s problems. That is one reason why it has taken him so long to fill the key jobs at the treasury under Geithner. At the same time he clearly underestimated the rage Main Street citizens feel both at the AIG bonuses and the broader proposition: that while they face losing their jobs and their homes because of the folly and greed of the financial sector, the only people who walk away laughing are the folks who caused the disaster in the first place.
No wonder that questions are being asked about the ubiquitous presence of present and former executives of Goldman Sachs in the Obama administration, just as in the ranks of its precedessor.
A time to choose
Barack Obama showed in his long campaign for the presidency that he is a very skilled politician. He is also by temperament cautious, even conservative. His instinct is to “reach across the aisle” in order to cure what he sees as the excessive partisanship of the years since the “Reagan revolution“. He is too a patient man. But now he understands that he has got to move fast if he is to save the hopes of his presidency (see “Barack Obama: don’t waste the crisis“, 6 February 2009).
In this the president is both beneficiary and victim of larger historic forces. The same event that cleared his way to the White House, the financial crisis symbolised by the fall of Lehman Brothers on 15 September 15 2008, may have made it impossible to govern; or at the least, may mean that he will have to sacrifice at least some of his hopes of long-term reform (see “The week that democracy won“, 29 September 2008).
In the short term, in order to heal the financial crisis it looks as though he has had to put the fate of his administration in the hands of the men from Wall Street.
Amid the stock-market panic of 1907, the financier JP Morgan was surprised that President Theodore Roosevelt didn’t “send your man to fix things up with my man”. It couldn’t be done like that then, and it can’t be done now. But the young president and his even younger treasury secretary have nonetheless been taught a hard lesson in political economy.
To govern is to choose, as Aneurin Bevan – the Welsh architect of Britain’s post-1945 national healthcare system – said. It is now clear that inviting the poachers to act as gamekeepers was a mistake. Many Americans long accepted the conservative contention that government was the problem, not the solution. That phase of history seems to have ended, and a progressive president finds himself coping with a new wave of populism of a kind that seemed to have disappeared from America politics for generations. He means to govern, and he will have to choose.
Godfrey Hodgson was director of the Reuters’ Foundation Programme at Oxford University, and before that the Observer’s correspondent in the United States and foreign editor of the Independent. His books include The World Turned Right Side Up: a history of the conservative ascendancy in America (Houghton Mifflin, 1996); More Equal Than Others: America from Nixon to the New Century (Princeton University Press, 2006), and A Great and Godly Adventure: The Pilgrims and the Myth of the First Thanksgiving (PublicAffairs, 2007)
At Open Democracy: http://www.opendemocracy.net/article/barack-obama-end-of-the-beginning
April 5th, 2009
http://news.bbc.co.uk/1/hi/in_pictures/7969802.stm
Commentary by Matthew Lyn
The stage couldn’t be more ominous. While the Group-of-20 leaders gather in London, angry protesters are preparing their verbal assault.
Their words will fall on deaf ears.
Many of the presidents and prime ministers at tomorrow’s summit are already on political death row. The fallout from the global recession is about to claim some leadership victims.
U.K. Prime Minister Gordon Brown, who hosts the summit, has trailed the Conservatives in every opinion poll since January 2008. Brown’s Labour Party is more than 10 points behind.
The British electorate has taken a good look at him and decided it doesn’t much like what it sees. The U.K. is in a deep recession from which there is no obvious escape. As chancellor for 10 years, Brown can hardly shift the blame. His attempts to avoid the rap just make him look ridiculous. At next year’s election, he’s history.
Few of the other summit attendees are in better shape. French President Nicolas Sarkozy has lost what little momentum for economic renewal he had. He has faced mass strikes, supported by a majority of the French, who don’t believe he is doing enough to fix the financial crisis.
German Chancellor Angela Merkel looks a bit steadier, and her grip on economic logic has been firmer, but the poll ratings for her Christian Democratic Union party stand at only 34 percent. She stays in the lead only because the left-wing opposition parties remain hopelessly split.
Unpopular Leaders
Japanese Prime Minister Taro Aso has a popularity rating of just 22 percent, even with his main opposition in disarray. And Mexico’s President Felipe Calderon is expected to suffer heavy losses in this year’s mid-term Congressional elections.
Czech Prime Minister Mirek Topolanek already resigned last month after failing a no-confidence vote. The Czech Republic currently holds the presidency of the European Union.
With China, Brazil and India still excluded from the core G-7 group of countries, the only leader of any real strength will be U.S. President Barack Obama, and he’s too busy trying to repair the reputation of his country so it can be taken seriously again.
The G-20 meeting is unlikely to achieve much. Participants aim to fix the global financial architecture when there isn’t much evidence that it was broken. The credit crunch was caused by loose monetary policy and the ensuing financial bubble. It had little to do with the International Monetary Fund, the World Bank, the World Trade Organization or any of the bodies the G-20 might want to overhaul. Summit leaders will just waste time on tax havens and the inevitable onset of protectionism.
No Agreement
The size of the grouping is also absurd. A G-3 — the U.S., China and the EU — might have a chance of agreeing on something meaningful. A group of 20 people won’t even agree on what to have for lunch, never mind fixing the global economy. The leaders will just use the event for photo opportunities to appease voters back at home.
Lastly, with the possible exception of Obama, few of the leaders have enough authority to implement any serious changes to the way their economies work. We are going to see a lot of anger among voters in the next two or three years. They are likely to desert those in office when the music stopped.
There will be a solution to the credit crunch eventually, but it is unlikely to come from the G-20 leaders. By pushing an agenda that suggests there is a single global fix to the economic crisis, they are just making the problem worse.
“The only real hope appears to be that the eminent pragmatism of the likes of Merkel and Brazilian President Lula might come to the fore, given that the Browns and the Obamas appear to be full of vacuous grandstanding rhetoric,” Marc Ostwald, a fixed-income strategist at Monument Securities in London, said in a note to investors.
An exaggerated faith in summits will be one of the reasons for the demise of some leaders. They should have just admitted it will be a long, hard slog to revive the global economy and then canceled this week’s powwow.
(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net.
April 1st, 2009
