Category: Economy

Analysis of the global economy

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History Of Federal Reserve Tightening | Business Insider

Matthew Boesler writes:

Deutsche Bank Chief U.S. Equity Strategist David Bianco says, “Don’t fear interest rate normalization.” That’s the title of one of his recent research notes, which takes a deep dive into what happened to markets each of the 15 times the Fed has embarked on policy tightening since 1965. Bianco writes, “DB economists and rate strategists forecast an unchanged Fed Funds rate until 2014. However, they forecast a 3.0% 10yr Treasury yield at 2013 end. When QE ends it will likely be akin to early-cycle Fed tightening and the uptick in long-term yields will represent a cyclical rise in rates, both of which are bullish.”

Chart analysis of previous tightening cycles at History Of Federal Reserve Tightening – Business Insider.

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Cosco Expects Large 2012 Loss | WSJ.com

Colum Murphy at WSJ writes:

SHANGHAI—China Cosco Holdings Co., the country’s largest shipping company by fleet size, said it expects to report a large net loss for 2012, marking the second year of losses in a row and an imminent downgrading of the status of its yuan-denominated A shares by the Shanghai Stock Exchange. State-controlled Cosco, whose businesses include container and dry-bulk shipping as well as port operations, said Friday the expected loss would be the result of a weak container shipping market and high fuel costs.

Weak container shipping reflects poor manufactured exports.

Read more at Cosco Expects Large 2012 Loss – WSJ.com.

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Financial hangover is Britain's biggest growth headache

David smith writes:

Sir Mervyn King, in Tuesday’s final regional speech as Bank governor, in Belfast, barely mentioned fiscal policy as a factor in the slow recovery. Instead, as well as the high-inflation squeeze on real take-home pay and the eurozone, he focused on another financial factor.

The problem, he said, was “the extent to which the balance sheets of the major UK banks had grown before the crisis hit, and had been financed primarily by borrowing.

“So the subsequent reduction in bank lending – the deleveraging – was greater here than in many other countries. That deleveraging has as its counterpart a reduction in the amount of (broad) money in the economy and a reduced willingness on the part of banks to expand lending.”

Read more at David Smith's EconomicsUK.com: Financial hangover is Britain's biggest growth headache.

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Visible Hand Of The Fed | Business Insider

Lance Roberts writes:

While the Fed programs that we have witnessed since the financial crisis are historically unique — liquidity driven markets are not. We have witnessed the effects of excess liquidity in the bull market cycle prior to the 2008 financial crisis. The only difference during that cycle was that, through government intervention, real estate was turned into an ATM allowing mortgage equity withdrawals to be the liquidity source for the economy and the markets…….

Read more at Lance Roberts: Visible Hand Of The Fed – Business Insider.

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The China Beige Book Has Some 'Shocking' Data | CNBC

Ansuya Harjani writes:

“In the fourth quarter, we’re seeing corporate loans decline significantly, very shockingly most of our bankers say less than 20 percent of their lending goes to new loans. Most of its going to debt rollovers or increases, they are not funding expansion. That indicates that this is not a period of strong expansion,” Leland Miller, president at CBB [China Beige Book] told CNBC on Wednesday.

via The China Beige Book Has Some 'Shocking' Data.

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Why governments need asset bubbles | The Economist [video]

Zanny Minton-Beddoes, economics editor of The Economist, explains why governments need asset bubbles to mask growing inequality between rich and poor.

Hat tip to Gregor Samsa

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Currency manipulation cost US economy up to 5 million jobs

Extract from a research brief by by C. Fred Bergsten and Joseph E. Gagnon, at Peterson Institute for International Economics, published December 2012:

More than 20 countries have increased their aggregate foreign exchange reserves and other official foreign assets by an annual average of nearly $1 trillion in recent years. This buildup — mainly through intervention in the foreign exchange markets — keeps the currencies of the interveners substantially undervalued, thus boosting their international competitiveness and trade surpluses. The corresponding trade deficits are spread around the world, but the largest share of the loss centers on the United States, whose trade deficit has increased by $200 billion to $500 billion per year. The United States has lost 1 million to 5 million jobs as a result of this foreign currency manipulation.

Read more at POLICY BRIEF 12-25: Currency Manipulation, the US Economy, and the Global Economic Order.

Hat tip to Simon Kennedy at Bloomberg.

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Taoism and Libertarianism

George H. Smith at Libertarianism.org draws parallels between Libertarianism and Taoism, quoting from the Tao Te Ching:

If you want to be a great leader,
you must learn to follow the Tao.
Stop trying to control,
Let go of fixed plans and concepts,
and the world will govern itself.
The more prohibitions you have,
the less virtuous people will be.
The more weapons you have,
the less secure people will be.
The more subsidies you have,
the less self-reliant people will be.
Therefore the Master says:
I let go of the law,
and people become honest.
I let go of economics,
and people become prosperous.
I let go of religion,
and people become serene.
I let go of all desire for the common good,
and the good becomes common as grass.

Taoism identifies the following five principles of leadership:

  1. If leaders have no clear direction they will confuse their followers. To achieve clarity of mind, eliminate the unnecessary.
  2. A clear mind leads to simplicity in thought and action.
  3. A good leader is adaptable. Like water, they are yielding and pliable but “yielding water dissolves the hardest stone.”
  4. A good leader reflects the will of the people. They pay attention and listen. They follow, rather than lead.
  5. A good leader is sparing in exerting authority. They know when to stand aside and not interfere.

The best leaders are those their people hardly know exist……

The best leaders value their words, and use them sparingly.
When they have accomplished their task,
the people say, “Amazing!
We did it, all by ourselves!”

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Don't be fooled: The Republicans are winning | Business Insider

Henry Blodget:

Yesterday, the American government voted to extend almost all of the Bush Tax Cuts permanently. Not temporarily, as a stimulus measure. Permanently.

Read more at DON'T BE FOOLED: The Republicans Are Winning – Business Insider.

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Rogoff: The Unstarvable Beast | Business Insider

Kenneth Rogoff, professor of economics at Harvard University, writes:

As US President in the 1980’s, the conservative icon Ronald Reagan described his approach to fiscal policy as “starve the beast”: cutting taxes will eventually force people to accept less government spending. In many ways, his approach was a great success. But government spending has continued to grow, because voters still want the services that government provides. Today, it is clear that reining in government also means finding ways to shape incentives so that innovation in government keeps pace with innovation in other service sectors….

Read more at Rogoff: The Unstarvable Beast – Business Insider.

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