Category: Economy

Analysis of the global economy

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US Housing Still Drowning in Underwater Mortgages – WSJ

According to mortgage-data firm CoreLogic, 11.1 million of homeowners had an underwater mortgage in the fourth quarter, representing a large 22.8% of all residential properties with a mortgage. The share has not come down much since the recovery started in 2009. Of those underwater borrowers, 6.7 million have only a primary mortgage, with an average negative equity of $51,000. Of the 4.4 million with first and second liens, the average amount is $84,000. According to CoreLogic, an estimated $715.3 billion in negative equity is floating throughout the housing market.

via Housing Still Drowning in Underwater Mortgages – Real Time Economics – WSJ.

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Five Largest Banks ‘Should Be Broken Up’: Fed’s Fisher – CNBC

The five biggest banks in the United States are too powerful and should be broken up, Dallas Fed President Richard Fisher said on Wednesday.

The financial crisis has left the five biggest banks even more powerful than before, he said at an event in Mexico City……

“After the crisis, the five largest banks had a higher concentration of deposits than they did before the crisis,” he said. “I am of the belief personally that the power of the five largest banks is too concentrated.”

via Five Largest Banks ‘Should Be Broken Up’: Fed’s Fisher – US Business News – CNBC.

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Contrarian view: ECRI’s Lakshman Achuthan says economy is slowing

ECRI’s Lakshman Achuthan says the economy is slowing:

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EconoMonitor : Note from Athens: Feeling on the Ground Has Palpably Changed

Despite the clear sense of despair and anger in Greece, politicians and members of the public continue to think that the alternative—default and EZ exit—would be even worse.

……Among the increasingly popular fringe left- and right-wing parties, the only party actually advocating a EZ exit is the communist party, or KKE. The KKE will have just over 10% of the vote in the election in April according to most estimates and refuses to cooperate with any other parties in a coalition. For now, the rest of the political establishment advocates doing whatever it takes to remain in the EZ.

….. most Greeks express desperation to stay in the EZ. This is reflected in recent opinion polls: according to a poll conducted in February for Skai TV and Kathimerini, 70% of respondents said a EZ exit and return to the drachma would make Greece’s situation worse and 61% said they viewed the euro favourably.

via EconoMonitor : RGE Analysts » Note from Athens: Feeling on the Ground Has Palpably Changed.

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ECB Allots €529.5 Billion in Long-Term Refinancing Operation – WSJ.com

LONDON—The European Central Bank said it handed out €529.5 billion $712.7 billion in cheap, three-year loans to 800 lenders, the central bank’s latest effort to arrest a financial crisis now entering its third year. Wednesday’s loans were on top of the €489 billion of similar loans the ECB dispensed to 523 banks in late December. The ECB’s goal is both to avoid an escalating crisis as banks struggle to pay off maturing debts and to mitigate a sharp pullback in bank lending to customers across ailing European economies……about two-thirds of the loans went to banks in three euro-zone countries — two in the “periphery,” likely Spain and Italy, and one in the “core,” likely France or Germany.

via ECB Allots €529.5 Billion in Long-Term Refinancing Operation – WSJ.com.

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Equipment Demand Hasn’t Dropped Out, Just Taking a Breather – WSJ

New orders for durable goods fell 4.0% in January. And bookings for nondefense capital goods excluding aircraft — a measure of future business spending on equipment — dropped 4.5%. Although the declines were larger than expected, they shouldn’t raise alarm bells. That’s because much of the weakness traces to special factors.

The first is the end of a tax credit that allowed 100% deduction for equipment bought last year. Not surprisingly, businesses front-loaded their purchases early in 2011.

The second reason is a quirk in the very volatile orders series: New bookings tend to fall in the first month of a quarter, then rebound in the second or third months. The pattern is especially acute in the first quarter.

via Equipment Demand Hasn’t Dropped Out, Just Taking a Breather – Real Time Economics – WSJ.

Comment:~ Accelerated tax write-offs stimulate new capital investment by the private sector, as companies bring forward or initiate expenditure in order to take advantage of the tax deduction. But there is bound to be a (partial) offset when the accelerated write-offs are removed.

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China outlines plan to loosen capital controls – FT.com

China’s capital controls have served it well. It was little harmed by the Asian financial crisis of 1997-98 and has been largely insulated from the global tumult of the past four years. That resilience in the face of external trouble has emboldened conservatives in Beijing who support the status quo.

But there are also problems in maintaining such rigid capital controls. Chinese savers have few investment outlets for their money and plough it into the property market instead. Perhaps most important from a political standpoint, plans to transform the renminbi into a rival to the dollar have run into difficulty – foreign companies do not want a currency that cannot be invested in its country of origin.

“Internationalisation of the renminbi is now a clear mandate, so resistance for capital account liberalisation has been diminishing,” said Liu Li-gang, an economist with ANZ. “The wind has shifted.”

China’s top leaders have given a series of signals in recent months that they want capital account reforms to get into gear.

via China outlines plan to loosen capital controls – FT.com.

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The World from Berlin: ‘Europe is Pouring Money Into a Bottomless Barrel’ – SPIEGEL ONLINE – News – International

In an interview with SPIEGEL published on Monday, [Interior Minister Hans-Peter Friedrich] said: “Greece’s chances to regenerate itself and become competitive are surely greater outside the monetary union than if it remains in the euro area.” He added that he did not support a forced exit. “I’m not talking about throwing Greece out, but rather about creating incentives for an exit that they can’t pass up.” It was the first time a member of the German government called on Greece to leave the currency.

via The World from Berlin: ‘Europe is Pouring Money Into a Bottomless Barrel’ – SPIEGEL ONLINE – News – International.

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China Bystander: World Bank report | 中國外人

The World Bank report offers [China’s reformers] a strategic description of the way forward rather than policy prescription. Its six strategic directions for China’s future are:

  • Completing the transition to a market economy;
  • Accelerating the pace of open innovation;
  • Going “green” to transform environmental stresses into green growth as a driver for development;
  • Expanding opportunities and services such as health, education and access to jobs for all people;
  • Modernizing and strengthening its domestic fiscal system;
  • Seeking mutually beneficial relations with the world by connecting China’s structural reforms to the changing international economy.

via China Bystander | 中國外人.

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