Links: 2013-11-07
ECB
The ECB confronts the zero lower bound | Gavyn Davies
This was written at the weekend. Makes for good reading given the ECB’s rate cut
ECB’s Draghi stuns markets with rate cut but deflation still looms – Telegraph
“The euro plunged two cents against the dollar before recovering slightly to €1.3370, welcome relief for France and Italy, where a chorus of voices has been demanding action to protect exports. France’s industry minister Arnaud Montebourg said last week that a 10pc fall in the euro could save 150,000 French jobs, and issued a veiled threat to mobilise the treaty powers of EU ministers to shape the exchange rate. “
Europe
BBC News – General strike against cuts brings Greece to a halt
Europe Making Same Mistakes as Japan in 1990s – Real Time Economics – WSJ
“The paper, by economists Takeo Hoshi of Stanford and Anil Kashyap of the University of Chicago, argues that Japan made two critical policy mistakes after its crisis that held back its recovery. First, policy makers failed to beef up banks’ capital cushions and force them to clean up their balance sheets, the authors say. Second, they failed to undertake structural reforms that were needed to boost economic growth, mistaking the country’s problem as purely a cyclical one.”
Spain industrial output grows for the first time 30 months in September | Reuters
EU forecasts are wake-up call for Spain – FT.com
“Brussels sharply lowered its growth prediction for next year, saying Spain’s gross domestic product was likely to rise by just 0.5 per cent in 2014, rather than the 0.9 per cent forecast by the commission in March.
The Spanish government, in contrast, recently raised its forecast for next year and is hoping for growth of 0.7 per cent in 2014. The Brussels prediction is unnerving, not least because it flies in the face of the recent consensus: both the International Monetary Fund and a string of private sector analysts have recently revised upwards their growth expectations for Spain.
More worrying still, the commission also predicted that Spain’s government deficit was likely to rise from 5.9 per cf GDP next year to 6.6 per cent in 2015. That would be more than double the 3 per cent deficit target that Madrid is supposed to reach in 2016.”
Sparkassen-Vermögensbaromter: Deutsche stürzen sich auf Immobilien – SPIEGEL ONLINE
Results from Germany’s savings bank survey: 50% of Germans names residential property as an ideal investment vehicle, 5% more than one year ago. 34% believe that, because of low rates, that there is no better time than now for real estate.
Euro-Zone Demand Boosts German Manufacturing – WSJ.com
Watch Greece – it may be the next Weimar Germany – FT.com
Pessimistic but a must read piece. Says Greek reforms have not worked or were never attempted, neo-Nazi party tolerated by populace. Author’s conclusion: All of this equals Weimar.
Italy to join deflation club? – Telegraph Blogs
Bini Smaghi is the former Italian ECB member who is more German than the Germans on monetary orthodoxy. Here he channels that with some thoughts on austerity. His comments ONLY apply to Italy and are completely ludicrous in the context of Spain and Ireland. But, I see this as a MUST-READ piece because it explains the European position on austerity.
Macro Imbalances
Bruegel | The German trade surplus may widen with the euro-area recovery
The modern Deutschmark | FT Long Short
“If Germany still had the Deutschmark, it would be the weakest since just before the Plaza accord in 1985 – when the US was panicking about the strength of the dollar. This time it isn’t the strong dollar that is the problem. Germany is benefiting at the expense of the rest of the world, and particularly the rest of the eurozone. There’s been a bit of a pick-up from last summer (when the implied currency was by far the weakest it had even been in labour cost terms, and also set a new low in terms of consumer prices). But the Deutschmark is still weak.
Germany is behaving like a hard-currency country while benefiting from having a currency kept soft by its other members. No wonder the rest of the world is upset.”
Macroeconomic Imbalance Procedure – European Commission
“The Macroeconomic Imbalance Procedure (MIP) is a surveillance mechanism that aims to identify potential risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that are already in place. The annual starting point of the MIP is the Alert Mechanism Report: Based on a scoreboard of indicators, it is a filter to identify countries and issues for which a closer analysis (in-depth review) is deemed necessary. The outcome of these in-depth reviews forms the basis for further steps under the MIP whereby a graduated approach is followed reflecting the gravity of imbalances. The MIP has a preventive and a corrective arm. The latter is made operational by the Excessive Imbalance Procedure, which can eventually lead to sanctions for euro area Member States if they repeatedly fail to meet their obligations.”
EU opens door to showdown with Germany on trade surplus – Telegraph
“EC report said Germany’s surplus will narrow slightly from 7pc of GDP this year to 6.6pc in 2014 and 6.4pc in 2015, but this still breaches “macro-imbalances” rules “
Fed
On Lowering the Unemployment Target – Tim Duy’s Fed Watch
I have been predicting this is where we were headed for weeks:
“Policymakers would like to normalize policy by moving away from asset purchases to interest rates. Emphasizing forward guidance is part of that process. Incoming research suggests not only that threshold based forward guidance is effective, but has room to be even more effective.
The basic story is that the Fed has already made clear that 6.5% is a threshold, not a trigger, and policymakers have indicated that they see it likely that rates will remain near zero well after 6.5% is reached.”
What Fed economists are telling the FOMC | Gavyn Davies
“The English paper extends the conclusions of Janet Yellen’s “optimal control speeches” in 2012, which argued for pre-committing to keep short rates “lower-for-longer” than standard monetary rules would imply. The Wilcox paper dives into the murky waters of “endogenous supply”, whereby the Fed needs to act aggressively to prevent temporary damage to US supply potential from becoming permanent. The overall message implicitly seems to accept that tapering will happen broadly on schedule, but this is offset by super-dovishness on the forward path for short rates.”
North America
“”Change in private inventories” added 0.83 percentage points to GDP in Q3. This was above expectations of a 2.0% growth rate, but mostly because of inventories.”
Worried Senators Press Obama on Health Law – WSJ.com
“Democratic senators took their complaints about the troubled launch of the federal health law directly to the White House Wednesday, as the surprisingly close governor’s race in Virginia prompted some in the party to warn that they would face voter backlash next year if the problems weren’t fixed.”
Ex-CEO of collapsed Virginia bank gets 23 years for fraud | Reuters
“A former chief executive of Bank of the Commonwealth was sentenced on Wednesday to 23 years in prison and ordered to pay $333.6 million in restitution for running what federal prosecutors called a massive fraud that led to the failed Virginia lender’s demise.
The sentence imposed against Edward Woodard is one of the longest for a top bank executive over activities that prosecutors have said contributed to the hundreds of bank failures since the 2008 financial crisis.”
Housing
New Condos Weighing on Toronto’s Housing Market – Canada Real Time – WSJ
House price rises to fuel UK growth next year, says NIESR – Telegraph
“Output to return to pre-crisis peak in 2015, respected think-tank says, though wage increases will lag behind price rises for another five years “
House prices to soar in London’s commuter belt – Telegraph
“Prime property prices – defined as the top 5pc to 10pc of the overall market – in the fringe suburbs such as Weybridge, Cobham and Esher in Surrey, Rickmansworth in Hertfordshire and Lockswood in Bromley, will jump 26.3pc over the next five years as young professionals and City workers move outwards either to get a foothold on the property ladder or to secure a larger family home.
Research from the property advisers Savills forecasts that the escalating cost of prime property in central London will reverse, with the rate of growth falling 1.0pc in 2015, but picking up again by 8pc the year after. Over the five-year period to 2018, central London prices will increase 23.1pc. “
Halifax: house prices up 7pc, but growth is slowing – Telegraph
Asia
The ghost at China’s third plenum: demographics – FT.com
“It is hard to overstate how fast China is ageing. Life expectancy has more than doubled from 35 in 1949 to 75 today, a miraculous achievement. Meanwhile, the fertility rate has plummeted to 1.5 or lower, far below the 2.1 needed to keep a population stable. Cai Fang, a demographer at the Chinese Academy of Social Sciences, says the country will have moved from labour surplus to labour shortage at the fastest pace in history.
The number of Chinese over 65 will triple to 300m by 2030. Today, only 1.5 per cent of the elderly are in institutional care. But the low birth rate will make it harder for single offspring to look after parents and grandparents.”
Early Look: China Set for a Slowdown – China Real Time Report – WSJ
“Chinese exports likely rose just 1.5% year-on-year in October, according to the median forecast of 13 economists polled by The Wall Street Journal. That would follow a 0.3% on-year fall in September.
Industrial production, a broader proxy for GDP, is forecast to slip down to 10.0% on-year growth, from 10.2% in September.”
Technology
The Nexus 5 isn’t pure Android, it’s pure Google | The Verge
Nokia preparing an 8-inch Lumia tablet for early next year | The Verge
Civil Liberties
Poll: Public Supports NSA Spying On Their Email, Neighbors And Foreign Leaders | TechCrunch
Warnings from whistleblowers past : Columbia Journalism Review
“Historically, government and corporate whistleblowers have suffered reprisal not only from their employers and the government, but from the broader public as well. There is a common public misconception that whistleblowers would have blanket legal protection if they would only go through “proper channels” with their complaints. So, this line of thinking goes, if whistleblowers reveal wrongdoing to the press rather than discreetly speaking to their bosses or a trusted member of Congress, they must be in it for the fame or the money. “
New evidence surfaces that NSA and GHCQ tapped into Google and Yahoo private networks | The Verge
“The new documents show data held by the NSA in formats that are otherwise only found on Google and Yahoo’s private network — essentially a smoking gun for the previously alleged network-tapping.”
Germany Mulls Questioning Edward Snowden in Moscow – SPIEGEL ONLINE
“The German government refuses to grant Edward Snowden political asylum, with authorities instead seeking to establish contact with him in Moscow. The strategy is unlikely to benefit either side.”
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