*DJ Fed’s Plosser:’Monetary Policy Has Exposed Us To Substantial Inflation Risk’
Maybe it’s a learning disability…
Category Archives: Inflation
Osborne Says Moody’s Warning on Debt Shows U.K. Can’t Waver on Austerity
One more for the scrap book.
This stuff is now way beyond comment.
Osborne Says Moody’s Warning on Debt Shows U.K. Can’t Waver on Austerity
By Robert Hutton and Gonzalo Vina
February 14 (Bloomberg) — Chancellor of the Exchequer George Osborne fended off accusations that he’s not doing enough to boost growth and said a warning by Moody’s Investors Service that Britain may lose its Aaa credit ratingshowed he’s right to focus on reducing borrowing.
“For me it was a reality check,” Osborne told BBC Radio 4’s “Today” show this morning. “It’s yet another reminder that Britain doesn’t have an easy way out of its economic problems. Of course the weaker growth prospects of Britain and just about every other economy is a challenge. People have a choice about where to put their money. If they don’t see Britain dealing with its problems, they will take their money elsewhere.”
The driver behind the change to a “negative outlook” for Britain’s Aaa rated debt is a “weaker macroeconomic environment,” Moody’s said in a statement in London late yesterday. Shocks from the euro area’s sovereign debt crisis are also weighing on the U.K., it said.
Osborne rejected criticism from the opposition Labour Party that he’s too focused on retaining Britain’s top-grade credit rating, arguing that keeping borrowing costs low is the best way to deliver growth. Ed Balls, Labour’s Treasury spokesman, said today that Osborne’s austerity program is getting in the way of economic expansion and risks tipping the U.K. into its second recession in less than three years.
‘Waking Up’
“I fear the world is making the 1930s mistake, and the ratings agencies are partners in this,” Balls told the BBC. “Today is the first evidence that even the ratings agencies are waking up.”
U.K. 10-year gilt yields were little changed at 2.12 percent at 9:41 a.m. in London after inflationslowed to the least in 14 months in January. The pound fell 0.3 percent to $1.5724, after earlier declining to $1.5686, a two-week low.
“The U.K.’s outstanding debt places it amongst the most heavily indebted of its Aaa rated peers, alongside the United States and France, whose Aaa ratings also carry a negative outlook,” Moody’s said.
Spending cuts that helped the U.K. preserve its top credit rating last year and bolstered the pound are now weighing on the currency as investors lose confidence. Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg. Gilts are lagging behind lower-rated Treasuries, after world- beating gains of almost 17 percent last year.
China says January lending down 28% from year ago
Looks like China is still in ‘inflation fighting’ mode as state lending over there is functionally like federal deficit spending here.
As previously discussed, while China may successfully engineer a soft landing in their fight against inflation, I’ve never seen anything but hard landings elsewhere when fighting inflation. And with China a ‘first half/second half’ story, a weak first half generally means an even weaker second half.
China says January lending down 28% from year ago
February 12 (AFP) — Chinese bank lending fell 28 percent in January from a year earlier, official data showed, suggesting Beijing is reluctant to open the credit valves too quickly for fear of reigniting inflation.
State-owned lenders issued 738.1 billion yuan ($117.26 billion) in new loans in January, down 288.2 billion yuan from the same month last year and well short of analyst forecasts for one trillion yuan, the central bank said Friday.
Banks handed out 640.5 billion yuan in loans in December.
Chinese banks typically ramp up lending at the beginning of the year to avoid losing quotas issued by regulators and the effects of changes in monetary policy. Analysts said the weaker-than-expected data partly reflected the earlier than usual Chinese Lunar New Year holiday, which fell in January, and the government’s still tight restrictions on credit.
Mark Williams, an economist at Capital Economics in London, said it was the lowest December to January increase since 2007.
“It is hard to escape the feeling that the weakness of lending was at least partly a reflection of the slow pace at which policy is being eased,” he said.
Late last year the central bank eased lending restrictions on banks and analysts expect similar moves this year as authorities try to spur economic activity and prevent a collapse in the property market.
But most experts had forecast another easing of bank reserve requirements before the week-long Lunar New Holiday and the government’s failure to act suggests it does not expect a sharp slowdown in economic growth.
There is growing evidence that the world’s second largest economy is slowing as turmoil in eurozone countries and weakness in the United States hurts demand for Chinese exports, a key driver of the Asian giant.
The International Monetary Fund this week warned that an escalation of Europe’s fiscal woes could slash China’s economic growth by half this year, and it urged Beijing to prepare stimulus measures in response.
But Chinese leaders, worried about reigniting politically sensitive inflation, have signalled their intention to move cautiously and fine-tune policy as needed.
Consumer borrowing rose $19.3 billion in December
With the federal deficit coming down it takes more consumer and business borrowing to keep GDP (modestly) growing.
And note that student loans are reportedly responsible for half the gain.
Looks to me like it’s going to take a lot more consumer debt growth just to start lowering the output gap.
The largest gains are traditionally to be had in housing, but still no sign of that sector materially improving.
Nor is a proactive fiscal relaxation in the cards.
If anything there’s risk of taxes going up and more spending being cut.
Consumer borrowing rose $19.3 billion in December
Feb 25 (AP) — Americans accelerated their borrowing in December for the second straight month, running up more credit card debt and taking out loans to buy cars and attend school.
Consumer borrowing rose by $19.3 billion in December after a $20.4 billion gain in November, the Federal Reserve said Tuesday. The two increases were the biggest monthly gains in a decade.
Total consumer borrowing is now at a seasonally adjusted $2.5 trillion. That nearly matches the pre-recession borrowing level. And it is up 4.4 percent from the September 2010 post-recession low.
The rise in borrowing could be a sign that Americans are more confident in the economy. But consumers are also borrowing more at a time when their wages haven’t kept pace with inflation.
The outlook for hiring has improved, which could help boost consumer spending.
In January, companies added 243,000 net jobs, and the unemployment rate fell to 8.3 percent, the lowest in three years.
Still, without higher pay, many could pull back further on spending. Consumer spending was flat in December, and the savings rate fell. Consumer spending is important because it accounts for 70 percent of economic activity.
Americans borrowed more on their credit cards in December, likely to buy holiday gifts. A measure of that debt increased by $2.8 billion.
But the bulk of December’s increase was because consumers took out more auto loans and student loans. The category that includes both rose by $16.6 billion.
Ellen Zentner, an economist at Nomura Securities in New York, said that half the gain in that category came from higher student loans. That suggests the weak economy is persuading more people to go back to school.
Greek options
There is probably not much voter support for returning to the drachma.
The voters would probably rather have the Germans run their finances than their own leaders.
They’ve seen past drachma financial dramas, with interest rates spiking for everyone, not just the govt, rampant inflation, and a collapsing currency as well as high unemployment.
With the euro none of that happened, so it’s not obvious the currency is the problem.
What does seem obvious to them is that their leaders are the problem.
So I expect the austerity measures to pass, as the alternative is 0 deficit spending.
And if discounts are ‘granted’ the politics quickly move towards same for the rest of the euro member nations.
Portugal Union Leader Wants Debt Renegotiation
Yes, as previously discussed, the obvious political move is to demand the same discounts as Greece.
Especially with the pending Greek ‘restructure’ and ECB check writing to support the banking system seemingly making the euro stronger and not causing inflation.
And the ‘sustainability maths’ is just about the same for all of them as well, particularly given the current slowdown.
Once the markets realize the politics are moving in that direction, all euro member nation bonds again become suspect and the crisis enters the next stage, resulting in the ECB pretty much funding everything, one way or another.
It’s just a question of how it all gets from here to there.
Portugal Union Leader Wants Debt Renegotiation
By Axel Bugge and Daniel Alvarenga
Feb 7 (Reuters) — Portugal must renegotiate its debts rather than impose harsh austerity measures to overcome its economic crisis, the head of the country’s largest trade union said on Wednesday, threatening to step up strikes if the government pushed on with cuts.
Armenio Carlos, head of the CGTP union, told Reuters Portuguese workers would take a stand against attacks on labor rights, which he said were part of the government’s sweeping economic reforms promised under a 78 billion euro ($103.29 billion) bailout.
“What we defend is the renegotiation of debts, in terms of deadlines, in terms of interest and in terms of the amount,” Carlos said in an interview, adding that the country’s bailout had made it impossible to meet its obligations.
Portugal’s debt currently equals about 105 percent of gross domestic product.
“We are being confronted with a neo-liberal attack on workers’ rights,” he added, saying the government’s recent labor reform, making it easier to hire and fire, could spark a growing wave of protests.
The union leader, a former electrician and an ex-Communist lawmaker who took over as head of the CGTP a week ago, warned that with the austerity policies demanded by the bailout, Portugal was heading down the same road to ruin as Greece.
CH News – 02.01.12
Reads like inflation fears are still there which should temper growth initiatives:
China economy faces downward risks in 2012
Feb 1 (Reuters) — China’s economy faces downward risks in 2012, as weakening external demand cuts into growth of the country’s export sector, the Finance Minister Xie Xuren said in remarks published on Wednesday.
He also said inflationary pressures in China remain strong as international markets are awash with cash, which has helped push up global commodity prices.
“There exists some downward pressure for the economic growth. As the external demand is now fading clearly, Chinese exporters are facing increasing difficulties,” Xie said in an article published in the ruling Communist Party’s mouthpiece magazine, Seeking Truth, which was posted on the central government website, www.gov.cn.
China’s economy, which grew at its weakest pace in 21/2 years in the latest quarter, looks to be heading for an even sharper slowdown in coming months, although an official survey of purchasing managers showed a slight upturn in factory production in January.
Xie also emphasized the important role of fiscal policy in maintaining China’s steady and relatively fast economic growth and said Beijing would continue to implement a proactive fiscal policy this year.
China’s fiscal deficit and government debt ratio, both of which remain within a safe and comfortable zone, are expected to give much scope for the government to keep its proactive fiscal policy, Xie added.
China’s nationwide fiscal revenues jumped 25.8 percent to a record high of 10.37 trillion yuan in 2011, leaving the country with a fiscal deficit of 519 billion yuan, lower than the budgeted 900 billion yuan.
“It is necessary and also possible for us to continue to implement a proactive fiscal policy,” he said. Xie also said that his ministry would provide more fiscal support to small to mediumsized enterprises and step up efforts to cut taxes for some selected sectors to restructure the economy away from exports and towards domestic consumption. “We will further improve tax cut policies in some areas to promote the development of enterprises and boost household consumption,” he added. Beijing has unveiled a slew of tax breaks to help cashstrapped small firms cope with rising costs and has also allowed them to issue more bonds and tap other sources of financing to ease the funding squeeze. The finance ministry also vowed to guarantee enough funding for key construction projects in the 12th five year plan period. Chinese Premier Wen Jiabao also said at a state council meeting on Tuesday that the central government would back funding to major projects already under way to ensure steady growth in investments.
China 2012 Budget Deficit May Rise Slightly
Feb 1 (Bloomberg) — China’s budget deficit may rise slightly or be almost unchanged this year from 2011, Gao Peiyong, a researcher with the Chinese Academy of Social Sciences, wrote in a commentary in today’s People’s Daily.
China may control fiscal expansion this year as maintaining consumer prices is a main problem for the country, Gao wrote
China may cut tax, rather than increase spending to continue conducting positive fiscal policies, according to Gao.
2012 Economic Fundamentals Remain Sound
Feb 1 (Bloomberg) — China’s economic fundamentals remain sound and the country has some advantages that will promote development this year, Finance Minister Xie Xuren wrote in Qiushi article posted on the central government’s website today.
China has “huge” domestic demand potential, Xie writes
China still faces downward pressure on economic growth, “relatively large” inflationary pressure and potential economic and financial risks, Xie writes
China’s deficit rate and debt rate are in a “safe range,” Xie writes
China Says it Will Implement Proactive Fiscal Policy This Year
Feb 1 (Yonhap) — China said Wednesday it will implement a proactive fiscal policy this year in a bid to drive up growth amid growing signs of a global economic slump.
Chinese Minister of Finance Xie Xuren, said in a statement that the government will use financial functions to maintain stable and rapid economic development in China.
China’s economic growth slowed last year, with its gross domestic product growing 8.9 percent on-year in the fourth quarter, slowing from 9.1 percent in the third quarter and 9.5 percent in the second quarter.
Over the course of the year, China’s economy expanded 9.2 percent in 2011 from a year earlier, down from 10.3 percent on-year growth in 2010.
Xie noted that China’s economy is facing downward pressure stemming from external shocks.
“The country’s exports are facing increasing difficulties, affected by significantly weakening external demand,” he said. “New drivers for economic growth need to be developed.”
The country’s export growth has begun slowing on falling global trade.
With global economic uncertainty lingering, including the European fiscal crisis, China has been looking to transform itself into a consumption-oriented economy by raising domestic demand.
GDP/Euro Lending Data
Good report!
Additional notations below:
Karim writes:
U.S. GDP growth in Q4 a bit weaker than expected at 2.8%
Perhaps the FOMC had word of this, explaining the unexpected dovishness?
1.9% of that growth accounted for by inventories. Other contributions: (consumer spending 2%, fixed investment 0.4%, government spending -0.9%, net exports -0.1%).
Rebuilding post earthquake supply lines probably now complete.
Govt spending continues weak, as revenues increase some and the federal deficit falls some.
Imports rise quickly with any increase in consumer spending.
In growth terms: (consumer spending 2%, fixed investment 3.3%, government spending -4.6%, exports 4.7% and imports 4.4%).
So stripping away inventories, growth was below trend. Plus savings rate fell back to 3.7% from 3.9%.
Domestic savings down with spending up indicates increasing consumer debt.
The question is whether this is ‘wanted’ as per increased desires to buy on credit,
or because the decline in govt deficit spending ‘forced’ more consumer debt for ‘essentials’
And, core PCE slowed from 2.1% to 1.1%.
Also explains FOMC dovishness as they see risk as asymmetrical, fearing deflation more than inflation.
In sum, will keep QE3 talk very much alive
And somewhat moot, even as Q1 GDP forecasts are being revised down some, as most don’t think QE matters much for the real economy.
What’s becoming understood is that while there is ‘more the Fed can do’
for all practical purposes there is nothing they can do to further support the real economy.
Euro money and lending data shockingly weak in December.
Might partially explain how some banks apparently got the balance sheet room to buy more national govt debt?
In particular, record single month decline in lending to the non-bank private sector (74bn). Of that, 37bn decline in lending to non-financial corporates and 8bn drop in lending to households.
This should be very supportive of additional ECB rate cuts over the next few months.
from a primary dealer
Preface. I generally subscribe to the view that in free currencies, deficits are mostly self-funding, and ‘enormous’ deficits needn’t be accompanied by higher yields. Government builds a bridge, pays the bridgebuilder, who pays the grocer, who eventually either buys the Treasury or deposits in a bank whose reserves are fungible vs T-bills via the intermediating Fed. Government dissavings and private sector savings are equal and offsetting, as long as the Central Bank has a working spreadsheet and an interest rate target. Yields are just a function of duration needs of savers vs borrowers, but the AMOUNTS always match up. Likewise, I don’t believe that the creation of bank reserves is inflationary or hyper-inflationary; bank lending is capital – not reserve – constrained. Loan officers don’t check the vaults. There is always enough. I continue to marvel at the armies of deficit vigilantes who take aim at Treasuries and JGBs, armed with Gold Standard thinking or even the latest Reinhart/Rogoff, only to retreat 2-3 year later. It didn’t work shorting US Treasuries in 2009-2010 for the ‘money supply’ or ‘deficit spike,’ and that roadside is stacked with corpses. Even the Home Run deficit vigilante hitters who nailed Europe this year (and Europe is, for now, operating as a quasi-Gold standard and an entirely different set of risks) offset those gains with losses betting the other way on the US, UK, and Japan. It’s evident in the returns.
Central Banks ‘Printing Money Like Gangbusters’: Gross
Can’t argue with success:
Central Banks ‘Printing Money Like Gangbusters’: Gross
By Margo D. Beller
Jan 11 (CNBC) — The world’s central banks are “printing money like gangbusters,” which could revive the threat of inflation , Pimco founder Bill Gross told CNBC Wednesday.
By putting “hundreds of billions” in currency in circulation, the central banks “can produce reflation—that’s why we’re seeing the pop in oil, gold” and other commodities, he said in a live interview.
At the same time, “there’s the potential for deflation if the private credit markets can’t produce some sort of confidence and solvency going forward,” Gross said. “So we’re at great risk here, not only in the U.S. but on a global basis.”
Gross has previously predicted a “paranormal” market in 2012 characterized by “credit and zero-bound interest rate risk” and fewer incentives for lenders to extend credit.
He said stock and bond investors must lower their expectations when it comes to returns, with 2 percent to 5 percent as good as they get this year.
He also told CNBC he expects the Federal Reserve will keep interest rates “exactly where it is at 25 basis points for the next three to four years.”
Gross’s Total Return Fund, the world’s largest bond fund, had over $10 billion in outflows in 2011, but Gross stressed the fund “started 2011 at $240 billion and ended it at $244 billion.”
He said he will run the Pimco Total Return Fund ETF , which starts March 1, the same way he runs the bond Total Return Fund, adding, “They’re twins.”