Euro Swings Won’t Stop China Reserves Shift, Yu Says
Right, they want to stay ‘competitive’ in the euro zone
China Property Stocks to Rebound End-Year, Xia Says
China’s Inflation Target of 3% This year ‘Difficult’ to Meet
Even with the yen rising with the dollar.
Not a good sign.
Inflation per se isn’t ‘bad’ for an economy, it’s that people don’t like inflation and fighting inflation can be very bad for an economy.
With sufficient deficit spending private credit isn’t needed at all to sustain growth and employment, so the shift from private sector credit growth (falling M3) to 3% growth sustained by deficits of 10% of gdp is perfectly sustainable.
In fact, I’d prefer, for a given size govt, lower taxes rather than higher private sector credit growth. And a larger trade deficit means we can have taxes that much lower still. And cut out much the military expenditures for Afghanistan and cut taxes that much more, thanks! etc!
Unfortunately 3% growth doesn’t close the output gap, but that’s another (very ugly) story, but with the same answer. Agg demand is about a trillion a year short of potential right now, hence my proposal for a full payroll tax (FICA) holiday to restore private sector sales, output, and employment.
US money supply plunges at 1930s pace as Obama eyes fresh stimulus
By Ambrose Evans-Pritchard
May 26 (Telegraph) — The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.
The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to “grit its teeth” and approve a fresh fiscal boost of $200bn to keep growth on track. “We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on,” he said.
David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. “You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip,” he said.
The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.
Recent data have been mixed. Durable goods orders jumped 2.9pc in April but house prices have been falling for several months and mortgage applications have dropped to a 13-year low. The ECRI leading index of US economic activity has been sliding continuously since its peak in October, suffering the steepest one-week drop ever recorded in mid-May.
Mr Summers acknowledged in a speech this week that the eurozone crisis had shone a spotlight on the dangers of spiralling public debt. He said deficit spending delays the day of reckoning and leaves the US at the mercy of foreign creditors. Ultimately, “failure begets failure” in fiscal policy as the logic of compound interest does its worst.
However, Mr Summers said it would be “pennywise and pound foolish” to skimp just as the kindling wood of recovery starts to catch fire. He said fiscal policy comes into its own at at time when the economy “faces a liquidity trap” and the Fed is constrained by zero interest rates.
Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown “Friedmanite” monetary stimulus.
“Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty,” he said.
Mr Congdon said the dominant voices in US policy-making – Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke – are all Keynesians of different stripes who “despise traditional monetary theory and have a religious aversion to any mention of the quantity of money”. The great opus by Milton Friedman and Anna Schwartz – The Monetary History of the United States – has been left to gather dust.
Mr Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, deeming it too erratic to be of much use.
This may have been a serious error since double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 – just as the Fed talked of raising rates – gave a second warning that the economy was about to go into a nosedive.
Mr Bernanke built his academic reputation on the study of the credit mechanism. This model offers a radically different theory for how the financial system works. While so-called “creditism” has become the new orthodoxy in US central banking, it has not yet been tested over time and may yet prove to be a misadventure.
Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. “Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched,” he said.
However, Mr Ashworth warned against a mechanical interpretation of money supply figures. “You could argue that M3 has been going down because people have been taking their money out of accounts to buy stocks, property and other assets,” he said.
Events may soon tell us whether this is benign or malign. It is certainly remarkable.
On Thu, May 27, 2010 at 12:04 PM, Marshall wrote:
Yes! For some odd reason there is a myth about the Great Depression that could not be more removed from the reality of the time. Most people believe the economy crashed between 1929 and 1932 and then remained depressed until the Second World War which finally mobilized the economy’s idle resources and brought about a full recovery. That’s complete bunk if you calculate the unemployment data correctly. Even leaving aside that fact, it is true that, once the Great Depression hit bottom in early 1933, it embarked on four years of economic expansion that constituted the biggest cyclical boom in U.S. economic history. For four years real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. There was another shorter and shallower depression in 1937 CAUSED BY RENEWED FISCAL TIGHTENING. It was this second depression that has led to the misconception that the central bank was pushing on a string throughout all of the 1930s until the giant fiscal stimulus of the war time effort finally brought the economy up from depression. The financial dynamics of that huge economic recovery between 1933 and 1937 are extremely striking. Despite their insistence that changes in the stock of money were behind all the cyclical ups and downs in U.S. economic history, even Freidman and Schwartz in their “Monetary History of the United States” conceded that the money aggregates did not lead the U.S. economy out of the depression in 1932-1933. More striking, private credit seemingly had nothing to do with the take off of that economy. Industrial production off the 1932 low doubled by 1935. By contrast, bank credit to the private sector fell until the middle of 1935. Because of the collapse in nominal income during the depression, the U.S. private sector was more indebted than ever on the depression lows. Yet, somehow it took off and sustained its takeoff with no growth in private credit whatsoever. The 14% average annual increase in nominal GDP from early 1932 to 1935 resulted in huge private deleveraging because nominal income outran lagging private.
Fiscal policy is going to undergo a complete reversal as the $850 billion fiscal stimulus package wanes and the scheduled tax increases at the Federal level come into play early next year. It may be much worse if financially strapped state and local governments have to cut expenditures and raise taxes over the same time period – which is highly likely, especially as we get to the states’ budget year end which is mainly to June 30th. By then, if they haven’t got to their mandated balanced budgets, they’ll cut more staff off the payroll as that will temporarily get them to balance (from an accounting perspective). That will exacerbate the double dip, which is coming straight on schedule, as Randy predicted last year in his piece with Eric.
The end game is unfortunately unfolding as Spanish bank losses become Spanish govt losses.
Deposit insurance is only credible at the ‘Federal’ level, not the ‘State’ level.
If the ECB had to write the check the issue would be inflation, but not solvency.
The euro govts can no more fund bank losses than the US States could cover bank losses.
And the euro zone response of spending cuts and tax increases only makes matters worse.
From inception, the euro system has been exactly this kind of accident waiting to happen.
CajaSur Seizure Marks Change for Spain’s Ailing Banks
Lost Decade Looming?
By Paul Krugman
May 20 (NYT) —Despite a chorus of voices claiming otherwise, we aren’t Greece. We are, however, looking more and more like Japan.
For the past few months, much commentary on the economy — some of it posing as reporting — has had one central theme: policy makers are doing too much. Governments need to stop spending, we’re told. Greece is held up as a cautionary tale, and every uptick in the interest rate on U.S. government bonds is treated as an indication that markets are turning on America over its deficits. Meanwhile, there are continual warnings that inflation is just around the corner, and that the Fed needs to pull back from its efforts to support the economy and get started on its “exit strategy,” tightening credit by selling off assets and raising interest rates.
And what about near-record unemployment, with long-term unemployment worse than at any time since the 1930s? What about the fact that the employment gains of the past few months, although welcome, have, so far, brought back fewer than 500,000 of the more than 8 million jobs lost in the wake of the financial crisis? Hey, worrying about the unemployed is just so 2009.
But the truth is that policy makers aren’t doing too much; they’re doing too little. Recent data don’t suggest that America is heading for a Greece-style collapse of investor confidence. Instead, they suggest that we may be heading for a Japan-style lost decade, trapped in a prolonged era of high unemployment and slow growth.
As we discussed, could not agree more!
Let’s talk first about those interest rates. On several occasions over the past year, we’ve been told, after some modest rise in rates, that the bond vigilantes had arrived, that America had better slash its deficit right away or else. Each time, rates soon slid back down. Most recently, in March, there was much ado about the interest rate on U.S. 10-year bonds, which had risen from 3.6 percent to almost 4 percent. “Debt fears send rates up” was the headline at The Wall Street Journal, although there wasn’t actually any evidence that debt fears were responsible.
Correct, it was fears that growth would cause the fed to hike rates to something more ‘normal’
Since then, however, rates have retraced that rise and then some. As of Thursday, the 10-year rate was below 3.3 percent. I wish I could say that falling interest rates reflect a surge of optimism about U.S. federal finances. What they actually reflect, however, is a surge of pessimism about the prospects for economic recovery, pessimism that has sent investors fleeing out of anything that looks risky — hence, the plunge in the stock market — into the perceived safety of U.S. government debt.
Yes, though I would say pessimism that slow growth and negative CPI cause markets to discount ‘low for a lot longer’ rates from the Fed. It’s all about the Fed’s reaction function. Long rates are the sum of short rates, plus or minus a few ‘supply technicals.’
What’s behind this new pessimism? It partly reflects the troubles in Europe, which have less to do with government debt than you’ve heard; the real problem is that by creating the euro, Europe’s leaders imposed a single currency on economies that weren’t ready for such a move.
The euro govt debt is highly problematic as they are all set up like US States and will bounce checks if they don’t have sufficient funds in their accounts. Unlike the US, Japan, UK, etc. the credit risk in the euro zone is real, just like the US States. And that forces them to act pro cyclically, cutting back and tightening up in slowdowns, again like the US States.
But there are also warning signs at home, most recently Wednesday’s report on consumer prices, which showed a key measure of inflation falling below 1 percent, bringing it to a 44-year low.
This isn’t really surprising: you expect inflation to fall in the face of mass unemployment and excess capacity. But it is nonetheless really bad news. Low inflation, or worse yet deflation, tends to perpetuate an economic slump, because it encourages people to hoard cash rather than spend, which keeps the economy depressed, which leads to more deflation. That vicious circle isn’t hypothetical: just ask the Japanese, who entered a deflationary trap in the 1990s and, despite occasional episodes of growth, still can’t get out. And it could happen here.
Banks, too, are necessarily pro cyclical, making matters worse in down turns. Only the Federal government can be counter cyclical, however, unfortunately, our Federal government thinks it’s ‘run out of money’ and ‘dependent on foreign borrowing that our children will have to pay back.’ Complete nonsense, but they believe it, as does the mainstream media and academic community.
So what we should really be asking right now isn’t whether we’re about to turn into Greece. We should, instead, be asking what we’re doing to avoid turning Japanese. And the answer is, nothing.
Agreed!
It’s not that nobody understands the risk. I strongly suspect that some officials at the Fed see the Japan parallels all too clearly and wish they could do more to support the economy. But in practice it’s all they can do to contain the tightening impulses of their colleagues, who (like central bankers in the 1930s) remain desperately afraid of inflation despite the absence of any evidence of rising prices. I also suspect that Obama administration economists would very much like to see another stimulus plan. But they know that such a plan would have no chance of getting through a Congress that has been spooked by the deficit hawks.
Agreed, and because they don’t have a sufficient grasp of monetary operations to support the case for a fiscal adjustment large enough to close the output gap and get us back to full employment.
In short, fear of imaginary threats has prevented any effective response to the real danger facing our economy.
Completely agree! See my ‘7 Deadly Frauds of Economic Policy’
Will the worst happen? Not necessarily. Maybe the economic measures already taken will end up doing the trick, jump-starting a self-sustaining recovery. Certainly, that’s what we’re all hoping. But hope is not a plan.
They seem complacent with the forecast 5 year glide path to 5% unemployment.
Can’t resist the temptation to repeat my suspicions that zero interest rate policy is deflationary from the supply and the demand side.
:)
Karim writes:
Great number for low for long camp; gives Fed ample cover to stay on hold.
Y/Y Core now at 34yr low of 0.9%; but likely to bottom around these levels as base comparisons begin to get a bit tougher.
Headline CPI -.07% m/m; Core +.05%
Trend variables stay on trend; volatile components offsetting
Commodities looking weak as well.
Always been a question as to whether the central bank’s tools can gradually deflate a property bubble or just facilitate a crash.
Shanghai Home Sales Fell to 5-Year Low Last Week on Tightening
China CPI to be around 3% in May, June: NDRC
China to Sell Five-Year Government Debt at 2.4%, Survey Shows
China’s Smaller Stocks Face ‘Major Correction’: Chart of Day
We’re Not Greece
By Paul Krugman
It’s an ill wind that blows nobody good, and the crisis in Greece is making some people — people who opposed health care reform and are itching for an excuse to dismantle Social Security — very, very happy. Everywhere you look there are editorials and commentaries, some posing as objective reporting, asserting that Greece today will be America tomorrow unless we abandon all that nonsense about taking care of those in need.
True. I just finished a week in dc fighting back against the bipartisan move to cut social security.
The truth, however, is that America isn’t Greece — and, in any case, the message from Greece isn’t what these people would have you believe.
So, how do America and Greece compare?
Both nations have lately been running large budget deficits, roughly comparable as a percentage of G.D.P. Markets, however, treat them very differently: The interest rate on Greek government bonds is more than twice the rate on U.S. bonds, because investors see a high risk that Greece will eventually default on its debt, while seeing virtually no risk that America will do the same. Why?
One answer is that we have a much lower level of debt — the amount we already owe, as opposed to new borrowing — relative to G.D.P.
That has nothing to do with it. Japan’s debt is near triple ours, and their 10 year rates are about 1.3% for example.
True, our debt should have been even lower. We’d be better positioned to deal with the current emergency if so much money hadn’t been squandered on tax cuts for the rich and an unfunded war.
Not true. With us govt spending not operational revenue constrained the way greece is, we are always able to spend (or cut taxes) however much we want to. It’s a political decision without external constraints.
But we still entered the crisis in much better shape than the Greeks.
Yes, because we are the issuer of the dollar and greece is not the issuer of the euro. Greece is like a us state in that regard.
Even more important, however, is the fact that we have a clear path to economic recovery, while Greece doesn’t.
For the same reason. We can manage our aggregate demand because our fiscal policy is not operationally constrained by revenue the way Greece is.
The U.S. economy has been growing since last summer, thanks to fiscal stimulus
Yes, mostly the automatic stabilizers with some help from the proactive measures congress has taken, however misguided.
and expansionary policies by the Federal Reserve.
I don’t agree with this but that’s another story.
I wish that growth were faster; still, it’s finally producing job gains — and it’s also showing up in revenues.
True, however the output gap is finally stable at best as it remains tragically wide.
Right now we’re on track to match Congressional Budget Office projections of a substantial rise in tax receipts. Put those projections together with the Obama administration’s policies, and they imply a sharp fall in the budget deficit over the next few years.
Yes, with our only hope for lower unemployment being an increase in private sector debt that exceeds that. Not my first choice in mending what ails us.
Greece, on the other hand, is caught in a trap. During the good years, when capital was flooding in, Greek costs and prices got far out of line with the rest of Europe. If Greece still had its own currency, it could restore competitiveness through devaluation.
Should have been said this way-
‘If Greece had its own currency and was running its deficits in local currency market forces would have caused the currency to depreciate.’
But since it doesn’t, and since leaving the euro is still considered unthinkable, Greece faces years of grinding deflation and low or zero economic growth. So the only way to reduce deficits is through savage budget cuts, and investors are skeptical about whether those cuts will actually happen.
True. And worse. The proactive cuts and tax hikes can slow the economy to the point the deficit doesn’t come down, and might even increase, making matters even worse.
It’s worth noting, by the way, that Britain — which is in worse fiscal shape than we are, but which, unlike Greece, hasn’t adopted the euro — remains able to borrow at fairly low interest rates. Having your own currency, it seems, makes a big difference.
It is all the difference.
Hard to see why that isn’t obvious. US, UK, Japan, etc. Etc. With one’s own non convertible currency and floating exchange rates, interest rates are necessarily set by the central bank, not by markets.
And govt securities function to support interest rates and not to fund expenditures
And note the uk economy is on the mend. Even housing has found a bid, with the main risk being a govt that doesn’t get it and tries to balance the budget.
In short, we’re not Greece. We may currently be running deficits of comparable size, but our economic position — and, as a result, our fiscal outlook — is vastly better.
Wrong reason- we are the issuer of our own currency, the dollar, while Greece is the user of the euro and not the issuer.
That said, we do have a long-run budget problem. But what’s the root of that problem? “We demand more than we’re willing to pay for,” is the usual line. Yet that line is deeply misleading
First of all, who is this “we” of whom people speak? Bear in mind that the drive to cut taxes largely benefited a small minority of Americans: 39 percent of the benefits of making the Bush tax cuts permanent would go to the richest 1 percent of the population.
Wasn’t my first choice of which tax to cut to support the private sector. I’d have cut fica taxes and i continue to propose that.
And bear in mind, also, that taxes have lagged behind spending partly thanks to a deliberate political strategy, that of “starve the beast”: conservatives have deliberately deprived the government of revenue in an attempt to force the spending cuts they now insist are necessary.
And liberals have artificially constrained themselves with the misguided notion that spending is operationally constrained by revenues, and fail to understand the ‘right sized’ deficit is the one that coincides with full employment and desired price stability.
Meanwhile, when you look under the hood of those troubling long-run budget projections, you discover that they’re not driven by some generalized problem of overspending. Instead, they largely reflect just one thing:
An understanding of national income account and monetary operations shows deficits are driven by ‘savings desires’ and any proactive attempt to increase deficits beyond savings desires results in inflation.
the assumption that health care costs will rise in the future as they have in the past. This tells us that the key to our fiscal future is improving the efficiency of our health care system — which is, you may recall, something the Obama administration has been trying to do, even as many of the same people now warning about the evils of deficits cried “Death panels!”
Wrong causation. What he calls our ‘fiscal future’ is the size of future deficits and they will always reflect future ‘savings desires.’ if we proactively get them smaller than that the evidence will always be unemployment.
So while cutting health care costs may be a ‘good thing,’ when the time comes, future deficits need to reflect future savings desires to keep us fully employed.
So here’s the reality:
The mistaken, political reality.
America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem,
Unfortunately, this kind of talk makes him part of the problem, not part of the answer.
which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes.
Wonderful, with screaming shortfall in aggregate demand as evidenced by tragic levels of unemployment, the celebrity voice from the left is calling for spending cuts and tax hikes not to cool an over heating economy, but to reduce non govt savings of financial assets.
(govt deficit = non govt savings of financial assets to the penny as a matter of national income accounting, etc)
But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state — and are trying to use crises elsewhere to frighten us into giving them what they want.
This is one of the current iteration of the ‘deficit dove’ position.
It does not cut it.
It is part of the problem, not part of the answer.
Doing the best i can to get the word out.
Please distribute to the max!
The euro remains under the cross currents of deflation driven further by the austerity measures that make it stronger.
And portfolio shifting out of euro mainly into dollars and gold out of fears of disintegration and restructuring that are making it weaker.
The latter is currently the stronger force as evidenced by the falling euro and rising price of gold, especially when priced in euro.
It may even be a case of allowing ‘insiders’ to get out and leave the public institutions like banks holding the bag at the point of restructuring at the expense of the remaining shareholders.
The deflation forces are evident in the falling commodity prices, declining equity values, and declining term structures of rates outside of the euro zone, where the politics of fiscal austerity also seem to be getting the upper hand as the world goes the way of Japan.
And each passing day provides more evidence that ultra low overnight rates from central banks are in fact deflationary, probably through the income and cost channels, which allows governments to have a much lower level of taxation for a given level of government spending (higher deficits) to sustain optimal levels of output and employment.
Unfortunately they firmly believe the opposite and continue with their deflationary, overly tight fiscal policies.
And talk coming out of China about ‘monetary easing’ tells me they see reason to be very concerned about their growth as well.
So it looks like the two external threats to the US economy, the euro zone and China, are indeed happening as feared.
Last, on a reread and after discussion, the new Fed swap lines look to be both unsecured and containing rollover language that reads as the foreign central banks being able to roll over their loans in perpetuity meaning they are not loans but one way fiscal transfers from the US to foreign central banks, as repayment is strictly voluntary.
EU Daily
Zapatero Said Sarkozy Threatened to Leave Euro, El Pais Says
ECB’s Trichet Dismisses Inflation Fears
ECB’s Tumpel Says Inflation to Be Fought ‘Without Compromise’
Volcker Sees Euro ‘Disintegration’ Risk From Greece
Trichet Says ECB Plans Time Deposits to Sterilize Buys
ECB Will Give ‘Sterilization’ Details Next Week
Quaden Says Market Reaction to Greece Was Excessive
German Cities’ Deficits to Hit Record in 2010, Rundschau Says
ECB Pares Spanish, Italian Bond Purchases, AFME Says
Constancio Says ECB Will Give Details on Sterilization Soon
Spain’s Core Inflation Turns Negative for First Time
Funny how those ultra low rates never do seem to generate inflation as many fear…
*BOE SAYS NEAR-TERM CPI OUTLOOK HIGHER ON POUND, OIL PRICE
*BOE CONSTANT-RATE FORECAST SHOW INFLATION BELOW 2% IN 2 YEARS
*BOE SAYS DOWNSIDE U.K. GROWTH RISKS HAVE `INCREASED SOMEWHAT’
*BOE FORECASTS BASED ON RATE AT 0.6% END 2010, 1.7% END 2011
*BOE SAYS U.K. BUDGET CUTS MAY NEED TO BE `MORE DEMANDING’
*BOE FORECASTS SHOW INFLATION AT ABOUT 1.4% IN 2 YEARS’ TIME
*BOE SAYS NEAR-TERM CPI OUTLOOK `SOMEWHAT HIGHER’ THAN FEBRUARY
*BOE SAYS DOWNSIDE U.K. GROWTH RISKS HAVE `INCREASED SOMEWHAT’
*BOE SAYS U.K. RECOVERY `LIKELY TO CONTINUE TO GATHER STRENGTH’
*BOE SAYS GDP RISKS FROM MARKET CONCERNS ON BUDGET DEFICITS
*BOE SAYS EURO-AREA FISCAL PRESSURES COULD ADVERSELY IMPACT U.K
*BOE FORECASTS SHOW GDP GROWING ABOUT 3.5% ANNUAL PACE IN 2 YRS
*BOE SAYS STIMULUS, POUND, GLOBAL DEMAND SHOULD AID RECOVERY
*BOE SAYS U.K. BUDGET CUTS MAY NEED TO BE `MORE DEMANDING’
*BANK OF ENGLAND RELEASES INFLATION REPORT IN LONDON
*BOE SAYS `SIGNIFICANT’ MEDIUM TERM FISCAL CONSOLIDATION NEEDED
*BOE CONSTANT-RATE FORECAST SHOW INFLATION BELOW 2% IN 2 YEARS
May 12 (Bloomberg) — The Bank of England said risks to the
economic recovery have increased on investor concern about
European budget deficits, and called on David Cameron’s incoming
government to step up measures to tackle the U.K.’s shortfall.
The central bank predicted the economy will sustain its
pickup and reach a 3.5 percent annual pace by the beginning of
2012, while inflation is still likely to remain below the 2
percent target. The forecasts are based on the interest rate
staying close to its record low of 0.5 percent this year and
reaching 1.7 percent by the end of 2011….
Check out the property story below.
And they do seem very worried about inflation.
Not sure if they can control it without triggering a crash.
Maybe.
China’s Stocks Have ‘Corrected Enough,’ BofA Says
China’s Monthly Car-Sales Growth Slows Amid Inflation
China Think Tank Sees 4.2% Inflation, Urges Yuan Flexibility
‘Measures to cool property already working’
New loans set to grow in April
‘Measures to cool property already working’ (China Daily) The skyrocketing prices of property could harm the financial security and social stability of the nation, Qi Ji, vice-minister of housing and urban-rural development, said. “Excessive gains in prices are mainly due to a shortage of supply, and a major part of the demand for housing is due to unreasonable demand,” Qi said. “The government will strictly carry out current measures to curb such demands,” he said. Hangzhou, capital of eastern Zhejiang province, saw a 72.55-percent month-on-month plunge in properties sold during the week ending April 25. Beijing witnessed a 45-percent fall in property sales, while in Shanghai the drop was 38 percent, according to China Index Research Institute. EverGrande Real Estate is reportedly offering a 15-percent discount to push sales of apartments in one of its housing developments in Guangzhou, capital of Guangdong province.
New loans set to grow in April
New loans set to grow in April(China Daily) Analysts expect new loans to exceed 600 billion yuan ($87.88), or even top 700 billion yuan, in April, after dipping to 510.7 billion yuan in the previous month. The central bank is scheduled to release April lending figures next week. Mounting inflationary pressure and asset bubble risks are clouding the Chinese economy this year after nearly 9.6 trillion yuan in new loans flooded into the market in the previous year. The central bank revived the lending quota mechanism, a method to cope with economic overheating in early 2008, to help contain credit growth. To this end, Chinese lenders are allowed to give out roughly 2.25 trillion yuan in new loans in the second quarter, accounting for 30 percent of the 7.5 trillion yuan target set by the authority. In the first three months, more than one third of the 2.6 trillion yuan in new loans was directed to real estate developers and homebuyers.