Posts in category Finance and economics


ApprovedBusiness and financeFinance and economics

The New York Fed’s president announces his retirement

APPLICATIONS sought for leading Wall Street post. Perks: lovely office in Italianate palace; large staff. Duties: important role in setting interest rates (some vaguely defined other responsibilities). Requirements: eligibility for highest-level security clearance; tacit support in Washington, DC. Desirable but optional: broad knowledge of banking.

This week the New York Federal Reserve Bank announced that its president, Bill Dudley, will retire next year. He will leave a mixed legacy. He is thought to have given important help to Janet Yellen, the outgoing chair of the Federal Reserve. But he also presided over a steep decline in his institution’s influence over the banks that used to revere and fear it.

Located in America’s financial centre, the New York Fed has powers not vested in the country’s 11 other reserve banks. Its president has a permanent seat on the Fed committee that sets interest rates. Its trading desk puts board policies into effect. And it is the regulator responsible for many of the world’s largest…Continue reading

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A massive trove of data on offshore transactions is leaked

IN APRIL 2016, the International Consortium of Investigative Journalists (ICIJ) dropped a bombshell. Its articles about the “Panama Papers”, a leaked trove of documents which had been stolen from Mossack Fonseca, a Panama-based law firm, sent shock waves round the world—felling the leaders of Pakistan and Iceland, leading to multiple arrests and pushing several countries to tighten laws related to offshore financial dealings. The revelations also caused a further hardening in public attitudes towards offshore finance, which had been souring since the global financial crisis.

Now the ICIJ and its 95 media partners around the world—including the BBC and the New York Times—are back with another cache of pilfered files, this time dubbed the “Paradise Papers”. This latest batch of revelations, the organisation’s sixth substantial leak investigation, began on November 6th and will be rolled out over a week. It shines light on offshore transactions linked to hundreds of wealthy clients of Appleby, a Bermuda-based law…Continue reading

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As the global economy picks up, inflation is oddly quiescent

A FEW years ago, the news about the euro-zone economy was uniformly bad to the point of tedium. These days, it is the humdrum diet of benign data that prompts a yawn. Figures this week show that GDP rose by 0.6% in the three months to the end of September (an annualised rate of 2.4%). The European Commission’s economic-sentiment index rose to its highest level in almost 17 years. Yet when the European Central Bank’s governing council gathered on October 26th, it decided to keep interest rates unchanged, at close to zero, and to extend its bond-buying programme (known as quantitative easing, or QE) for a further nine months.

The central bank said it would slow down the pace of bond purchases each month, to €30bn ($35bn) from January. But Mario Draghi, the bank’s boss, declined to set an end-date for QE. A hefty dose of easy money will be necessary, he argued, until inflation durably converges on the ECB’s target of just below 2%. It shows few signs of doing so, despite the…Continue reading

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Jerome Powell is poised to be named chairman of the Fed

Heir to the chair?

YOU could forgive Janet Yellen, the chair of the Federal Reserve, for feeling peeved. With unemployment at just 4.2%, and inflation at 1.6%, she is close to achieving the Fed’s two goals of curbing joblessness and pinning price rises at 2%. Ms Yellen is a Democrat appointed by Barack Obama in 2014. The tenures of past three Fed chairs were all extended by presidents from the other party. Yet as we went to press, President Donald Trump was expected to nominate Jerome Powell, a Republican on the Fed’s board, to replace Ms Yellen.

If picked, Mr Powell—also an Obama appointee—would stand out from recent incumbents. He would be the first Fed chairman since William Miller, who left office in 1979, with no formal economics training; and, according to the Washington Post, the richest since the 1940s.

Mr Powell, who is 64, is a lawyer-turned-banker. His first role in Washington was at the Treasury during the…Continue reading

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October 30th marked the 70th birthday of the WTO’s precursor

Britain signs up

SUPERLATIVES surrounded the General Agreement on Tariffs and Trade (GATT) when it was signed on October 30th 1947. A press release heralded it as “the most far-reaching negotiation[s] ever undertaken in the history of world trade.” The Economist grumbled it was “one of the longest and most complicated public documents ever issued—and one of the hardest to comprehend.” The Daily Express, a British newspaper, growled: “The big bad bargain is sealed.”

The agreement’s complexity matched the tangle of global trade affairs. In the preceding decades a thicket of protectionism had strangled commerce and slowed recovery from the Depression of the 1930s. The GATT’s length matched its scope. It included both tariff cuts and promises to forswear new duties. Covering 23 countries responsible for 70% of world trade, it came to embody the rules-based multilateral system.

After 48…Continue reading

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Asian households binge on debt

ONE of the more persistent beliefs about the global economy is that Asians are more frugal than others. Explanations have drawn on culture (the self-discipline of Confucianism), history (memories of privation) and public policy (flimsy social safety-nets forcing people to save). For Lee Kuan Yew, the founding father of Singapore, and other theorists of “Asian values”, thrift was one of them. Whatever the true reason, data long supported the basic claim that Asian households were indeed careful with their cash. But over the past few years consumers across the region have done their best to prove that prudence was perhaps just a passing phase.

Household debt in advanced economies has generally declined as a percentage of GDP since the 2008 global financial crisis, according to the Bank for International Settlements. In a number of Asian countries, however, it has been going in the opposite direction (see chart). The biggest increase has been in China, where households have borrowed about $4.5trn over the past decade. But Chinese…Continue reading

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Catalonia and the perils of fiscal redistribution

POPULISM is the weapon not just of the downtrodden. As the crisis in Catalonia demonstrates, the rich have economic anxieties of their own. Catalonia has an identity distinct, in important ways, from that of the rest of Spain. But the recent drive for independence has been energised by anger over the flow of fiscal redistribution from rich Catalans to their countrymen: people seen, in parts of the restless north-east, as thankless and lazy as well as alien. Paradoxically, globalisation has inflamed separatism around the world by raising the question Catalans now confront: to whom, exactly, do we owe a sense of social responsibility?

Every country or restive region has its own idiosyncratic history. Yet over the long run national borders are surprisingly malleable. Some circumstances offer better prospects for the small and newly independent than others. The smaller the country, the more easily its government can satisfy its people’s political preferences. A broadly satisfying compromise…Continue reading

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Investors call the end of the government-bond bull market (again)

FOR the umpteenth time in the past decade, a great turning-point has been declared in the government-bond market. Bond yields have risen across the world, including in China, where the yield on the ten-year bond has come close to 4% for the first time since 2014. The ten-year Treasury-bond yield, the most important benchmark, has risen from 2.05% in early September to 2.37%, though that is still below its level of early March (see chart).

Investors have been expecting bond yields to rise for a while. A survey by JPMorgan Chase found that a record 70% of its clients with speculative accounts had “short” positions in Treasury bonds—ie, betting that prices would fall and that yields would rise. Meanwhile a poll of global fund managers by Bank of America Merrill Lynch (BAML) in October found that a net 85% thought bonds overvalued. In addition, 82% of the managers expected short-term interest rates to rise over the next 12 months—something that tends to push bond yields…Continue reading

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Firms should make more information about salaries public

SWEDES discuss their incomes with a frankness that would horrify Britons or Americans. They have little reason to be coy; in Sweden you can learn a stranger’s salary simply by ringing the tax authorities and asking. Pay transparency can be a potent weapon against persistent inequities. When hackers published e-mails from executives at Sony Pictures, a film studio, the world learned that some of Hollywood’s most bankable female stars earned less than their male co-stars. The revelation has since helped women in the industry drive harder bargains. Yet outside Nordic countries transparency faces fierce resistance. Donald Trump recently cancelled a rule set by Barack Obama requiring large firms to provide more pay data to anti-discrimination regulators. Even those less temperamentally averse to sunlight than Mr Trump balk at what can seem an intrusion into a private matter. That is a shame. Despite the discomfort that transparency can cause, it would be better to publish more…Continue reading

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India recapitalises its state-owned banks

Pillars to be reinforced

ONE of the perks of owning a bank is the ability to tap it when you need money. The Indian government, which has majority stakes in 21 lenders, is no exception. As it happens, it needs to finance a bail-out of the banks it owns, most of which are in trouble. So under a cunning plan unveiled on October 24th, the ailing banks will lend the government 1.35trn rupees ($21bn), about a third of their combined market value. The government will reinvest this money in bank shares, thus ensuring they no longer need a bail-out.

Steadying a tottering financial system is never a graceful exercise, as American and European authorities discovered after the financial crisis. India’s lenders withstood the meltdown of 2007-08 well, but then embarked on an ill-advised lending spree, backing lots of infrastructure projects that got snarled in bureaucracy. Bad loans piled up. State-owned lenders, which account for around two-thirds of the sector, now have…Continue reading

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Italy’s fourth-biggest bank returns to the stockmarket

A TELEVISION advertisement for Monte dei Paschi di Siena begins with a toddler tumbling and a gymnast stumbling. “Falling is the first thing we learn,” declares the voice-over. “The second is getting up again.” Italy’s fourth-biggest bank and the world’s oldest, which was bailed out by the Italian government in July, has had several bruising falls over the years. On October 25th it returned to the stockmarket after a ten-month hiatus—the latest stage of its plan to get back on its feet. The shares closed higher on the day, at €4.55 ($5.37), but still far below the €6.49 the government paid.

Trading was suspended last December, after a failed private-sector attempt to save the bank through a share issue. The government said it would get involved. In July the European Commission approved a €8.1bn “precautionary recapitalisation”. European rules say banks receiving such aid must be solvent, the capital injection must not distort competition and the capital…Continue reading

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