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from Nicholas Wapshott:

Hooray for inflation

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There have been some extraordinary headlines in recent days. Here’s the Economist: “The perils of falling inflation.” Here’s the Financial Times: “The eurozone needs to get inflation up again.”

For those with memories of hyper-inflation and “stagflation” in the 1970s, these cogent pleas for higher prices is heresy, an irresponsible clamor for the return of an ever-changing fiscal landscape that led to widespread misery and economic turmoil.

A little history. By the mid-’70s the Western world was engulfed in an inflation typhoon -- with prices rising rapidly and out of control. As companies increased prices to keep up with the higher costs of basic raw materials -- such as oil, deliberately hiked way beyond the norm by the Organization of the Petroleum Exporting Countries -- trade unions demanded higher wages to protect their members’ standard of living. This led to higher costs, and higher prices, and so on.

The world became entangled in an apparently unstoppable upward spiral, like a crazy dog chasing its tail. Governments were blamed for it and broken by it, and new bold champions promising to slaughter the inflation dragon were elected in their place.

from Unstructured Finance:

Goldman: 1, Volcker: 0

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By Lauren Tara LaCapra

There’s an interesting article out today from Bloomberg, which accuses Goldman Sachs of skirting the yet-to-be-defined-or-implemented Volcker rule, and accuses its top executives, including CEO, Lloyd Blankfein, of being a hypocrite.

Bloomberg reporter Max Abelson has done some good work on the subject. His article is well written and well sourced—he spoke to at least 20 people and got many of them to go on the record about their former employer and describe how Goldman continues to place bets with the firm’s own money.

from Breakingviews:

Review: Every monetary system needs a Paul Volcker

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By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

William Silber’s biography of Paul Volcker is rightly sympathetic to the man whose determination and integrity conquered U.S. inflation. When needed, he overcame opposition from politicians and academic economists. Yet once his work was done, policy slid back and his abilities were wasted.

from Breakingviews:

Volcker muddies debate about his own rule

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By Daniel Indiviglio and Antony Currie
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Paul Volcker is muddying the debate about his own rule. The former Federal Reserve chairman has, along with other individuals, financial institutions and lobby groups, left it until deadline day to lodge comments about U.S. regulators’ proposals for banning proprietary trading. Overall, Volcker’s letter is a handy primer for why the rule is a good idea. That may have been useful when he floated the idea two years ago, but it is devoid of any practical advice for either the markets or their watchdogs.

from Tales from the Trail:

Washington Extra – hello goodbye

She says goodbye and he says hello.

The House Speaker's (HUGE) gavel changed hands today, symbolizing the transfer of power to Republicans. Outgoing speaker Nancy Pelosi, attacked by Republicans as a symbol of Democratic excesses, took the high road as she repeatedly congratulated new House Speaker John Boehner and his Republican majority.

Boehner started off with some levity and humility -- "It's still just me." And he didn't disappoint those watching for his now trademark show of emotion when he dabbed his eyes with a white handkerchief while standing behind Pelosi before the handover. Reuters photojournalist Kevin Lamarque captured the moment, you can see it on our politics blog at http://blogs.reuters.com/frontrow/ OBAMA/STAFF-GIBBS

from Christopher Whalen:

Double dip or global deflation?

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The page proofs of my upcoming book, “Inflated: How Money and Debt Built the American Dream,” just went back to the editors. One of the benefits of writing a book about U.S. financial history is that it forces you to take a long view of both economics and the political narrative used to describe it. It is the issue of language and labels, in my view, that is making it so difficult for Americans to understand the current state of the economy.

The National Bureau of Economic Research just declared that the “recession” that began in 2007 ended in the middle of 2009, making it the longest downturn since WWII. The only problem is that none of the people who work at NBER today, which is one of my favorite research organizations, are old enough to remember what the U.S. economy was like before WWII; before the age of Keynesian socialism and the use of debt to stimulate growth and employment became standard policy in Washington.

from Tales from the Trail:

U.S. value-added tax still a pretty toxic idea

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White House Economic Economic Advisor Paul Volcker stirred up debate over the United States possibly adopting a European-style value added tax to help bring federal deficits under control, saying recently that it "was not as toxic an idea" as it has been in the past.USA-FED/

Well the idea is still pretty toxic in the U.S. Senate.

The Senate on Thursday voted 85-13 to adopt an anti-value-added tax resolution sponsored by Arizona Republican John McCain as part of its consideration of legislation that would restore lapsed jobless benefits.

from James Pethokoukis:

Verily, Volcker avers VAT is in the vicinity

Reuters has the scoop:

The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.

Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax "was not as toxic an idea" as it has been in the past and also said a carbon or other energy-related tax may become necessary.

from The Great Debate:

Volcker Rule unexpectedly revived by Dodd bill

Paul Volcker's proposed ban on banks' proprietary trading or owning hedge funds or private equity funds has been unexpectedly revived in the financial regulation bill published by Senate Banking Committee Chairman Christopher Dodd yesterday.

The Volcker Rule's surprise survival comes despite fierce opposition from the banking industry and after many commentators had written it off as a short-term political gimmick in the wake of the shock election defeat in Massachusetts. Dodd himself had appeared lukewarm.

from James Pethokoukis:

The Volcker Rule: It’s not happening

A few points:

1) The much-hyped Volcker Rule proposal is failing fast in the U.S. Congress. But Paul Volcker himself probably isn't that surprised. The former Federal Reserve chairman joked he was “just a photo op” even after President Barack Obama's public embrace of his proposal to limit bank proprietary trading. More evidence that the moment for sweeping reform has probably passed.

2) The hope for any reform at all rests with the U.S. Senate's new negotiating tag-team of Democrat Chris Dodd, chairman of the Banking committee, and Republican freshman Bob Corker. But Corker says the Volcker Rule isn't going to be a “major topic” for discussion. And that is probably OK with much of the committee. As one banking industry lobbyist told me, “There is just not a lot of appetite among members of the minority or the majority to add [bank trading limits]. So I just don't think you're going to see it.”

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