Breakingviews

GE’s crumbs make for Australian buyout feast

March 16, 2015

The U.S. conglomerate is offloading its consumer lending arm down under in one of the country’s biggest private equity transactions. Yet the $6.3 billion deal shrinks GE Capital’s balance sheet by just over 1 percent. The group has far to go to reduce its dependence on finance.

Negative yields can go much more negative

By Edward Hadas
February 2, 2015

Investors now pay for the privilege of owning almost a quarter of euro zone government debt. The practice sounds strange, but monetary theory calls for it. If deflation sets in, yields could keep falling. The result might be the end of cash, or a new theory about interest rates.

Asia’s big demons: debt, deflation, demographics

January 16, 2015

The unholy trinity threatens to sap the region’s growth potential. Central banks need to fight the fiends by cutting borrowing costs so that output and prices revive. But fears of higher interest rates in the United States are prompting them to sit tight. That may be an error.

Meddling will be central banking’s new mantra

December 23, 2014

Monetary authorities haven’t stopped being responsible for financial stability. But weak output and the threat of deflation mean they can’t raise interest rates to fulfil their mandate. That leaves macroprudential policies – meddling, in plain English – as the preferred tool.

Swiss give positive lesson in negative rate policy

By Edward Hadas
December 18, 2014

A safe-haven currency can invite economic trouble. The Swiss central bank is up to the challenge. It started with market intervention and has now introduced a negative overnight rate. The Swiss realise that money is more of a policy tool than a store of value.

India may boast world’s steepest rate cuts in 2015

December 2, 2014

The Reserve Bank resisted strong pressure from the government to start cutting interest rates from their current 8 percent. Governor Raghuram Rajan wants more proof of correction and disinflation. It may be a short wait. A weak economy urgently needs lower borrowing costs.

China monetary policy enters difficult adolescence

November 24, 2014

Cutting rates, as the central bank just did, is far less simple than when China’s economy was in its pliant infancy. New ways to save, borrow and arbitrage have sprouted, and don’t all respond predictably to orders. It will take more to alleviate private sector growing pains.

Asian fight against capital flight helps dollar

October 8, 2014

The region’s central banks fear foreign capital will flee when U.S. rates start rising. They hope higher rates at home will stem the flow. But domestic investment dips when interest costs rise. The result: spare Asian savings go into safe dollar assets, pushing the greenback up.

S&P 500 at 2,000 invites “new normal” thinking

August 26, 2014

A price-to-earnings ratio under 20 is only moderately above average, but U.S. earnings are at a peak relative to GDP. Adjust them to the long-term norm and the U.S. benchmark would be a third lower. Cheap money is still buoying stocks, but such new paradigms usually don’t last.

Don’t believe predictions of low interest rates

By Edward Hadas
July 9, 2014

Central bankers and economists say the official cost of money in the post-zero rate era will remain cheap by historic standards. Their prognostications rely on a theory which is unsound, unsupported by evidence and impossible to apply. Future rates are as likely to be high as low.