Global Investing

from Mike Dolan:

Sparring with central banks

Just one look at the whoosh higher in global markets in January and you'd be forgiven smug faith in the hoary old market adage of "Don't fight the Fed" -- or to update the phrase less pithily for the modern, globalised marketplace: "Don't fight the world's central banks". (or "Don't Battle the Banks", maybe?)

In tandem with this month's Federal Reserve forecast of near-zero U.S. official interest rates for the next two years, the European Central Bank provided its banking sector nearly half a trillion euros of cheap 3-year loans in late December (and may do almost as much again on Feb 29). Add to that ongoing bouts of money printing by the Bank of England, Swiss National Bank, Bank of Japan and more than 40 expected acts of monetary easing by central banks around the world in the first half of this year and that's a lot of additional central bank support behind the market rebound.  So is betting against this firepower a mug's game? Well, some investors caution against the chance that the Banks are firing duds.

According to giant bond fund manager Pimco, the post-credit crisis process of household, corporate and sovereign deleveraging is so intense and loaded with risk that central banks may just be keeping up with events and even then are doing so at very different speeds. What's more the solution to the problem is not a monetary one anyway and all they can do is ease the pain.

Low interest rates and liquidity schemes can't solve what ails the developed world. Societies must accept that in order to alter their current perilous course they must undergo great change, moving away from entitlements to which they have become accustomed. The alternative is weak economic growth, a loss of competitiveness and negative external balances -- a loss of face and place in the global hierarchy.

As if to reinforce the underlying point that the developed world faces a protracted reform period that tests political, economic and social priorities, credit rating firm Standard & Poors' -- not the most popular company in corridors of power over the past year -- warned on Tuesday  that it may downgrade the debt of "a number of highly-rated" Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to ageing populations.

from FaithWorld:

U.S. Catholic CEO responds to Benedict’s economic encyclical

charity-in-truthPope Benedict's encyclical "Charity in Truth" proposed a sweeping reform of the world economic system from one based on the profit motive to one based on solidarity and concern for the common good. Like other such documents in the Roman Catholic Church's social teaching tradition, the encyclical delivers a strong critique of unbridled capitalism. This can be uncomfortable for Catholics who champion free enterprise and some conservative Catholic writers reacted quickly and critically. One of them, George Weigel, wrote the encyclical "resembles a duck-billed platypus." (Image: Charity in Truth/Ignatius Press)

We wanted to hear the views of a Catholic executive, one who's involved in business rather than reacting from the sidelines. So I called Frank Keating, president and chief executive officer of the American Council of Life Insurers (ACLI). The former Republican governor of Oklahoma (1995-2003) is a former chairman of the National Catholic Review Board, which he said "sought to identify and correct the horror of sexual abuse on the part of the clergy." He is a Knight of Malta and a Knight of the Holy Sepulchre.

DB: What's your overall reaction to the encyclical?

keatingFK:"I haven't read the 30,000 words but I think what the pope is proposing is not inconsistent with other papal messages. The common denominator to all of them is the worth of the individual, the dignity of every human person. So Benedict XVI focuses on the right to life, he speaks against euthanasia, he speaks against the evil of abortion, he speaks against cloning. But at the same time he talks about duties and responsibilities to the vulnerable because the vulnerable are dignified human beings as well as those who are rich and powerful.

from FaithWorld:

Pope urges bold world economic reform before G8 summit

popePope Benedict issued an ambitious call to reform the way the world works on Tuesday shortly before its most powerful leaders meet at the G8 summit in Italy. His latest encyclical, entitled "Charity in Truth," presents a long list of steps he thinks are needed to overcome the financial crisis and shift economic activity from the profit motive to a goal of solidarity of all people.

Following are some of his proposals. The italics are from the original text. Do you think they are realistic food for thought or idealistic notions with no hope of being put into practice?

    "There is urgent need of a true world political authority. .. to manage the global economy; to revive economies hit by the crisis; to avoid any deterioration of the present crisis and the greater imbalances that would result; to bring about integral and timely disarmament, food security and peace; to guarantee the protection of the environment and to regulate migration... such an authority would need to be universally recognized and to be vested with the effective power to ensure security for all, regard for justice, and respect for rights." The economy needs ethics in order to function correctly - not any ethics whatsoever, but an ethics which is people-centred..." "Financiers must rediscover the genuinely ethical foundation of their activity, so as not to abuse the sophisticated instruments which can serve to betray the interests of savers. Right intention, transparency, and the search for positive results are mutually compatible and must never be detached from one another." "Without doubt, one of the greatest risks for businesses is that they are almost exclusively answerable to their investors, thereby limiting their social value... there is nevertheless a growing conviction that business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference... What should be avoided is a speculative use of financial resources that yields to the temptation of seeking only short-term profit, without regard for the long-term sustainability of the enterprise, its benefit to the real economy and attention to the advancement, in suitable and appropriate ways, of further economic initiatives in countries in need of development." "One possible approach to development aid would be to apply effectively what is known as fiscal subsidiarity, allowing citizens to decide how to allocate a portion of the taxes they pay to the State."
(Photo: Pope Bendict, 1 July 2009/Tony Gentile)

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