The Great Debate UK

The watered down version of Forward Guidance

The new governor of the Bank of England has shaken things up at the Old Lady. Not only has he brought a touch of glamour to the Bank, he is considered a George Clooney look-alike by some, but he has dramatically altered the way that the Bank does things. Since he arrived a little over a month ago we’ve had statements released after meetings and now the Bank has adopted forward guidance.

But has this central banker with a twinkle in his eye run into a brick wall at the BOE? The forward guidance that he announced during the August Inflation Report went down like a lead balloon. The markets immediately challenged the Bank’s pledge to keep interest rates low until 2016, UK Gilt yields at one point rose to their highest level since before he joined as Governor, and the pound also jumped sharply.

Essentially, the BOE’s ambition with forward guidance was to keep interest rates low so that consumers and small businesses feel confident enough to buy that car or employ more staff.  After successfully navigating the Canadian economy through the financial crisis, hopes were high for Carney, so why aren’t markets reacting as he would like?

It’s mostly because they don’t believe him or the rest of the Bank. At the same time as they pledged to keep interest rates low for 3 years, they also revised up their growth expectations. Stronger growth surely means higher interest rates, right?

from The Great Debate:

The surprising force behind change in Cairo

In the space of two years, ordinary Egyptian citizens have organized and led two revolutions that caused two distinct dictatorial regimes to fall. These were street-led revolutions against autocratic regimes that had the support of the U.S. and were thus seen to be invincible.

Although a large majority of Egyptians regard the two events as movements within a single revolution, they were very different in motive and structure, just as the two regimes differed radically from one another. The 2011 revolution, which brought down Hosni Mubarak, was led by the upper-middle class, who recognized the need for large-scale social change to address widespread unemployment, an ailing economy, and rampant political corruption. The more recent revolution was a movement for all, brought about by Mohamed Mursi’s government and its inability to address the root causes of discontent -- poverty, inequality, the decline of living standards -- and their focus, instead, on securing their own grip on power.

from The Great Debate:

Greek bailout sham

Driven by its bailout loan terms, the Greek Parliament recently voted to lay off 25,000 more public employees. The public has responded with demonstrations while striking public sector workers try to disrupt air and rail travel, law enforcement and medical care.

How did Greece get to this point, where creditors dictate what jobs the government should cut as a condition for continued bailout loans, and where its outraged citizens take to the streets? What are the chances that Conservative Prime Minister Antonis Samaras’ newest plans to fire or cut salaries of thousands of government employees will work?

from Felix Salmon:

How not to compete with payday lenders

I'm in the UK at the moment, where it's quite amusing to see the amount of attention paid to national institutions for which there is no American equivalent. Obviously, there's the way in which a woman having a baby became front-page news for days on end, generating astonishing quantities of coverage despite the fact that all the facts could be summed up in a single tweet. And then, on the financial side of things, you have the Archbishop of Canterbury, Justin Welby.

Yes, financial. The head of the Church of England gave a long interview to a magazine called Total Politics, and if you get through the first 3,000 words or so, you'll eventually find two paragraphs on the subject of payday lending. The archbishop says he would like to compete with High Street payday lenders, helping to build up a network of "credit unions that are both engaged in their communities and are much more professional".

from The Great Debate:

The short and long of emerging markets

Fickle investors have spurned emerging markets in recent weeks, but this rout has obscured a more alluring vista out on the horizon.

Developing economies now account for 50 percent of global output and 80 percent of economic expansion and are projected to continue growing far faster than developed nations. They are expected to possess an even larger share of global growth, wealth and investment opportunities in years to come. So much so that the labels investors use to classify some of these nations will change as the developing develop and the emerging emerge into more potent economic powers

from Nicholas Wapshott:

The birth of a new prince

Now, after a torrid summer marred by natural tragedies, needless death, and devastating destruction, comes undiluted happy news. Kate, Duchess of Cambridge, has given birth to a prince. So, the first child of a commoner to be welcomed into the British royal family in modern times (Wallis Simpson tried to gatecrash in 1936 and was promptly asked to leave) has delivered an heir to extend the Windsors’ influence into the next generation.

The birth has set off genuine rejoicing around the world as a harmless piece of fun that only a humbug could find offensive. And the impeccably authentic upstairs/downstairs soap opera that makes “Downtown Downton Abbey” look like “The Days of Our Lives” has provided another romantic twist in an endlessly colorful plotline that began nearly two thousand years ago with the Kings of the Angles.

from The Great Debate:

Europe’s leaders should boycott Putin’s Olympic ceremony

In February 2014 the Russian elite will gather in the gleaming super stadiums of Sochi -- governors and oligarchs, police chiefs and “political technologists” -- to thunderously applaud as Vladimir Putin opens his Winter Olympics.

He has been dreaming of this for years.

But this is not a ceremony European leaders should attend.

In Sochi the Russian elite wants to dumbfound the EU -- not only with synchronized ice skating and Kremlin-coordinated firework displays -- but with a ceremony underscoring the absolute power of their leader.

from John Lloyd:

In Britain, a summer of quiet revolution

The British Isles are sentries in a turning world. The monarchy, pageantry, the mediaeval House of Lords, titles, accents, the established Church of England with the Queen at its head -- they all give the adroit illusion of continuity and the primacy of tradition over change.

But this summer there are diverse changes modernizing the Isles. These revolutions, small and large, will not be reversed, and will contribute significantly to a redefinition of what it is to be British (and Irish). The illusions of tradition will remain, as diligently served as ever. The core is hollowing out.

from The Great Debate:

Derivative rules: Global problem needs global solution

The 2008 financial crisis demonstrated how interconnected the global financial system is. What began as a real estate bubble fueled by subprime mortgages in many states ballooned into a global financial panic of unprecedented magnitude. Bundles of poorly underwritten mortgages generated toxic derivatives bet on in a global market. When the dust settled, there was broad agreement that not only did we need a new financial regulatory regime, it had to be globally coordinated.

The United States, the European Union, Britain, Japan and other nations should come up with a regulatory regime that works across all borders. This does not have to be the exact same set of rules and regulations, but rather compatible systems, based on a common set of definitions and structures.

from The Great Debate:

Historically, Egypt’s revolution is more of the same

The history of revolutions tells us one sad fact: Egypt is in for a long period of violence, chaos and upheaval before it even begins to enter into the Promised Land of democracy.

Many Western politicians and commentators expressed surprise and even alarm over Egypt's revolution, as the military ousted President Mohamed Mursi from power. Yet, examining the history of revolutions shows that these upheavals usually destroy more than they build – and, over the last 400 years, have rarely created durable democracies.

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