The Great Debate UK

from Breakingviews:

China’s tweaks won’t cure financial excess

weigu.jpgA month before China ushers in the year of the Tiger, its central bank has begun to address the effects of its roaring liquidity boom. It is encouraging that the authorities in Beijing are alert to the threat of an overheating financial system. But with so many countervailing forces, the liquidity tiger will not be tamed so easily.

Markets yelped Tuesday after the central bank raised the minimum ratio of capital to loans at banks by half a percentage point. But this amounts to little more than scooping water out of the sea. Some 1 trillion yuan ($146 billion) of government bills mature in the next two weeks. If they are not rolled over, three times more money would flow into the system than the reserve hike will leech out. Then there are foreign speculative flows - an estimated 378 billion yuan in the fourth quarter of 2009.

The reserve hike is not enough to calm the banks' lending frenzy. They disbursed 600 billion yuan of loans during the first week of 2010 alone, according to local media, more than in the whole of December. Furthermore, the capital ratio in the banking system in aggregate is already two percentage points above what is strictly required, so the new targets won't necessarily have any effect on lending.

Asset price inflation is already running wild in property and stock markets, and another new government policy might make the problem worse. The State Council has approved the introduction of margin trading during 2010, so qualified investors will be able to use up to eight times leverage to buy stocks. The planned introduction of limited short selling at the same time is unlikely to be enough to compensate.

from The Great Debate:

Icelandic, Greek sagas show sovereign risks

-- James Saft is a Reuters columnist. The opinions expressed are his own. --

Developments in cash-strapped Iceland and Greece nicely illustrate two themes for 2010: sovereign risk and financial balkanization.

Iceland is balking at crushing terms demanded as part of its making whole overseas depositors in its ruined banking system, while Greece is involved in a game of chicken with the euro zone authorities over how, when and with whose assistance it heals its fiscal difficulties.

from Breakingviews:

Recovery leaves too many big problems unsolved

ed hadas.jpgThe economic worst is past. But there are many issues left to worry about.

Start with the good news. GDP is now growing almost everywhere, while the unemployment rate is hardly rising anywhere. Businesses and consumers are less fearful. As much as half of the 20 percent decline in international trade has been erased.

Perhaps the best news is what has not happened. There have been no national defaults, countries dragged into political chaos, bitter divisions among the great powers or, with a few tiny exceptions, massive declines in consumption. The global political-economic-financial system is still in business.

from The Great Debate:

Welcome to the Teenies, sorry about those returns

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-James Saft is a Reuters columnist. The opinions expressed are his own-

As we say goodbye to a decade so abysmal it never even earned a nickname, it is time to take bets on how the coming 10 years will shape up in economics and financial markets.

Welcome, then, to the Teenies, a word that will describe the decade as well as the small returns in financial markets and the shrinking financial sector it will bring.

A year of austerity looms in 2010

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david-kuo_motley-foolthumbnail-David Kuo is director at the Motley Fool. The opinions expressed are his own.-

If you thought 2009 was as bad as things will get, then think again: 2010 could be worse. It is likely to be a year of enforced austerity with both the government and households making obligatory cuts to their budgets.

High on the government’s agenda will be reducing the Budget deficit, if the UK is to avoid the embarrassment of having its sovereign debt rating cut by rating agencies. This will have a knock-on effect on households, which could see their disposable incomes slashed by hikes in both direct and indirect taxes.

from UK News:

Has Alistair Darling done enough to revive Labour’s electoral hopes?

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So how was it for you?

Chancellor Alistair Darling threw the dice in his pre-budget report in an attempt to bolster Labour's chances of winning the general election in 2010.

From hitting bankers with a one-off bonus tax to lowering bingo duty, Darling played to the Labour heartlands, while hoping to win back voters who have been telling pollsters that they are done with Gordon Brown.

David Willetts on the Anglo-Saxon finance model

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Demography is the most powerful single structural explanation of changes in the economy in society around us, David Willetts, Conservative Shadow Minister for Universities and Skills told Reuters ahead of a talk about European policy options on Wednesday at the London School of Economics.

Population changes in Europe and Britain will contribute to the UK becoming Europe’s largest economy in the 2040s, he said.

Pre-budget report delicate balancing act for Darling

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thomas-story – Thomas Story is tax director at BDO. He will participate in a Reuters pre-budget live blog on Dec. 9, at 12 p.m. British time. The opinions expressed are his own. -

Alistair Darling is facing the most difficult set of economic circumstances for any chancellor since the 1940s, with the projected substantial fiscal deficits for 2009 – 2010 and 2010 – 2011 likely to be revised upwards from 175 billion pounds to well in excess of 200 billion pounds. He must perform a delicate balancing act to secure the confidence of the global financial markets while protecting any fragile economic recovery and boosting public confidence.

Politicians should allow a business-led recovery

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evans- Anthony J. Evans is assistant professor at ESCP Europe business school. He will participate in a Reuters pre-budget live blog on Dec. 9, at 12 p.m. British time. The opinions expressed are his own. -

The main issue underpinning Britain’s next pre-budget report is the state of the public finances. Let’s be clear – they’re dire.

from MacroScope:

Crisis? What Crisis?

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The title of this post is taken from two sources. One was a headline in British tabloid, The Sun, in January 1979, when then-prime minister James Callaghan denied that strike-torn Britain was in chaos. The second was the title of a 1975 album by prog rock band Supertramp that famously showed someone sunbathing amidst the grey awfulness of the declining industrial landscape.

Are we now getting blasé about the latest crisis? Not so long ago, perfectly respectable economists and financial analysts were talking about a new Great Depression. The world was on the brink, it was said. Now, though, consensus appears to be that it is all over bar the shouting. The world is safe.

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