The Great Debate UK
from The Great Debate:
A tightening in financial conditions is under way but its principal architect won't be the Federal Reserve.
Far from it, the Fed will be pinned down by powerful disinflationary, perhaps even deflationary, forces, making it very unlikely to be willing to raise interest rates any time soon.
Instead the tightening is coming from Asia, where China is fighting a local battle against rampant lending, and from investors all over the world, as one by one they realize that lending to governments isn't always so risk-free.
These two forces will form a vise around still riskier assets like stocks, especially in the United States, as companies face weak conditions at home in combination with tightening from markets.
A 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.
- Jane Foley is research director at Forex.com. The opinions expressed are her own.-
The pound has started the year on a negative note. Ongoing concerns over the budget deficit, an impending general election, the prospect that the Bank of England (BoE) may yet increase quantitative easing (QE) and a drop in consumer confidence are all clouding the outlook.
- Mark Bolsom is Head of the UK Trading desk at Travelex, the world’s largest non-bank foreign exchange and international payments provider. The opinions expressed are his own. -
The rise in November’s CPI figure was larger than expected, but not a total surprise and markets have largely ignored the data.
from The Great Debate:
Don't expect the year-long rally in risky assets to be undermined any time soon by the Federal Reserve becoming concerned about inflation.
The old metaphor -- that the Fed's job is to take away the punchbowl just when the party starts getting good -- just doesn't apply in the current circumstances. That's not to say inflation isn't a threat in the medium term -- it is virtually a promise.
- David Kuo is director at The Motley Fool. The opinions expressed are his own.-
What is the collective name for a crossing of fingers?
Because that seems to be what the Bank of England’s Monetary Policy Committee members are doing. They are collectively crossing their digits in the hope that they have done enough to steer the UK economy out of recession.
They have pumped billions into the UK economy and it doesn’t seem to be having much effect – yet. That is unless you are a banker looking to bolster your balance sheet with freshly minted notes. Banks are happy to swap their assets for the Bank of England’s cash but remain unwilling to lend. Additionally, there is still uncertaintyabout the ability of the economy to grow unaided if the central bank should stop printing money.
- Stephen Hunt is managing director of Rockingham Retirement. The opinions expressed are his own. -
If we keep going the way we are, disaster looms for millions of over-60’s in the United Kingdom.
from UK News:
- Sumeet Desai, Reuters senior UK economics correspondent. -
Inflation unexpectedly held steady in July, official data showed Tuesday, but economists still expect big falls in the annual rate this year and monetary policy to stay loose for some time to come.
Is a 1.8 percent inflation rate good or bad news?
- David Kuo is director at the Motley Fool. The opinions expressed are his own.-
If you are not confused you are not paying attention. Those sage words from management guru Tom Peters can be applied to a wide number of economic issues today, but none more so that to the latest inflation figures.
Question is: do we have inflation, deflation or some mixture of the two?
The answer lies in which index you are looking at?
Inflation as measure by the Consumer Prices Index (CPI) has held firm at 1.8 percent. But according to the Retail Prices Index (RPI), which excludes mortgage costs, inflation for July came in at minus 1.4 percent – that’s up from minus 1.6 percent in June.