The Great Debate

– Ram Charan is the author several book, including “Leadership in the Era of Economic Uncertainty: The New Rules for Getting the Right Things Done in Difficult Times.” A noted expert on business strategy, Charan has coached CEOs and helped companies like GE, Bank of America, Verizon, KLM, and Thomson shape and implement their strategic direction. The opinions expressed are his own. –

The first 100 days demand that President Barack Obama sort out his priorities and choose the ones that will help solve many others. With many constituencies and direct reports clamoring for his time and attention, he cannot attend to them all.  He has to decide which of the many complex and urgent issues that have accumulated must be resolved first.

The new president will inevitably be pushed to spend a huge amount of time on foreign policy.  But I suggest that the president’s top priority should be to get the nation out of this economic and psychological funk.  He has selected some very capable people who will help sort out the economic mess. He made a brilliant move to have Paul Volcker in the White House.

But ensuring that various parts of the U.S. economy work together and with the rest of the global economy will take a significant amount of President Obama’s personal time and leadership. I have seen in my work with corporations that the best leaders are hands-on when it comes to making sure their top people coordinate their efforts.  The new president will have to do the same with the secretary of Treasury, Federal Reserve chair, SEC chair, and other relevant government leaders. Each of these experts sees the situation through the lens of his or her expertise.

The president must ensure that their perspectives are integrated.  He must provide the oversight to ensure that they communicate frequently and resolve any conflicts that arise to create cogent, urgent solutions to get the economy going.

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

The Federal Reserve and U.S. economy have two considerable risks now that quantitative easing is at hand: keeping the dollar from a disorderly decline and figuring out how to dismount from the tiger.

The Fed has cut interest rates to a range of zero to 0.25 percent and said it would use “all available tools” to get the economy growing again, including buying mortgage debt as well as exploring direct purchases of Treasuries.

– John Kemp is a Reuters columnist. The opinions expressed are his own –

Extreme uncertainty about the economic outlook and the depth of the recession has paralyzed normal lending activity by commercial banks in the United States and elsewhere. Even as the Federal Reserve has added liquidity and boosted bank reserves, the credit creation process has remained stalled as banks struggle to identify good borrowers willing and able to repay in a wide range of future economic conditions.

The attached chart is adapted from the Federal Reserve’s weekly H.8 release on “Assets and Liabilities of Commercial Banks in the United States” (https://customers.reuters.com/d/graphics/US_CRDT1108.gif).

– John Kemp is a Reuters columnist.  The opinions expressed are his own –

After more than a year of denial, misdirected policies and a steadily worsening outlook, the past fortnight has witnessed a marked improvement. For the first time, there are reasons to be cautiously optimistic that the economy faces a recession rather than a prolonged slump, and recovery could get underway in H2 2009.

Markets share some of that optimism. The Dow Jones Industrial Index has risen 15.5 percent over four consecutive sessions, the most sustained rally since April 2008. It is not yet time to break out the champagne. But there are reasons to start looking through short-term weakness to focus on an eventual, albeit modest, recovery by the end of next year.

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

With the U.S., Japan and Britain — nearly 40 percent of the global economy — facing the threat of deflation, it’s going to be just too easy for one, two or all three of them to get the policy response horribly wrong.

The global economy is so connected, and our experience with similar situations so limited that the scope for error is huge.

– John Kemp is a Reuters columnist. The views expressed are his own –

Quietly, without fanfare, the Federal Reserve has turned on the printing presses.  The central bank is flooding the market with enough excess liquidity to refloat the banking system — and hopes to generate an upturn in both economic activity and inflation in the next 12-18 months to prevent the economy falling into a prolonged slump.

Since the banking crisis intensified in September, the Fed has been rapidly expanding the credit side of its balance sheet, providing an ever-increasing array of facilities to support the financial system (repos, term auction credit, primary discount credit, broker-dealer credit, commercial paper funding, money market mutual fund liquidity and term securities lending).

–John Kemp is a Reuters columnist.  The opinions expressed are his own–

LONDON (Reuters) – Experience shows financial crises escalate very rapidly, and need a swift and decisive response from policymakers to break the cycle of panic. Time to reflect, craft thoughtful policies and consider long-term consequences is a luxury policymakers generally don’t have.

But the problem with bold ad hoc responses is they often have unintended consequences. Individual policy actions may prove inconsistent with one another, fail to achieve objectives, and store up larger problems for the longer term.

– John Kemp is a Reuters columnist.  The views expressed are his own –

By John Kemp

LONDON (Reuters) – By driving up long-term real interest rates, the forthcoming flood of U.S Treasury borrowing threatens to crowd out the amount of capital for investing in other asset classes, creating a much tougher environment for commodity prices over the next two to three years.

Like many other asset classes, commodity prices have benefited from an influx of funds in recent years driven by three related factors:

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed here are her own.

“The Buck is Back,” proclaimed a Wall Street Journal headline on Tuesday. But even if it is, and that’s a big if, a strong currency is a mixed blessing.

True, in spite of the financial crisis, over the past six weeks the dollar has strengthened substantially against the euro and the British pound, although Wednesday’s half percentage point Federal Reserve rate cut caused the dollar to slip. But the dollar has lost value relative to the Japanese yen.

John Kemp is a Reuters columnist. The opinions expressed are his own.

LONDON (Reuters) – The Federal Reserve has unveiled a dizzying array of new lending and liquidity support facilities over the last six weeks, but the diminishing law of marginal returns already looks to have set in. Each new lending and liquidity facility announced by the Fed is providing a smaller boost to confidence than the last.

The market is increasingly focused on how the Treasury and the Fed will fund the ever-expanding array of facilities, and the huge overhang of very short-term paper that needs to be rolled over into longer-term securities in a market that already looks queasy about the forthcoming flood of notes.
Rather than multiplying the number of acronymned facilities further, restoring confidence now rests on solving two issues.

First, the market needs to see buyers for all this new Treasury paper that will have to be issued in the coming year.