Opinion

The Great Debate

from The Great Debate UK:

Quantitative easing a last resort

img_3391-alan-clarke-Alan Clarke is UK economist at BNP Paribas. The opinions expressed are his own-

As expected, the Bank of England left the Bank Rate unchanged at 0.5 percent at the April meeting, the first unchanged decision since September 2008.

The accompanying statement was short and sweet. The Bank has accumulated 26 billion pounds of asset purchases and will take a further two months to complete the planned 75 billion pounds of purchases - see you next month!

It is disappointing that gilt yields haven't remained low - partly because of firmer economic data, but also because the market is wary of the exit strategy. Hence the statement was a bit of a missed opportunity. The Bank has run out of interest rate ammunition and hence is having to use alternative measures including quantitative easing. Some form of verbal intervention, voicing a desire to get gilt yields lower could have been a cheap and easy way to loosen conditions in the economy.

Ultimately we expect the scale and duration of quantitative easing to be more than most expect. Our models suggest that if the Bank Rate could fall below zero, interest rates "should" be -4 percent. That shows the magnitude of the stimulus that is required from unconventional policy. Given this, we expect Bank purchases of assets to amount to as much as double the 150 billion pound that the Bank is currently authorised to spend.

Quantitative easing is called unconventional policy for a reason. It is the last resort. We don't know if it will work; if it does work we don't know how well it will work or how quickly it will work; we don't know how big any side effects will be. If it was so fast and effective then it wouldn't be unconventional - we wouldn't bother moving the Bank Rate, we would use QE instead.

U.S. cranks up antidumping machine

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

Right on cue, U.S. steel producers have filed antidumping and anti-subsidy (countervailing duty) complaints against imports of high-quality steel pipe from China.

The core of the dumping and subsidization accusations is not new. It centers on alleged benefits China’s steel producers derive from a legacy of state ownership and aid, as well as their willingness to continue exporting surplus product that cannot be absorbed into the domestic market. But until recently the industry was hampered in bringing a case because of high levels of profitability.

Arabia and the knowledge gap

Bernd Debusmann - Great Debate– Bernd Debusmann is a Reuters columnist. The views expressed are his own. –

Think big. Think global. Spare no expense. That could be the motto for an ambitious effort by the United Arab Emirates to close the knowledge gap with the West and eventually restore Arab learning to its former glory.

Headlines from Dubai, the second-largest and most flamboyant of the seven emirates that make up the country, have been dominated by the bursting of a spectacular property bubble and an exodus of foreigners who lost their jobs as the global recession slowed down the economy. One thing that is not slowing –an education drive without parallel in the Arab world.

U.S. mouth writing checks its body won’t cash

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

A look at credit insurance prices for U.S. banks shows that market thinks the government’s mouth is writing checks its body can’t or won’t cash.

Despite a blistering rally in bank shares and Herculean efforts by the U.S. to build confidence in its financial sector, the price of insuring some leading banks’ debt against default has increased markedly in recent weeks.

Obama’s plea to EU on Turkey carries risks

Paul Taylor Great Debate– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Basking in adulation across Europe, U.S. President Barack Obama chose to expend some of his political capital to urge the European Union to open its doors to Turkey.

This public reaffirmation of long-standing U.S. policy fits in with Obama’s attempt to restore the United States’ standing in the Muslim world, using Turkey as a platform for his first state visit to a Muslim country. It also helps rebuild strategic ties with Ankara that sank to a low ebb under George W. Bush, when Turkey refused to allow U.S. forces to use its territory and airspace to invade Iraq.

Islamic mega-bank prays for support

BAHRAIN/– Margaret Doyle is a Reuters columnist. The opinions expressed are her own –

Islamic finance is about to get its first mega bank if Sheikh Saleh Kamel has his way.

The billionaire chairman of Bahrain-based Al Baraka Banking Group is head of an alliance hoping to launch a $10 billion Islamic bank before year-end. He will have his work cut out. Islamic banks may have avoided the worst of U.S. sub-prime dross, but Islamic banking has risks of its own.

Bank rally ready to be marked-to-market

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

U.S. bank operating earnings are going to have a hard time outrunning credit losses, making the massive rally in bank shares look ready to be marked-to-market.

A series of positive statements about profitability in the early part of the year from major U.S. banks, notably Bank of America, Citigroup and JP Morgan helped to spring a rally in the beaten down sector, as investors bet that with government assistance they could earn their way out of their troubles.

G20 shows power shift to multipolar world

Paul Taylor Great Debate — Paul Taylor is a Reuters columnist. The opinions expressed are his own –

A year ago, mere mention of the notion of a multipolar world was a sure way to lose friends and dinner invitations in Washington.

The London G20 summit shows just how far power has ebbed from the United States, and from the West in general. Until late 2008, the Group of Eight mostly Western industrialized nations — the United States, Canada, Germany, France, Britain, Italy, Russia and Japan — was the key forum for economic governance.

Mobile industry stimulus, strings attached

ericauchard1– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Some of the world’s biggest mobile operators say they can stimulate the global economy by luring $550 billion in new investment, but only with the implied trade-off that they retain their monopoly market powers.

AT&T, Deutsche Telekom, NTT DoCoMo, Telefonica and Vodafone are among the carriers who have called on national regulators to provide a “minimally intrusive” regulatory environment to encourage new investment.

Reform the IMF and World Bank

Johannes Linn- Johannes Linn is a Senior Fellow and the Executive Director of the Wolfensohn Center for Development at the Brookings Institution. The views expressed are his own. —

One of the tasks for the G20 Summit in London is the reform of the IMF and the World Bank, key global institutions to help address the current crisis and to prevent the occurrence of future crises. Reform of the IMF is more urgent both in the short and medium term while reform of the World Bank, although equally important, is less pressing.

The G20 faces a few immediate priorities related to the IMF:  First, G20 leaders should agree to triple IMF resources from the current level of $250 billion to $750 billion to help meet the financing needs of developing countries. This is critical because the World Bank has estimated that these countries may face a shortfall of up to $700 billion in 2009 alone.  Second, G20 leaders should request that the IMF monitor and report transparently on the commitments and implementation of G20 national stimulus plans and efforts to repair their banking sectors. Third, G20 leaders should commit to a far-reaching reform of the IMF by 2010.

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