James Saft

Pension savers get the boot

Nov 30, 2010 15:04 UTC

From Dublin to Paris to Budapest to inside those brown UPS trucks delivering holiday packages, it has been a tough few weeks for savers and retirees.

Moves by the Irish, French and Hungarian governments, and by the famous delivery company, showed that in the post-crisis world retirees, present and future, will be paying much of the price and taking on more of the risk.

This goes beyond merely cutting back on pension benefits, rising to actual appropriation of supposedly long-term retirement assets to help fund short term emergencies.

Let’s start with Ireland, which is kicking in 10 billion euros from its National Pensions Reserve Fund into an 85 billion euro package of support for its banks.

Trust me, this does not reduce the risk profile of the NPRF, which was set up as a sovereign wealth fund to help pay for state retirement benefits.

Business of America is not consumption

Nov 26, 2010 17:32 UTC

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

HUNTSVILLE, Ala — If you think that the business of America is consumption, then sit back, enjoy the Black Friday sales and take heart from the recent upbeat data on spending and income.

If, on the other hand, you think the future of the U.S. is going to have to be productive industries which throw off the cash flow that funds the paychecks and pays for the $5 made-in-China Barbie dolls at Wal-Mart, then perhaps you had better take note of the sharp slowdown in orders for durable goods.

The contrast between consumption and investment really could not be more stark.

The U.S. Commerce Department said on Wednesday that consumerspending rose by 0.4 percent in October and also upgraded spending growth in September to 0.3 percent. Incomes rose by 0.5 percent in the month, one of the best such showings this year.

Beware China gunning for speculators

Nov 23, 2010 17:37 UTC

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

There is a pretty good rule of thumb in global financial markets: if you want to know where problems are beyond the reach of policy, look for places where the authorities are blaming “speculators”.

So it was in Europe, where last spring, as the depths of the euro zone’s problems were becoming clear, officials railed at the speculators who had the temerity to point out the obvious: that several nations would not have the money to repay their debts.

Greece and Spain went so far as to put their intelligence agencies on the case of tracking down speculative “attacks.”
So, it would seem, is it now in China, with food prices.

Following Zoellick down the rabbit hole

Nov 9, 2010 08:10 UTC

We’ve all gone down the rabbit hole.

World Bank President Robert Zoellick has lent a certain Alice in Wonderland quality to the financial landscape by saying that the world should consider a return to a modified gold standard of international exchange.

If you’d asked me in 2007 how likely it was that a consummate insider like Zoellick would propose such a thing I’d have said it was only slightly more credible then the head of the National Cattlemen’s Beef Association coming out in favor of giving cows the vote.

The idea that we would move away from or curb a fiat money system — in which the value of money is tied only to faith in a government, buttressed by its policies — was, and probably is, unsupportable, not so much impossible to implement as impossible to agree.

Enter the era of dollar devaluation

J Saft
Nov 4, 2010 17:42 UTC

We’ve entered a new era in global financial markets: the U.S. is intentionally devaluing the dollar.

For the U.S., which has long espoused a strong dollar but in reality had a policy of benign neglect, this is the equivalent of pushing the big red eject button in the jet cockpit: something big is going to happen and we will have to see how it will work out.
The Federal Reserve on Wednesday moved to open a second round of quantitative easing, pledging to purchase a total of $600 billion of longer-dated Treasuries between now and the end of the second quarter of next year. As well, the Fed will reinvest $250-300 billion in the same period, meaning that the central bank will be buying up $110 billion a month in Treasuries and creating a like amount of new money out of the ether.

Perhaps the principal way QE will boost the economy, the Fed hopes, is by lowering effective interest rates, enticing investors to move into riskier assets, some of which may generate inflation and jobs. As well there is the wealth effect; the old canard of spending more because your retirement account and house have gone up in nominal terms.

Institutional failure week

Nov 2, 2010 13:01 UTC

-The opinions are the author’s own-

By the end of this week, the U.S. will face a government that is unable to act to aid the economy and a Federal Reserve that is unable to stop.

The stock market may well rise on this dysfunctional combination, only serving to prove that the economy and market are becoming fundamentally disconnected.

Tuesday’s election may well deliver a split Congress with the Republicans in control of the House of Representatives and the Democrats clinging to a narrow majority in the Senate. This means that there is no chance of further meaningful stimulus and that Democratic timidity will likely harden into an intransigence to match that of the Republicans.