James Saft

By James Saft

(Reuters) – The Federal Reserve can and will fight the threat of falling prices.

What is a lot less clear is whether the extraordinary monetary policy we may soon be seeing will be effective in staving off another recession.

The recent run of data on prices has shown a clearly falling trend, doubtless driven by a recession in Europe and a marked slowing in China’s economy.

U.S. manufacturing contracted in May, according to a survey from The Institute for Supply Management. Even more striking: the index of prices paid decreased to 37 from 47.5, with 50 denoting the line between rising and falling prices. That is nothing less than a lurch towards deflation.

The consumer price index fell by 0.3 percent in May on a seasonally adjusted basis, the first such fall in two years and the worst since December 2008, at the height of the financial crisis.

By James Saft

(Reuters) – Bob Diamond’s gift to the UK, perhaps a parting one, is that he has managed his bank badly enough to provoke real reform but, perhaps out of luck, not so badly as to blow up the whole economy.

That Diamond should go is obvious; that he hasn’t is further evidence of why he should.

Not that Diamond, the CEO of Barclays Plc, has made the case for root and branch reform all on his own. While Barclays has been heavily fined in the UK and U.S. for submitting fictitious borrowing rates to the key LIBOR and EURIBOR panels, it is very likely that it was not alone, either in masking its weakness during the height of the crisis or in manipulating figures for gain in good times. Nor was the bank alone in the further scandal of mis-selling complex and destructive interest-rate swaps to small businesses, a plea it copped along with HSBC, Lloyds Banking Group PLC and Royal Bank of Scotland Group Plc.