Opinion

James Saft

from Davos Notebook:

Of confidence and coconut trees

Jan 31, 2009 10:17 UTC

"Confidence grows at the rate that a coconut tree grows, but confidence falls at the rate that the coconut falls," Montek Singh Ahluwalia, deputy chairman of India's Planning Commission, told a panel in Davos.

He also indicated that India's decision not to float its currency and to build up massive reserves was correct, noting that this gave it a cushion during the downturn.

"Floating (currencies) would be fine, if that was what was meant, but what they mean by floating is crashing upwards and crashing downwards."

John Lipsky of the IMF said the answer was a better international liquidity facility to give surplus producing nations the confidence that cash would be there if they did float and were hit by volatility.

He's right though it would have to be a very big fund indeed. But if the lesson of the last five years is that everyone should export like heck and build up reserves we are going to have a battle on our hands and a long, deep downturn.

from Davos Notebook:

Overheard in Davos

Jan 30, 2009 08:11 UTC

One of the best things about Davos is the conversations you overhear. It's like no place else.

Sitting minding my own business, typing away I became aware of a central banker from a medium sized emerging market sitting nearby. He was joined by a gentleman from a bank in his home country. After a few muffled preliminaries the central banks said:

"So, how much trouble are you in?"

The banker responded in what sounded like soothing tones but I couldn't make out exactly what he was saying. The only other line that came through clearly was that after a long speech the banker said to the central banker, with an air of exasperation.:

from Davos Notebook:

U.S. – They’re skint, they’re frugal, get used to it

Jan 29, 2009 10:31 UTC

Good session on the "Frugal American," an as yet undiscovered species that is coming to a global economy near you.

You know the general idea, a decade or so of living beyond their means, borrowing money against their rising house values to finance consumption is coming to a grinding halt. That's called a recession, but how long will this frugal thing last?

Ian Davis, the MD from consultants McKinsey & Co was blunt:

"Americans have no option but to be relatively more frugal over the next 10-20 years." This is irrespective of the crisis and is a structural issue due to overspending in the past and the huge host of baby boomers who are now moving into what they fondly hope will be their retirement years. Old people buy fewer ipods and ski boots apparently, and are less likely to remodel their kitchens and bathrooms. That is a problem for the global economy.

from Davos Notebook:

It’s never too late to blame Greenspan

Jan 29, 2009 09:55 UTC

Alan Greenspan hasn't been chairman of the Fed for three years, but his policy mistakes keep paying dividends in the form of blame at this year's World Economic Forum in Davos.

Polish Finance Minister Jacek Rostowski yesterday:

"This was the failure of one of the key institutions in the world." During the Greenspan era he said they continually met downturns and distress with easing and "eliminated fear."

Ken Rosen of Berkeley, who was writing about the housing bubble in 2005 or so, is in the same camp:

Whose job is it to stimulate Europe?

Jan 28, 2009 17:12 UTC

So do countries which can borrow money more cheaply, Germany for example, have a higher obligation to borrow, spend and make things better for everyone across Europe?

Polish finmin Jacek Rostowski, speaking in a session on the outlook for Europe, seemed to think so:

“Fiscal policy … some countries which are far more able to afford increases in govt expediture and budget deficits than others. We should apply the principle that those with the lowest debt financing costs should consider the most expansive policies.”

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