Never fear, Jean-Claude is here

Any doubts about financial markets’ faith in European Central Bank  President Jean-Claude Trichet’s cure-all ability should have been put to rest  after a euro flurry over Trichet cutting short a visit to Sydney to return to Brussels for a meeting of European Union leaders.

The euro recovered from 8-1/2 month lows against the U.S. dollar after the Reserve Bank of Australia said Trichet would leave anniversary celebrations early, as traders bet that his  rush to Brussels meant an increased chance of  European leaders agreeing  a rescue deal for struggling  Greece.

When the ECB later clarified that Trichet had been invited to the Thursday meeting last month and had adjusted his flight plans at the last minute to make a connecting flight, the single currency slipped back 20 ticks to just under $1.37.

  ”The whole absurd situation came from the fact that someone in Australia said that Mr. Trichet was cutting short his stay. It became a big story, while Mr. Trichet only chose an earlier flight because he was afraid he would miss a connection,” an ECB spokesman said.   

Political economy and the euro

The reality of  ‘political economy’  is something that irritates many economists – the ”purists”, if you like. The political element is impossible to model;  it often flies in the face of  textbook economics;  and democratic decision-making and backroom horse trading can be notoriously difficult to predict and painfully slow.  And political economy is all pervasive in 2010 – Barack Obama’s proposals to rein in the banks is rooted in public outrage; reading China’s monetary and currency policies is like Kremlinology; capital curbs being introduced in Brazil and elsewhere aim to prevent market overshoot; and British budgetary policies are becoming the political football ahead of this spring’s UK election. The list is long, the outcomes uncertain, the market risk high.

But nowhere is this more apparent than in well-worn arguments over the validity and future of Europe’s single currency — the new milennium’s posterchild for political economy.

For many, the euro simply should never have happened –  it thumbed a nose at the belief that all things good come from free financial markets; it removed monetary safety valves for member countries out of sync with their bigger neighbours and put the cart before the horse with monetary union ahead of fiscal policy integration. But the sheer political determination to finish the European’s single market project, stop beggar-thy-neighbour currency devaluations and face down erratic currency trading meant the  currency was born and has thrived for 11 years.

Now the budgetary and bond market upheaval currently afflicting euro member Greece and stalking  Portugal, Ireland, Spain and Italy has reawakened the whole debate. “Will the euro survive?” seems a legitimate question once again.

Rapping with Hayek and Keynes

Gettin’ down with the dismal science

Deficits and debts made clear

Sovereign wealth fund and a remote island

Little Diomede, a remote U.S. island in the Bering straits only 2.5 miles from Russia, has 129 people living in a traditional Ingalikmiut Eskimo village.

 On an island surrounded by rocky slopes and harsh storms with the sea frozen for half a year, employment is limited to the city and school whereas seasonal mining, construction and commercial fishing positions have been on the decline.

Little Diomede villagers are part of tens of thousands of qualified Alaskans who receive dividends from regional wealth fund Alaska Permanent Fund.

At least 25 percent of resource-related revenues are placed in the fund, which invests its assets of over $34 billion in a diversified portfolio of public and private assets. Currently their asset allocation consists of 38 percent in stocks, 22 percent in bonds, 12 percent in real estate, 6 percent in private equity and 2 percent in cash.

Trichet to keep cool at frosty G7

European Central Bank  President Jean-Claude Trichet plans to keep a cool head at this weekend’s meeting of Group of Seven policymakers in Canada’s far north.

Large iceberg over Frobisher Bay

“I am very happy to go very far up, far up in the north of Canada,” he told journalists before hopping on a plane en-route to frostbitten Iqaluit, some 300 kilometres south of the Arctic Circle.

“We will have all the right environment to be as cool as possible in judging the situation.”

Economic Ties?

As rare as it is to get any two economists to agree, the chances are even slimmer of hearing three Nobel economics laureates concur.

And so it was that each of the award winning economists — Eric Maskin (2007), Michael Spence (2001) and Robert Merton(1997) — all had their own take on the legacy of three years of financial and economic crises when they spoke to a conference organised by Pioneer Investments  in London last week.

 To be fair, they broadly coagulated around the inevitability of greater regulation of banking and finance and also on the enormity of China’s now imposing position in world economic affairs.

White House sees smooth economic sailing

The White House budget proposal released on Monday assumes the U.S. economy is heading for a six-year run of above-average economic growth with no sign of a worrisome spike in inflation or interest rates. The forecasts underlying President Barack Obama’s budget plan show real gross domestic product rising 2.7 percent this year, which is largely in line with private forecasts. Beginning in 2011, the White House’s projections diverge. It expects six consecutive years of strong growth ranging from 3.2 percent to 4.3 percent — well above what most economists consider the longer-term trend of around 2.6 percent. The last time the economy saw a similar streak of strong growth was in the late 1990s, during the dot-com boom. The missing link is still jobs. Despite the rosy economic forecast, the White House sees the jobless rate only slowly declining from the current 10 percent level. In fact, the forecast shows the unemployment rate won’t dip below 6 percent until 2015. Strong growth. Weak labor market. Can we really have both for six years?

from Davos Notebook:

Watch Felix Salmon interview Nouriel Roubini

Yesterday evening Reuters.com streamed an interview with renowned economist Nouriel Roubini live from our studio at the World Economic Forum in Davos. Reuters columinst Felix Salmon presented the interview and all the questions he put to Roubini were sent in by visitors to our Davos 2010 live blog.

Greece's economic woes, U.S. GDP and the trustworthiness of statistics coming out of China were just some of the issues being discussed. If you missed it, or if you want to see it again, watch the interview in the player below.

from Hedge Hub:

Milan’s deserted depots point to double dip

 Travelling towards Italy's major financial centre Milan last Sunday on my way back to Zurich, I spotted something out of the window that had little effect on my fellow train passengers but made my blood run cold.

 The massive storage depot just outside the city was practically devoid of goods containers.

    These containers are usually stacked four high in periods of normal economic activity, although their number fell noticeably during the recession from which we have now supposedly emerged.

But now there was bare space on the ground.