MacroScope

Still not thinking the very thinkable on Britain’s future

Mark these words. Not only is Britain going to avoid a triple-dip recession, but the economy won’t shrink again as far as the eye can see.

If that sounds ridiculously optimistic, don’t tell the more than 30 economists polled by Reuters last week, none of whom predict even a single quarter of economic decline from here on.

Even the Bank of England, not exactly famous these days for its accuracy in economic forecasting, has said for a long time that a quarter or two of contraction here and there is to be expected. That was underlined by Wednesday’s unexpected news some policymakers voted for more bond purchases this month.

And most Britons are now used to an economy that has done little but vacillate between growth and contraction over the last few years.

It seems only the market economists, working mainly for banks and research institutions, are leaning firmly towards growth.

Show and tell: Fed’s balance sheet not as big as you thought

Size matters, and Federal Reserve’s balance sheet is not as big as shrill critics of QE3 would lead you to believe.

True, $3 trillion is serious money. It represents a tripling in the size of the Fed’s balance sheet since 2008, before the U.S. central bank unleashed the first round of its aggressive campaign of so-called quantitative easing. It is now on round three, and has committed to keep buying bonds until it spies a substantial improvement in the outlook for the labor market.

But as a percentage of GDP (gross domestic product), the Fed’s balance sheet is still smaller  than those of the Bank of Japan, European Central Bank, and Bank of England, notching under 20 percent of GDP compared with over 30 percent of GDP for both the BOJ and ECB.

QE3 debate kicks into high gear: Get ready for an assembly line of Fed speeches

Is it full steam ahead for the Fed’s QE3 or is the U.S. central bank having second thoughts? Next week’s veritable assembly line of speeches from Fed officials could help answer that question. Vice Chair and possible Bernanke successor Janet Yellen kicks off the week with remarks to an AFL-CIO conference. She is followed by numerous regional Fed presidents, the bulk of them with hawkish tendencies: Esther George, Jeffrey Lacker, Charles Plosser and Dennis Lockhart on Tuesday, St. Louis’ James Bullard on Wednesday and Thursday, and finally, Cleveland Fed President Sandra Pianalto Friday. Oh, and the Fed’s regulatory point person, board governor Daniel Tarullo, testifies before the Senate Banking Committee on Thursday. The topic is a now-perennial one: “Wall Street Reform.”

 

Fading productivity could hurt U.S. job growth

RBC economist Tom Porcelli is such a curmudgeon these days. Still, given that he was one of the few economists that accurately predicted the possibility of a negative reading on fourth quarter GDP, maybe it’s not a bad idea to listen to what he has to say.

This week, he expressed concern about a rapid decline in U.S. productivity – and that was before data showing U.S. nonfarm productivity fell in the fourth quarter by the most in nearly two years.

Productivity declined at a 2 percent annual rate, the sharpest drop since the first quarter of 2011 and a larger fall than the 1.3 percent forecast in a Reuters poll.

Brazil: Something’s got to give

How about living in a fast-growing economy with tame inflation, record-low interest rates, stable exchange rate and shrinking public debt. Sounds like paradise, doesn’t it? But Brazil may be starting to realize that this is also impossible.

Inflation hit the highest monthly reading in nearly eight years in January, rising 0.86 percent from December. It also came close to the top-end of the official target, accelerating to a rise of 6.15 percent in the 12 months through January.

That conflicts with key pillars of Brazil’s want-it-all economic policy. The central bank cut interest rates ten straight times through October 2012 to a record-low of 7.25 percent, saying Brazil no longer needed one of the world’s highest borrowing costs. The government also forced a currency depreciation of around 20 percent last year, aiming at boosting exports and stopping a flurry of cheap imports.

New drama casts American Dream in a cold light

The American Dream distorted almost beyond recognition by mass foreclosures, women working on straight commission, men not working at all, and an alleged “higher power” who wants you to be rich beyond your wildest dreams, is the subject of the Women’s Project Theater’s production of “Bethany,” a new play by the young playwright Laura Marks.

The central character, Crystal, (played by America Ferrera, star of the “Ugly Betty” television series) is trying to regain custody of her daughter, Bethany, who has been placed in foster care because foreclosure has left her mother homeless.

Crystal is a victim of the American Dream, portrayed in this work as little more than an elaborate con game where honest, frantic people run like rats on a wheel – with firmer, secure ground hopelessly out of reach.

The wider point about Britain’s “triple-dip” recession threat

Britain’s economy shrank an estimated 0.3 percent at the end of 2012 and every major media outlet says it points to a big risk of a triple-dip recession.

And equally predictably, some economists have already pointed out it’s a preliminary report, so maybe the economy isn’t as weak as the stats show. Negative figures have been revised away in the past.

While both points may well be true, they really amount to a squabble over whether your football team is going to go 4-0 down or 5-0 down. As Markit Economics pointed out, Friday’s figures mean that UK GDP remains some 3.2 percent lower than the peak of Q1 2008.

U.S. housing recovery running out of steam? Not so fast, says Coldwell Banker CEO Huskey

U.S.home resales unexpectedly fell in December, but the drop was not large enough to suggest the recovery in the housing sector is running out of steam.

The National Association of Realtors said on Tuesday that existing home sales dropped 1.0 percent last month to a seasonally adjusted annual rate of 4.94 million units.

Reuters television’s Conway Gittens interviews Budge Huskey, CEO of Coldwell Banker.

Interview with IMF Managing Director Christine Lagarde

IMF Managing Director Christine Lagarde sat down for an interview with Thomson Reuters Editor of Consumer News Chrystia Freeland to discuss the European debt crisis and U.S. fiscal problems.

Lagarde also outlined the Fund’s agenda for 2013 at a news conference following the release of a $4.3 billion tranche of aid to Greece, which she said is moving in the right direction with reforms.

From one Fed dove to another: I see your logic

Narayana Kocherlakota, the head of the Federal Reserve Bank of Minneapolis, has made a habit of turning economists’ heads. In September, the policymaker formerly known as a “hawk” surprised people the world over when he suddenly called on the U.S. central bank to keep interest rates ultra low for years to come. This week, Kocherlakota arguably went a step further into “dovish” territory, saying the Fed needs to ease policy even more. He wants the Fed to pledge to keep rates at rock bottom until the U.S. unemployment rate falls to at least 5.5 percent, from 7.8 percent currently – despite the fact that, just last month, the central bank decided to target 6.5 percent unemployment as its new rates threshold.

Kocherlakota’s bold policy stance is probably even more dovish – ie.  more willing to unleash whatever policies are needed to get Americans back to work – than even those of Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren, until now considered the stanchest doves of the central bank”s 19 policymakers.

So in an interview on Tuesday, Reuters asked Rosengren what he thought of Kocherlakota’s plan. Here’s what he had to say: