MacroScope

Yet another guardian of market orthodoxy has uttered what was once an unspeakable heresy.

This week, the European Bank for Reconstruction and Development‘s (EBRD) acknowledged that its old approach of encouraging growth in client economies by reducing the role of the state and fostering private ownership was “simplistic”.

“The problem with this view is that markets cannot function properly unless there are well-run, effective public institutions in place,” the London-based development bank said in its annual transition report.

The EBRD was set up at the end of the Cold War to help former Soviet bloc economies make the transition to free markets so this admission is startling to say the least.

Barely three years ago, the belief that untrammelled free markets were anything but a force of good was unassailable. Other tenets of this creed were that market forces could best allocate resources and that ‘light-touch’ regulation of the financial industry ensured growing prosperity for all.

The growing acrimony in the international debate over China's currency policy has led some to warn that Beijing could dig in its heels if pushed to hard to let its yuan rise.

But Barclays Capital says Beijing could let its currency strengthen as early as next month, notwithstanding its public resolve against Washington's threat to label it as a currency manipulator.

"They do have a 'If you stop pushing, we'll do it' attitude, which is kind of childish, really. But it will happen because they are the only country in the world, besides India, where there is a whiff of inflation," says Barclays' asset allocation head Tim Bond.

Michael Pettis, a professor and China expert at the Carnegie Endowment for International Peace, has put together a thorough and informative look at all things U.S.-China trade. It’s well worth reading and watching the entire thing, but here’s a few highlights that jump out:

* We’re likely to see a significant increase in global trade tensions

* China will probably allow the renminbi currency to rise, but not by a lot

* There is a way to resolve those huge global imbalances but it will be painful and the chances of mustering the political will — in China, the United States and Europe — look slim.

A bit more on that last point: Pettis thinks that those three players need to “come to some kind of grand agreement.”