Peru is a worthy borrower of very long-term debt. While poorer than Mexico or Goldman Sachs — two others recently in the market with long-dated bond issues — the Andean nation’s economy is more balanced, it has less debt and its growth prospects look better. Global mining companies already take the country seriously; its successful $2.5 billion financing this week suggests debt investors are coming to do so too.
Mexico recently sold 100-year debt at a 6.1 percent yield, while Goldman sold 50-year paper at 6.125 percent. In its fundraising, Peru’s long-term slug had a maturity of “only” 40 years, but it is still notable that the $1 billion issue sold at a lower yield than paid by Mexico or Goldman — 5.875 percent.
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— The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Martin Hutchinson
WASHINGTON (Reuters Breakingviews) – India and the United States aren’t just the biggest democracies in the world. They’re also monetary kissing cousins. So it was no surprise to see India’s prime minister offering qualified support for the Federal Reserve’s attempt at monetary stimulus.
– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Martin Hutchinson
WASHINGTON (Reuters Breakingviews) – President Barack Obama’s support for India’s permanent membership to the United Nations Security Council raises the question of which of the current five members must make way. Britain and France are normally regarded as the likely candidates. But economically, Russia is a better case to lose the game of musical chairs, particularly if that would teach a lesson that kleptocracy doesn’t pay.
A proposal from the president of the World Bank, Robert Zoellick, to use gold as a reference point could prove destabilizing. Like the Bretton Woods system, such a government-run peg would break under stress. A better approach would flip the monetary order and use gold as a private means of global exchange.
Zoellick suggests using the yellow metal as an “international reference point of market expectations about inflation, deflation and future currency values.” In its weakest form, this would simply use the gold price as one indicator of the health of the global monetary system, something many central bankers already do. In a stronger form, it would mean fixing a peg for currencies in terms of gold, in a similar manner to the Bretton Woods monetary system in force from 1944 to 1971, and in vestigial form until 1973.
The newly empowered U.S. Republican Party may have fun kicking Ben Bernanke, the Federal Reserve chairman, around. Whether or not the party ends with control of the Senate, it will find budget cutting difficult and often unpopular. However as several regional Fed bank presidents — along with many Republicans — support tighter money it’s easy to see a GOP Congress making sport of harassing the central bank chairman.
With the White House still Democratic for at least the next two years, a new Republican majority in the House of Representatives may have difficulty scoring concrete achievements on the economic front.
The American economy is exhibiting an unhealthy zombie glow. Third-quarter GDP numbers, released just before the Halloween weekend, suggest worrisome imbalances rising again. The gain in real GDP was about equal to the growth in net imports and exceeded by the rise in inventories. Consumption was solid but government spending rose sharply as the savings rate fell. It’s not an altogether pretty picture.
In a well-balanced economy, consumption grows in tandem with overall GDP, with savings adequate to finance investment. Moreover, government spending growth is restrained, while inventories grow only as fast as consumption and the balance of payments deficit remains under control.
President Ford refused to help New York in 1975, a rejection immortalized as “drop dead.” Historically, the federal government hasn’t bailed out U.S. states and cities facing default. But the EU’s rescue of Greece and the exceptional depth of the recent recession just might change that. Two possible structures for bailouts are budget-avoiding federal guarantees and regulation-bending Federal Reserve bond purchases. Either way, politics may make rescues hard to resist.
Any such action would create huge controversy over constitutional principles of state sovereignty and responsibility. It would also create a potentially hazardous precedent. But that doesn’t make it impossible.
When are big public-sector projects more of a drain than a stimulus for the economy? Strict anti-Keynesians would argue all the time. But even die-hard believers in government stimulus would have a hard time defending the merits of American rail projects. The simple reason: the costs involved are just too high.
Take Amtrak’s plan to improve the rail line connecting the Northeast corridor. The government railroad estimates it would take $117 billion to implement high-speed service. That exceeds the $17 billion cost of China’s longer high-speed train or the adjusted costs of earlier services in France and Japan.
Friday’s U.S. jobs figures provide subdued reassurance. The private sector employment gains of 67,000 in August, together with positive revisions totaling 123,000 for previous months, should dispel fears of an economic double-dip for now. With just one more jobs report before November’s elections, the latest data also offer a glimmer of hope for Democrats.
Continued and fairly steady private sector job growth, together with a surprising decline of 323,000 in long-term unemployment should be reassuring for the unemployed and those fearful of losing their jobs. That’s despite that fact that the end of temporary census employment led to a headline loss of jobs in August. It is also likely to help Democrats in November’s midterm elections, blunting the force of Republican attacks on their handling of the economy.
First ice hockey, now the economy. The annualized second-quarter growth rate of 2 percent in Canada didn’t much beat the 1.6 percent pace in America, but final demand growth at 3.2 percent was much stronger than the U.S. equivalent expansion of 1 percent. That’s an indication that Canada’s economy, though weighed down partly by its neighbor’s weakness, is recovering more robustly.
While Canada’s economy is closely linked to that of its southern neighbor, it has considerable relative strengths. Its banking system is more tightly regulated, so indulged less intensively in the subprime mortgage and derivatives shenanigans that brought the U.S. system to its knees.