interest rates

A Wall St. street sign is seen near the New York Stock Exchange (NYSE) in New York
FILE PHOTO: A Wall St. street sign is seen near the New York Stock Exchange (NYSE) in New York City, U.S., March 7, 2019. REUTERS/Brendan McDermid

March 19, 2019

NEW YORK (Reuters) – Investors remained bullish on longer-dated U.S. Treasuries for a sixth consecutive week on worries about a slowing economy and expectations inflation will stay muted despite a tight domestic labor market, a J.P. Morgan survey showed on Tuesday.

The margin of investors who said they were “long,” or holding more Treasuries than their portfolio benchmarks, over those who said they were “short,” or holding fewer Treasuries than their benchmarks, increased to nine percentage points from 7 points the prior week, according to the survey.

Three weeks ago, the gap between longs and shorts rose to 11 percentage points, the highest since September 2016.

The survey results come the same day Fed policymakers begin a two-day meeting at which they are expected to leave interest rates unchanged.Twenty-eight percent of the investors surveyed said on Monday for a third straight week they were long on U.S. government bonds, the J.P. Morgan survey showed.

The share of investors who said they were short Treasuries fell to 19 percent from 21 percent a week ago.

The percentage of investors who said they were “neutral,” or holding Treasuries equal to their portfolio benchmarks, edged up to 53 percent from 51 percent the week before, J.P. Morgan said.

Positions among active clients, which include market makers and hedge funds, showed no bearish bets on longer-dated Treasuries. Active net longs rose to 30 percent, the highest since May 2018, while the share of these clients who said they were neutral increased to 70 percent from 60 percent.

In early Tuesday trading, the yield on the benchmark 10-year Treasury was 2.6267 percent, up from 2.6050 percent a week ago.

(GRAPHIC: Investors positions in longer-dated U.S. Treasuries – https://tmsnrt.rs/2V9OjHR)

(Reporting by Richard Leong; Editing by Steve Orlofsky)

Source: OANN

The Reserve Bank of India Governor Urjit Patel pauses during a news conference after a monetary policy review in Mumbai
FILE PHOTO: The Reserve Bank of India (RBI) Governor Urjit Patel pauses during a news conference after a monetary policy review in Mumbai, India, December 5, 2018. REUTERS/Francis Mascarenhas

March 19, 2019

By Suvashree Choudhury

MUMBAI (Reuters) – Economists raised concerns over a sharp slowdown in Indian economy and pitched for a monetary policy boost to support growth at a meeting with the nation’s central bank chief on Tuesday, according to three participants.

Reserve Bank of India Governor Shaktikanta Das met more than a dozen economists to get their views on the economy ahead of the Monetary Policy Committee (MPC) decision due on April 4.

Most economists expect the six-member MPC to cut the repo rate by 25 basis points for the second time in a row next month to 6.00 percent, a level last seen in August 2017.

While the economists did not specify the extent of rate cut that the RBI could consider, one of them called for a 50-basis- point reduction, one of the participants said.

“Most of the participants said that monetary policy needs to do the heavy lifting to boost growth as there was no space for fiscal expansion,” another participant said.

The meeting under Das, who took charge in December, was in sharp contrast to the previous ones under former governor Urjit Patel, who was slightly reclusive and preferred to meet a small group of 5-6 economists. Das’ style has, however, been more open and communicative.

India’s economy expanded by 6.6 percent during October-December, its slowest pace in five quarters, on weak consumer demand and investments, dealing a major blow to Prime Minister Narendra Modi as he seeks a second term in office at a general election that kicks off next month.

Slowing growth has hit the federal government’s tax collections, constraining its ability to substantially boost spending ahead of elections.

However, neither Das nor any RBI official from the monetary policy department gave any indication of their thoughts or views, as is typical in such big-group meetings.

Economists and strategists spoke of several issues including drought, liquidity management, exchange rate, inflation, growth, bank credit growth, real interest rates and monetary policy transmission.

“The meeting went on for two-and-a-half hours as there were many participants,” said another economist who attended the meeting.

“But they didn’t say a single word on these topics.”

The RBI did not respond to an email seeking comment on the meeting with economists.

Some economists pointed out that food inflation could begin inching up after September if monsoon rains were not sufficient, but was unlikely to push retail inflation past the RBI’s 4 percent target.

Consumer inflation was at 2.57 percent on-year in February as food prices continued to fall for a fifth straight month.

The economists also raised concerns over a slowdown in global growth that has hurt India’s exports. India’s outbound shipments grew 2.4 percent annually in February, slower than 3.7 percent in January.

“Overall, the view was that the downside risks to growth have increased since the last policy while inflation risks have remained muted,” said a third participant.

“Not many of us clearly specified how much rate cut we wanted, but we presented the facts to make it clear to RBI that there was a need for a big boost to the economy.”

(Reporting by Suvashree Choudhury; Editing by Shreejay Sinha)

Source: OANN

A trader passes by screens showing Spotify on the floor at the NYSE in New York
FILE PHOTO: A trader passes by screens showing Spotify on the floor at the New York Stock Exchange (NYSE) in New York, U.S., March 13, 2019. REUTERS/Brendan McDermid

March 19, 2019

By Medha Singh

(Reuters) – U.S. stock futures rose slightly on Tuesday as investors anticipated a more accommodative policy stance from the U.S. Federal Reserve in a two-day policy meeting this week.

A flurry of downbeat economic data this month has supported market expectations that the Fed may reinforce a halt to further rises in interest rates.

The Fed concludes its deliberations with a news conference on Wednesday.

Investors will also be watching out for the central bank’s “dot plot,” a diagram showing individual policymakers’ rate views for the next three years, along with details on its plan to reduce holdings in bonds.

Traders currently expect no rate hikes this year, and are even building in bets for a rate cut in 2020.

Optimism that the Fed will remain less aggressive in raising rates and hopes of a resolution to a bitter trade dispute between the U.S. and China helped the markets claw back most of their losses from late last year.

The benchmark S&P 500 hovers at a five-month high and is just 3.5 percent away from its September record closing high.

At 7:04 a.m. ET, Dow e-minis were up 102 points, or 0.39 percent. S&P 500 e-minis were up 11.25 points, or 0.4 percent and Nasdaq 100 e-minis were up 27 points, or 0.37 percent.

Technology and financial stocks helped Wall Street’s three main indexes rise on Monday, the benchmark index and the tech-heavy Nasdaq’s fifth rise in last six sessions.

The blue-chip Dow’s advance has been hindered by Boeing Co as the world’s largest planemaker faces increased scrutiny in the wake of two deadly crashes of its 737 MAX aircraft in five months.

Boeing shares slipped 0.6 percent in premarket trading on Tuesday after shedding about 12 percent since the March 10 plane crash in Ethiopia.

Chip designer Nvidia Corp jumped 1.6 percent on partnering with Softbank Group Corp and LG Uplus Corp to deploy cloud gaming servers in Japan and Korea later this year.

In economic news, data at 10 a.m. ET is expected to show new orders for U.S.-made goods rose 0.3 percent in January after edging up 0.1 percent the month before.

(Reporting by Medha Singh in Bengaluru; Editing by Shounak Dasgupta)

Source: OANN

The Swiss National Bank (SNB) is pictured next to the Swiss Federal Palace in Bern
FILE PHOTO: The Swiss National Bank (SNB) is pictured next to the Swiss Federal Palace (Bundeshaus) in Bern, Switzerland December 7, 2018. Picture taken December 7, 2018. REUTERS/Denis Balibouse

March 19, 2019

ZURICH (Reuters) – The Swiss National Bank will leave its ultra-loose policy alone on Thursday, said all the economists polled by Reuters, and most don’t expect any change until at least 2021.

All 32 economists polled by Reuters expect SNB Chairman Thomas Jordan to maintain the bank’s negative interest rates and readiness to intervene in currency markets to restrain the safe-haven Swiss franc.

They expect the SNB to keep its target range for the London Interbank Offered Rate (LIBOR) locked at -1.25 to -0.25 percent, the same level since it ditched its minimum exchange rate of 1.20 Swiss francs to the euro four years ago.

None of the respondents expect any change until the end of this year, especially in view of the European Central Bank’s slowing of its own policy normalization. Most forecast it will come in 2021 at the earliest.

“We do not expect the SNB to change interest rates before the end of 2020. In fact, if we are correct in our assessment that the ECB will be forced to re-start QE next year, upward pressure on the franc – and SNB concerns about deflation – are likely to intensify into 2020,” said Jack Allen at Capital Economics.

“This means the SNB may have to delve into its toolbox to ease policy next year,” Allen said. He thinks the SNB might take rates even further into negative territory if necessary.

There was also no disagreement about the negative interest rate the SNB charges on sight deposits. All the economists expect -0.75 percent to be maintained this week.

All but one expected the bank to retain its description of the franc as “highly valued”. That one expected it will be described as “significantly overvalued”. The franc has gained 3 percent against the euro in the last 12 months to trade around 1.1360.

A strong franc weighs on Switzerland’s export-reliant economy and also adds deflationary pressure. The SNB is expected to cut its 2019 inflation forecast on Thursday from its current view of 1 percent.

The SNB will have to wait at least until the ECB starts its monetary policy tightening — now delayed to 2020 at the earliest — before it begins its own path to normalization, analysts said.

“Pressure on the SNB is mounting from two sides: on the one hand, the financial industry and pension funds are increasingly coming under pressure, which puts pressure on the SNB to end the negative interest rate phase as early as possible,” said Alessandro Bee at UBS.

“On the other hand, the weakness in European growth and the various political risks lead to a higher risk of a Swiss franc appreciation. The SNB is between a rock and a hard place.”

(Reporting by John Revill, polling by Manjul Paul and Richa Rebello, editing by Larry King)

Source: OANN

The German share price index DAX graph at the stock exchange in Frankfurt
FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, March 1, 2019. REUTERS/Staff

March 19, 2019

By Sruthi Shankar and Agamoni Ghosh

(Reuters) – European shares were on course for a fifth day of gains on Tuesday, with retail and basic resources stocks particularly strong as investors anticipated a more accommodative policy stance from the U.S. Federal Reserve this week.

The benchmark STOXX 600 rose 0.5 percent by 0932 GMT, hitting a five-month peak in what would be its longest winning streak since mid September. Gains were broad-based although Germany’s DAX led the pack with a 0.6 percent rise.

The Fed’s two-day meeting starts on Tuesday, with financial markets expecting the U.S. central bank to reinforce a halt to further rises in interest rates while possibly going further on a plan to cease reductions in its balance sheet.

That would follow moves by the European Central Bank two weeks ago to reloosen policy and pump more money into the financial system, offering hope of a continuation of stock market gains.

“There is a slightly better sentiment about stabilization on the global economy compared to late last year,” said Geoffrey Yu, head of UK investment office at UBS Wealth Management.

“As long as we have this stabilization anchored by clear expectations of a dovish Fed, or at least a non-hawkish Fed, this will be enough to keep things going,” Yu said.

Bank stocks handed back early losses to trade up 0.4 percent, after jumping more than a full percentage point on Monday following confirmation of merger talks between Deutsche Bank and Commerzbank.

Scandal-hit Danske Bank fell more than 5.3 percent in the aftermath of a vote by shareholders against a proposal to break up the bank.

NEW VOTE

News on Brexit also pointed to a delay in efforts by British Prime Minister Theresa May to get her divorce deal through parliament.

The speaker of parliament on Monday ruled May could not put her deal to a new vote unless it was re-submitted in a fundamentally different form. May is due at an EU summit in Brussels on Thursday at which she will ask for a delay to Britain’s planned departure from the bloc on March 29.

London’s FTSE 100, packed with international companies that benefit from a weaker British pound, rose 0.4 percent, boosted by oil majors and miners.

Online supermarket Ocado climbed to a record high after posting strong gains in first-quarter retail sales despite a fire at its flagship distribution center.

Luxury stocks got a lift from positive trade surplus data from Switzerland, with the retail index gaining nearly 1 percent.

Chilean copper miner Antofagasta advanced about 4 percent and was the top gainer on the STOXX 600, as a higher than expected dividend overshadowed a drop in core earnings.

French telecoms operator Iliad dropped more than 2 percent after the company cut its cashflow target for 2020 in France and added it was considering the sale of part of its mobile assets.

(Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru; Editing by Catherine Evans and David Holmes)

Source: OANN

FILE PHOTO: A security guard walks past in front of the Bank of Japan headquarters in Tokyo
FILE PHOTO: A security guard walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2019. REUTERS/Issei Kato

March 19, 2019

By Leika Kihara

FUKUOKA, Japan (Reuters) – Japan’s ultra-loose monetary policy is making it tough for commercial banks to earn profits out of lending, a problem that cannot be fixed through bank mergers, the influential chairman of a major regional bank in southern Japan said.

Isao Kubota, chairman of Nishi-Nippon City Bank and once a finance ministry colleague of Bank of Japan Governor Haruhiko Kuroda, praised the BOJ chief’s massive stimulus program for correcting a damaging yen spike and revitalizing the economy.

But Kubota said the length of the stimulus program is causing some problems, including hurting financial institutions’ profits for years due to low interest rates.

Extraordinary monetary steps, such as Kuroda’s massive asset-buying program and negative interest rates, could be useful and effective as “short-term, emergency” measures, Kubota told Reuters on Monday.

“But the longer the policy continues, the worse the side effects become,” he said. “We are in the sixth year of this policy and, I think intuitively, the accumulation of the side-effects might be enormous.”

Many Japanese regional banks are grappling with diminishing returns from traditional lending as years of ultra-low rates hurt their bottom line and a dwindling population triggers an exodus of companies to bigger cities.

While Japan’s banking lobbies have complained about the pain from the BOJ’s policies, financial regulators have urged regional banks to cut costs and find new ways to make money.

Some BOJ officials have said mergers could be among options for regional banks to beat a deteriorating business environment.

BIGGER PROBLEMS

But Kubota argued that simply prodding regional banks to merge won’t solve a bigger problem created by the BOJ’s yield curve control (YCC) policy, which caps long-term rates at zero.

“Regardless of whether (the BOJ) intends to do so or not, they are squeezing the profits of commercial banks,” Kubota said of YCC’s impact on bank profits.

“The other side of the coin is that, this kind of phenomenon is never resolved through, for example, mergers of banks. By nature, because of this policy, banks as a whole are made unprofitable.”

Under YCC, the BOJ now pledges to guide short-term rates at minus 0.1 percent and the 10-year bond yield around zero percent. The policy has made it tough for banks to profit from traditional business of borrowing short-term funds and lending them at higher yields.

“We want an early stoppage to this kind of policy. That we can say. But we can’t say what the authorities should do,” Kubota said, when asked whether commercial banks would be better off if the BOJ abandoned negative rates. “They have powers, authorities. They also have responsibilities for the outcome of their policy.”

Despite the mounting challenges to achieving 2 percent inflation, Kuroda won’t abandon his target, said Kubota, who thinks he sees the governor’s way of thinking “very well” as former colleagues.

Both studied under prominent economists at Oxford University as graduate students dispatched from Japan’s Ministry of Finance.

“He’s confident and he’s a good politician,” Kubota said of the BOJ governor. “Even if he thinks something is dubious, he would never say so, so long as there is a need for the policy.”

(Additional reporting by Takahiko Wada; Editing by Richard Borsuk)

Source: OANN

President Obama’s Car Allowance Rebate System (CARS), more popularly known as “Cash for Clunkers,” is now a decade old.

For those with short memories or those utilizing the healthy defense mechanism of repression, CARS, enacted by Congress in the summer of 2009, was a Keynesian-inspired stimulus package consisting of a $3,500 or $4,500 subsidy to those willing to part with their inefficient used vehicles and “trade” them for newly manufactured cars and trucks with better mileage ratings. Congress initially appropriated $1 billion for what was to be a five month program, both to stimulate new car sales and supposedly improve air quality. Because the initial $1 billion was exhausted in a matter of days, Congress appropriated another $2 billion, the balance of which ran out well short of the five month stimulus period. Per the legislation, all vehicles traded in were immediately made inoperable and junked, their engines frozen with sodium silica.

Not surprisingly, this interventionist program was a massive policy failure for several very predictable reasons.

First, no economy is made better off by destroying existing resources. Contrary to conventional myth, production of soon-to-be-destroyed-war-goods during World War II did not propel the United States out of the throes of the Great Depression — and neither did euthanizing 690,114 operational vehicles “jump start” the U.S. auto industry in 2009. Both endeavors merely redirected resources to manufacturing sectors out of touch with genuine consumer demand.

Bastiat’s “broken window fallacy” demonstrates how society is never made better off by destroying goods. In the case of the automobile market, instead of having hundreds of thousands of operational used cars with some market worth, we have government-engendered malinvestment in the production of new vehicles not genuinely demanded by consumers. The average age of a used light vehicle on the road today is 11.6 years, versus 10.5 in 2009. Does it make economic sense to call for cars more than a decade old to be destroyed today? My own household would lose two perfectly good vehicles and incur much higher new car and insurance payments.

Second, we have distortions in the market because we can’t know what Cash for Clunkers participants might have purchased (or not purchased) instead of new cars What about less affluent consumers who now face a significantly diminished supply curve (and thus higher prices) for a used vehicle because Cash for Clunkers reduced the supply of older, cheaper used cars(and total vehicles for sale, for that matter) by nearly 700,000 units? Did significant fuel savings and cleaner air result from the removal and destruction of these vehicles? Experts say no; people tend to drive older vehicles sparingly or very short distances. A reliable but inefficient old vehicle which gets someone back and forth to a job that is, say, three miles away, may very well make it possible for the owner to keep a job. Anecdotally, my father purchased a new full-sized pickup in 1982 which he drove sparingly for 5 years. I inherited it with only 26,000 miles from my mother in 2002, then sold it 15 years later with 52,000 miles.. On a good day with a heavy tailwind, the truck might have gotten about 13 miles per gallon on the highway. But when was it driven by either my father or me … when only a full sized pickup truck would suffice, such a vehicle often seemed invaluable.

Third, only the price mechanism can rationally allocate resources. Producers and consumers meet at a price; prices in turn signal the need for more or less investment in a particular good or service.

Nobody in Washington DC knows the right number of vehicles to have on American roads, the optimal ratio of new versus used vehicles, or the correct number of each type of vehicle. These choices are best made by consumers who know intimately their own personal needs and constraints. Stimulating new car sales with subsidies, as the Obama administration did 10 years ago, could only generate malinvestment. Not only were new car sales per capita trending down at the time the CARS program, they had been trending down since 1975. Markets reflected genuine consumer preferences; DC reflected a political preference for auto makers and lenders.

The one recent exception to that forty-year downtrend of fewer new car sales per capita was the post-recession sales increase that occurred between 2009 and 2015. While some of this increase is attributable to drivers who weathered the recession but could no longer make do with older cars, the temporary increase in auto sales following the Cash for Clunkers “stimulus” did little more than the mimic the rise in the general overall consumer spending during that same, post-2009 time period.

Also contributing to the post-recession increase in auto sales was an increase in the number of households over that same period of time. While the number of autos per U.S. household actually trended down slightly from 2.05 autos per household in 2008 to roughly 1.95 in 2018, the number of total households increased over that same period — and at a significantly greater rate than the number of vehicles per household went down, accounting for more total cars in use. Demographics and consumer preferences, not Cash for Clunkers, created the post-recession spike in new car sales.

Since 2016, however, sales have dropped off. This is what we would expect given higher interest rates, higher auto prices, increased telecommuting, and riedesharing programs like Uber. Millennials, already strapped with college debt, appear less interested in new car ownership than their Baby Boomer parents.

And perhaps most of all, newer cars tend to be more reliable and longer-lasting. None of this bodes well for auto manufacturers.

The Cash for Clunkers program destroyed valuable resources, misallocated other resources, and made life difficult for cash-strapped drivers needing a low-priced car—not to mention mechanics and salvage yard operators who rely on clunkers for their livelihood. It, did nothing to rejuvenate the new car manufacturing industry. Before the next round of intervention we would be wise to reflect on Bastiat and learn the harsh lesson of Cash for Clunkers.


Policies pushed by far-leftist Democrats will literally end the national sovereignty of the USA.

Source: InfoWars

As the economic contagion of the global financial crisis was spreading from country to country in 2007, it was frequently noted that the mainstream economics profession seemed to be just as much in the dark about the true causes of the crisis as were the general public.

In place of anything incisive and theoretically grounded, most people were forced to make do with vague hand-waving and metaphors to explain the crash, with one particularly well-worn bromide sticking out in my own memory as almost the defining phrase of the crisis: “When America sneezes, the whole world gets sick.”

However applicable that apophthegm may have been to the 2007/8 crisis, it was certainly the phrase which came to mind recently when news broke that, following the U.S. Federal Reserve’s dovish turn last month, central banks across the developing world have followed suit by shifting back toward lower interest rates.

An aggregate of interest rate moves across 37 developing economies showed that, over the course of February, the number of central banks in that group which had cut interest rates was greater by three than the number which had raised interest rates. This compares with a net rate rise in January, with one more central bank having raised rates than cut them in that group. Indeed, this aggregate of 37 developing economies had not shown any net fall in interest rates throughout the previous nine months leading up to the end of January 2019, with interest rate hikes having either equaled or exceeded interest rate cuts for the duration of that period.

An Easy-Money Trend

The trend began on 1st February — just two days after Fed chairman Jerome Powell announced that “the case for raising rates has weakened” — when Azerbaijan’s central bank cut its refinancing rate by 50 basis points, bringing it down to 9.25%. This move was followed shortly afterwards by the Reserve Bank of India, which unexpectedly cut its key interest rate by 25 basis points on February 6th. One of the biggest interest rate cuts of the month followed on the 14th, with a surprise move by the Egyptian central bank, which cut its deposit rate to 15.75%, and its lending rate to 16.75%, a decline of 1% in both cases. Then on February 20th, the Bank of Jamaica cut its key rate by 25 basis points, down to 1.5%. Two days later, the Central Bank of Paraguay made a similar 25 basis point cut to its policy rate, bringing it down to 5%. And rounding out the month, the National Bank of the Kyrgyz Republic cut its own policy rate to 4.50%, down from 4.75%, on February 26th.

What has prompted this widespread shift toward looser monetary policy in the developing world? While the rationales may differ from country to country in some of their specific details, one prevailing theme has appeared time and again throughout the various justifications for these shifts toward lower rates: fear of deflation.

After having strengthened consistently throughout most of 2018, the US dollar first stumbled and then noticeably fell between mid-December and mid-January, and has largely been flatlining since. As the equal and opposite reaction to this weakening of the dollar over the past few months, the currencies of many of these developing economies have correspondingly strengthened in terms of dollars. This has threatened to drop certain measures of inflation in those countries below their central banks’ inflation targets, which, in the mind of the mainstream economist, brings with it the threat of unemployment and economic slowdown. Couple this with the various uncertainties and potential shocks currently manifesting on the global economic stage, such as the Chinese economic slowdown and the uncertainty surrounding Brexit, and you have a situation in which cutting interest rates would seem to be, to the mainstream economist, the textbook response. After all, what harm could possibly come from central bank inflationism and artificially low interest rates?

The Price of Low Interest Rates

The advocates of Austrian Economics may find themselves increasingly occupied with the task of answering that question, over the coming months. After having maintained near-zero interest rates for most of the past decade, the past two years have seen the world’s central banks gradually start the process of normalizing rates again in response to the sluggish recovery. However, as the Austrian Business Cycle Theory of Ludwig von Mises demonstrates, that period of unsustainably low interest rates will not have been without costs. Such low interest rates will have induced investors into risky, long-term projects, which will no longer maintain the illusion of profitability once rates rise back to their natural, long-term levels. The relative upswing in the global economy over the past few years will be put under increasing pressure by the rising cost of borrowing, pressure which it will likely not be able to withstand, given the unsound foundation of unsustainably low interest rates on which that upswing has been built.

Examining the movement of interest rates over the previous two business cycles in, for example, the United States, seems to reveal a familiar pattern. As the economy was recovering from the previous bust and entering the next boom, the Fed took this as its cue to raise interest rates back up to non-crisis levels. Just as the Austrian Business Cycle Theory would lead us to expect however, these rising rates shook the foundations of the unsustainable booms created by the previous periods of lower interest rates, causing the economy to stutter. The Fed then reacted to this weakening of the boom by first halting and then reversing its interest rate rises, with the recessions of 2001 and 2008 both having followed shortly after such reversals. With central banks around the world currently signalling a likely softening of their previous plans for rate hikes, it may well be that we have begun entering into the final stages of of this familiar cycle once again.


Policies pushed by far-leftist Democrats will literally end the national sovereignty of the USA.

Source: InfoWars

A general view is seen of the London skyline from Canary Wharf in London
FILE PHOTO: A general view is seen of the London skyline from Canary Wharf in London, Britain, October 19, 2016. REUTERS/Hannah McKay

March 18, 2019

By William Schomberg

LONDON (Reuters) – Britain will launch a new set of early warning indicators aimed at spotting the next big economic downturn more quickly, based on the volume of road traffic, businesses’ value-added tax returns and how long ships spend in port.

The Office for National Statistics has been under pressure to use more of the digital data created by businesses and consumers which other statistics agencies are streaming into their measurements of the economy.

The Bank of England is likely to pay attention too, as it is trying to improve its understanding of early signals coming from Britain’s economy as it navigates Brexit.

“Policymakers and analysts demand faster insight into the state of the UK economy in order to make informed, timely decisions on matters such as the setting of interest rates,” said Louisa Nolan, the ONS’s lead data scientist.

The ONS said its new indicators would be launched in April and in many cases they would be available a month earlier than gross domestic product data, the main measure of how fast an economy is growing or shrinking.

The ONS cautioned against using the new indicators as predictors of GDP but said they would be able to identify large changes to economic activity.

A new VAT index, which will show whether businesses are seeing more or less turnover, would have spotted the first quarter of the 2008-09 recession in Britain five months before it showed up official estimates, although GDP figures have been improved since then, the ONS said.

There was a “surprisingly good correlation” between the ONS’s shipping indicators and imports, while traffic counts for heavy goods vehicles in England were consistent with at least some economic events, such as the financial crisis.

The traffic flows numbers might also help to measure how much Britain’s economy can grow without creating excessive inflation pressure, the ONS said.

(Reporting by William Schomberg, editing by David Milliken)

Source: OANN

FILE PHOTO: U.S. Representative Ocasio-Cortez and Senator Markey hold a news conference for their proposed
FILE PHOTO: U.S. Representative Alexandria Ocasio-Cortez and Senator Ed Markey hold a news conference for their proposed “Green New Deal” to achieve net-zero greenhouse gas emissions in 10 years, at the U.S. Capitol in Washington, U.S., Feb. 7, 2019. REUTERS/Jonathan Ernst/File Photo

March 18, 2019

By Julien Ponthus, Tommy Wilkes and Ritvik Carvalho

LONDON (Reuters) – Having spent three years and more than 2.6 trillion euros ($3 trillion) trying to boost economic growth across the euro zone, the European Central Bank’s mixed record may open the door for a high-spending, radical alternative.

With populist and anti-austerity parties looking to build support before European parliamentary elections in May just as growth withers, so-called Modern Monetary Theory (MMT) is challenging conventional thinking on debt, deficits and how economies should be run.

Popularized by Alexandria Ocasio-Cortez, a rising star of the American left, MMT posits in essence that a country with the ability to print its own currency can create and spend money freely, so long as inflation is kept under control.

The country can’t be forced into defaulting on its debts since it can always print money to pay creditors, the theory runs.

It’s music to the ears of European populists demanding a ramp-up in public spending to fight unemployment and finance social programs. Years of central bank quantitative easing (QE), they say, have done little except inflate financial asset prices.

MMT is about financing government spending and the real economy, its advocates say, while QE is solely designed to stimulate financial markets through massive purchases of private and public bonds on the secondary market.

MMT is unlikely to be put into practice in the euro zone any time soon. Rules of the currency area make it impossible for member states to print money unilaterally, and mainstream policymakers have derided the economics behind it.

Former U.S. Treasury Secretary Larry Summers has called MMT “voodoo” thinking.

But the ideas underpinning the theory are helping shape an ideological push against European fiscal orthodoxy and policymakers’ reluctance to consider big public debt-funded investment schemes.

“Post-European elections, there will be much more talk at a European level of (fiscal) spending and stimulus,” John Roe, a fund manager at Legal & General Investment Management, Britain’s biggest asset manager, told Reuters.

NEW DEAL

Roe noted calls for a vast publicly funded “Green New Deal”, as touted by some left-wing U.S. Democrats, are yet to materialize in Europe. But demands for such a policy remain a possibility which investors should take seriously.

The ECB’s admission this month that QE had failed to lift inflation and economic growth, and that it would leave interest rates at rock-bottom until at least 2020, leaves it vulnerable to calls for a drastic rethink.

“Real-world Modern Monetary Theory, defined as the monetization of large public deficits by the central bank, would be most advisable in the eurozone,” even if close to impossible to implement in the bloc, said Vincent Deluard, an analyst at financial advisory firm INTL FCStone.

(GRAPHIC: Euro zone growth and inflation – https://tmsnrt.rs/2UwLSzu)

POPULIST ROUTE

With talk of Europe slipping into a spiral of “Japanification”, a combination of weak growth and low inflation, pressure is building for fresh policy approaches, although advocates of MMT are yet to appear in European discourse as frequently as they have in the United States.

That could be about to change.

“People are assuming that if there’s a continued European economic slowdown after the European elections, European politicians will say Europe needs more infrastructure and they think they can print money at no extra cost”, said Saxo Bank’s chief investment officer Steen Jakobsen.

There have already been some moves towards an MMT-type approach.

British opposition leader Jeremy Corbyn in 2015 proposed “people’s QE”, a government-directed central bank-financed scheme to fund infrastructure.

More recently, Italy’s ruling parties have been in a standoff with Brussels over their desire to end an EU-imposed fiscal straightjacket and spend more to revive a struggling economy.

French President Emmanuel Macron has beefed up public spending to defuse violent “yellow vest” street protests.

In a research note titled “The age of rage, what populism means for markets”, Rabobank market strategist Michael Every said investors should expect populist parties to use MMT to bolster their calls for higher public spending.

Markets should “to prepare for a far higher risk of truly paradigmatic shifts ahead”, Every warned.

ECONOMIC COLLAPSE

Little of this means much unless politicians ready to rip up the macroeconomic rulebook can make it into office. And the financial establishment is unsurprisingly near universal in its condemnation.

They argue that governments let loose to print money can set off a spiral into hyperinflation and economic collapse.

“The general idea that government debt can be financed by central banks is a dangerous proposition”, ECB chief economist Peter Praet said in a recent online Q&A.

“In the past, this has resulted in hyperinflation and economic turmoil”, Praet said, adding: “That’s why central banks are independent”.

A poll http://www.igmchicago.org/surveys/modern-monetary-theory conducted by the University of Chicago Booth School of Business found that 88 percent of economic experts disagreed with the idea that countries able to borrow in their own currencies need not worry about government deficits because they can always print money to finance their debts.

Bank of Japan Governor Haruhiko Kuroda, a fiscal hawk, has also slammed MMT, calling it an “extreme argument that won’t be accepted widely.”

(GRAPHIC: MMT poll – https://tmsnrt.rs/2UAFmHZ)

UNLIKELY EVENTS

The debates around MMT might seem unlikely to rouse the average European, but interest is growing – “MMT” is a more searched term on Google than “ECB”.

For an interactive version of the below chart, click here https://tmsnrt.rs/2O4KOAd.

In a newsletter, East West Investment Management analyst Kevin Muir noted widespread anger among electorates in leading economies, arguing: “Monetary stimulus with fiscal austerity doesn’t do anything except make the rich richer.”

And while MMT might sound like a political and economic fantasy, some economists warn against discounting the momentum of populist waves: Britain’s vote to leave the EU and the election of Donald Trump had both been viewed as improbable.

Societe Generale analyst Albert Edwards believes that the next recession is likely to see the normalization of ideas such as the “People’s QE” proposed by Britain’s Corbyn, where money “just doesn’t get thrown (like) … confetti in the financial markets but is actually channeled into tax cuts or into public investment projects”.

(Additional reporting by Josephine Mason, Karin Strohecker, Helen Reid and Abhinav Ramnarayan; Editing by David Holmes)

Source: OANN


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