Blogs Author Mindful Money

A “monetarist” case for UK optimism
Rather than “flat-lining”, the British economy has been regaining momentum since late 2011. This trend is obscured in official GDP statistics by various special factors – North Sea production weakness, an extra bank holiday and the Olympics. Adjusting for their effects, the quarterly change in output has risen from -0.1% in the fourth quarter of 2011 to 0.0%, 0.1%, 0.2%, 0.2% and 0.3% in the first quarter of 2013 – a clear upward trend.

Japanese QE: bank bond sales may “sterilise” M3 impact
Bank of Japan securities purchases of ¥52 trillion in 2013 are equivalent to 4.6% of the M3 broad money supply measure. Central bank bond purchases have a direct impact on broad money only if securities are purchased from domestic non-banks – their bank deposits swell as the transaction is settled.

UK Budget 2013: still fiddling around the edges
The Chancellor could have chosen to be bold in this Budget, despite the weak state of the public finances. He could, for example, have announced a major review of the tax system aimed at reducing reliefs and loopholes in order to lower and smooth marginal rates. On spending, he could have relaxed the ringfencing of health, education and foreign aid to lessen damaging cuts in other departments and release funds for capital spending.

Russell strips Greece of developed market status
Greece has been stripped of her developed market status and re-categorized as an emerging market by fund manager and index provider Russell.

Singapore – The business capital of the world?
In the scramble to invest in emerging markets, especially in Asia where China and India dominate the investment landscape, markets such as Singapore often get overlooked. The city state is developing itself into a hub in Asia, located between the two economic juggernauts of China and India.

China: further monetary easing overdue
Chinese economic prospects are improving at the margin but caution remains warranted pending additional policy relaxation and / or a further recovery in real M1 expansion.

Portugal’s government presses the economic self-destruct button
Today the Portuguese government will receive the details of the latest troika (IMF,ECB,European Commission) or men in black review of their economy. There is little or no danger of them concluding that Portugal is not doing her best to hit the fiscal targets given to her as in Portugal there has been virtually no dissent. It is as if her political class has borrowed their opinion on this subject from the film The Stepford Wives.

Spain Moves Back onto the Economic Frontline
On Friday in perhaps an example of the strategy of a good day to bury bad news Spain announced some changes in its position on bank bailouts. Coming around an hour or two before the keynote speech of US Federal Reserve chairman Ben Bernanke it did not get the attention it deserved except in one area. Longer dated Spanish government bonds fell in price as her ten-year yield rose by more than a quarter of a point to 6.86%.

Has the EU failed its original agenda?
The EU was supposedly set up to create a closer political union between the countries in Europe after the Second World War, in an attempt to avoid a similar scenario happening again in the future. The economic union was seen as a necessity to further fortify the peaceful relationship between the countries in Europe, so the introduction of a single European currency was a vision for many years before its implementation.

The real cost of rising food prices
We’ve seen a number of spikes in food prices lately and the most recent is being blamed on the worst drought in 50 years in the US. Conditions in Europe haven’t been much better and even our own soggy summer will no doubt have an impact.

Can Ireland escape from the bank debt burden?
The Emerald Isle has had a rough few years to say the least as it has begun to digest the consequences of the boom and then bust which took place in her housing industry. One direct consequence was the collapse of most of her banking industry which via the too big to fail strategy of her political leadership has saddled her with large debts. A population of some 4.59 million ended up having to provide some 64 billion Euros of bailout money to her banks or just under 14,000 Euros each.

Japanese economic growth slows worryingly but if we compare and contrast with Greece…
As the world’s focus turns away from London 2012 and the Olympic games that have now concluded there has been a development in one of the themes of this blog in the land of the rising sun,Japan. This was not under the category of a good day to bury bad news as the latest economic growth figures for Japan were due. However what we did see was more evidence of a building world wide economic slow down. And there are issues here for Japan herself which relate not only to her problems but to policy options for the wider world.

Italy on a Downwards Spiral
The last ten days or so have seen a lot of debate about the role of one of Italy’s most prominent individual’s the President of the European Central Bank Mario Draghi. Will he save the Euro? Can he save the Euro? And so on and in some cases on and on. However whilst the ECB can help in the financial arena in terms of liquidity and interest rates in an era of broken monetary transmission mechanisms we have to face the fact that even extreme measures may only have a limited impact on the real economy.

What happened to the post-tsunami economic recovery promised in Japan?
Today I wish to take a look at the land of the rising sun otherwise known as Japan. And in particular I intend to examine what has happened since the tsunami of March 2011 hit her following the Great East Japan Earthquake and the subsequent problems with the Fukushima nuclear power plant. If we step back in time to then I wrote this back on March 15th 2011.

Is the euro rot spreading to Germany? Is she no longer “My Perfect Cousin”?
Because of the nature of the situation in the Euro area the situation in the periphery is often up for analysis. For example I looked at Spain’s current problems only yesterday. However if you have a periphery you also have to have a core and today I wish to look at the core nation the Federal Republic of Germany. She wears various coats for example she is the potential saviour of the Euro but often also metamorphoses into the supposed villain of the piece.

Are negative interest-rates and bond yields a benefit or a curse?
One of the most intriguing developments of the credit crunch era has been the development of trends in interest rates and bond yields. It has been along the lines of the aphorism that those who have some will get more and those who have little will not. We now live in bond yield terms in what is something of a bi-polar world and it would appear that Rudyard Kipling’s phrase “never the twain shall meet” is an apt description. And in addition I am sorry to report that economists have often rushed to put their flag on one of the poles and claim that it means their theories are correct conveniently forgetting the existence of the other pole.

Will the London Olympics be a success for the UK economy?
When the Olympics, or even the World Cup for that matter, are awarded to a country there is always an initial flurry of reports about how much a country will benefit from being host – that’s after the doom mongers have told us how much it is going to cost each of us.

The UK Monetary Policy Committee seems more worried about the banks than the real economy
Last night the G-20 summit ended and the world’s leaders started to depart from the Mexican tourist destination of Los Cabos. As ever they issued a communique and I would like to draw your attention to this sentence in it which covers the Euro.

Spain’s “Victory” is in Fact a Defeat
The weekend just gone has seen the Kingdom of Spain join the countries in the Euro area which have called for international help to deal with debt problems. As ever the first casualty of such an operation was the truth as we saw the Spanish Prime Minister Mariano Rajoy call it a “victory”. Perhaps he just said the word pyrrhic so silently that the microphones did not pick it up. Of course he also contradicted many of his most recent statements because in claiming that Spain did not need and would not take a bailout he was in his own words denying her a “victory”. Let us remind ourselves of what he said as recently as May 28th.

Why Ireland should vote no to the Fiscal Compact Treaty tomorrow
Tomorrow Irish voters go to the polls to decide whether they should vote yes or no to the European Union’s Fiscal Compact Treaty. There is of course an element of fantasy to this as the vast majority of the 25 countries that signed this treaty currently have a snowballs chance in hell of actually achieving “a balanced budget”! From the Treaty itself.

European leaders waffle about economic growth just as even Germany sees it grind to a halt!
Late last night or more accurately early this morning European Council President Van Rompuy gave a Press Conference to announce the progress at the latest European Union summit. After Mr. Van Rompuy had given us some euro waffle which seemed to involve mentioning the word growth as often as he could we got European Commission President Barosso who did the same. However in answer to a question President Barosso said this.

The UK can borrow cheaply but needs to account for all of the costs
One of the features of the credit crunch era has been the rise in price of what are considered to be “safe haven” assets. We have seen this in currency markets for example with the rise of the Swiss Franc and the Japanese Yen which has overrun the efforts of their respective central banks to stop it. More recently we have seen in in the surge in prices in some government bond markets which allow those governments which benefit from this to borrow at what I consider to be extraordinarily low levels.

Mervyn King has failed- it is time for some democracy at the Bank of England
Yesterday evening the Governor of the Bank of England gave a lecture for BBC Radio’s The Today Programme. Of course there is already an obvious weakness here as it should be Mervin King receiving a lecture for his (lack of) performance! This has been followed up by an interview on The Today Programme this morning. Governor King has repeated his usual trick of discussing matters in a broad sweep in an attempt to make himself look intelligent, magisterial and dignified. He invariably avoids detail as it is often inconvenient. You know the sort of thing, inflation which is invariably above target becomes on its way down to it. Even the casual observer has started to spot that it has supposedly been on its way down to its official target for quite some time now!

Spain should be singing “Help”
Today sees the Spring Meetings for both the World Bank and the International Monetary Fund. One of the lessons of these times is that there has been an extraordinary inflation in the number of meetings between world leaders. Sadly there has also been a corresponding drop in anything useful coming from them! A major topic will be the Iberian Peninsula and in particular Spain.

As Spain pays nearly 6% on her benchmark bonds and the UK pays 2%, is euro membership worth that?
The last week or so has since something of a gathering storm for Spain as two effects have coincided. Firstly the efforts of the European Central Bank to indirectly help her (some would argue directly…) have begun to wear off. The provision of over a trillion euros of three year liquidity to Europe’s banks allowed them to use some of the money to purchase sovereign bonds which offered a higher interest rate on them than the one the banks had to pay for the liquidity.

The UK Budget should involve the Monetary Policy Committee
At 12:30pm today the UK Chancellor of the Exchequer George Osborne will stand up and announce his Budget plans for the next year and beyond. We are likely to see some news although there seems to have been quite a leaking operation going on as Chancellor’s like to “pull a rabbit from the hat”.

Mortgage rates are rising whilst the Bank of England’s Quantitative Easing is supposed to cut them
Today I wish to return to a subject that was the second theme I established when I began this blog back in November 2009. It was that there was a developing gap between official interest-rates and the interest-rates faced by borrowers, savers and businesses which I called unofficial interest-rates. A factor in this was the lack of competition in the UK banking sector which I illustrated back on the 3rd of December 2009 with the number of building societies in the UK.

Currency flight from the Euro is boosting the Swiss Franc but has the Yen finally started to weaken?
Over the past few years there has been a remarkable convergence in the performance of the Swiss Franc and the Japanese Yen. A lot of this has been due to the effects of traders reversing “Carry Trades” in each country as this feature of world economic life was carried out on an enormous scale. In addition both currencies have seen themselves regarded as “safe havens” in the credit crunch era. However recently this link has been broken and there are considerable consequences from this.

A Necessary Greek Devaluation and Default
Yesterday was a day of great shame for Greece. However I wish to distinguish myself from the rolling 24 hours news coverage of the protest and the separate riot and firebombing. For me the great shame was Greece’s Parliament approving a set of austerity measures that no-one who has observed the Greek crisis so far can have any belief will actually happen. Even worse is the plain fact that whatever elements of the austerity package are implemented will only deepen Greece’s economic depression as I explained only last Monday.

Mindful Money

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