Monday, January 17, 2011 5:00 PM EST
Alfred Kahn, a plain-spoken economist
Long before anyone advocating deregulation and less government interference in business was automatically slotted in the rightist Reagan-Thatcher camp, there was U.S. economist Alfred Kahn, who died last month at 93.
Mr. Kahn’s political views were decidedly liberal and Democratic; but he never let politics stand in the way of what he regarded as sound economics. Which is why, as head of the U.S. Civil Aeronautics Board [CAB] in the late 1970s, he pushed through a dramatic deregulation of air fares. Thanks in large part to his efforts, airlines were forced to compete on price and allowed to develop new routes, a move that saved consumers millions and paved the way for the rise of low-cost, no-frills carriers.
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Tuesday, January 11, 2011 6:42 AM EST
ECB's 'extend and pretend' act wears thin
As its sovereign bond spreads hit new records, making it punitively expensive to obtain new financing through normal channels, Portugal is under fierce pressure to bow to the inevitable and take a bailout orchestrated by the European Union and the IMF.
The interest-rate premium demanded in the bond market dropped on Monday after the European Central Bank intervened and bought up Portuguese bonds on the secondary market.
Tuesday, January 4, 2011 4:12 PM EST
Surprises rare in Fed minutes
The records of meetings held by Federal Reserve policy makers are eagerly awaited by Fed watchers, who scan every nuanced phrase looking for greater insight into its past decisions and likely future course. They are also hunting for signs of division that could affect the Fed’s course. Most of the time, though, we don’t learn much more than we already knew or could have guessed.
The minutes of the Federal Open Market Committee's Dec. 14 meeting, which were released on Tuesday, show a strong commitment to the latest quantitative easing program. Despite improving economic signs, the Fed brain trust expected only modest progress and largely shared the view that both unemployment (too high) and inflation (too low) would remain well off the Fed’s targets for some time.
This should hardly come as a surprise. All but one celebrated dissenter, Kansas City Federal Reserve president Thomas Hoenig, voted for QE2. And Mr. Hoenig publicly opposed every FOMC decision made in 2010. He doesn’t have a committee vote in 2011. So now the market soothsayers are trying to figure out if one or more of the Fed’s other regional hawks will assume his bully pulpit and push for an end to QE and a return to more normal interest rates at the next regular meeting Jan. 25.
The majority, in any case, seem firmly in the dovish camp, as underscored by this recorded statement at the December meeting. “Participants expected the economic recovery to continue; but, consistent with experience following previous financial crises, most anticipated that the pickup in output would be rather slow relative to past recoveries from deep recessions.”
For further clues on what members are really thinking – including the four regional Fed presidents who rotate into voting seats this year (Charles Plosser of the Philadelphia Fed, a long-time inflation hawk; Charles Evans of Chicago, a huge fan of the Fed’s bond purchases; Richard Fisher of Dallas, a noted proponent of tighter policy; and Narayana Kocherlakota, Minneapolis, a supporter of Chairman Ben Bernanke) – their speeches between meetings are typically far more revealing. Anyone listening to a Hoenig speech in recent months knew exactly where he stood on the dangers of pursuing loose monetary policy.
The trouble is that not all opponents of a particular Fed policy direction are willing to dissent publicly. Which is why former Fed chief Alan Greenspan always seemed to enjoy unanimous assent.
Wednesday, December 15, 2010 7:37 PM EST
Crunch time nearing for euro pols
About this time last year, European leaders were well aware that all was not rosy in euroland. The economy was still on its knees throughout much of the region and mounting bank and sovereign debt woes cast a pall. But few could have predicted that two of the smaller members, Greece and Ireland, would become insolvent and need major bailouts or that a handful of other debt-ridden countries -- Portugal, Spain, Belgium and Austria -- would face the wrath of angry bond investors. Or that their cherished common currency was about to face the most tumultuous year in its history.
Now, as they prepare to gather for their annual meeting in Brussels on Thursday and Friday, the euro pols are only too aware that they are playing a high stakes game. If they fail to overhaul the euro zone’s fiscal rules, set up a permanent crisis mechanism for resolving future Greeces, stabilize the financial sector and regain the confidence of international investors, they could be dooming their grand experiment to an extremely bitter and costly end.
Friday, December 10, 2010 7:30 AM EST
Once a joke, Iceland may get the last laugh
The experts have started writing off Ireland, with its shattered banks, flatlined economy and disillusioned populace, as a long-term basket-case with dim recovery prospects. Maybe they should take a closer look at what has been happening in another small country written off for dead not so many months ago.
That would be Iceland, which has just posted economic growth of 1.2 per cent in the latest quarter. That’s pretty feeble, even by European standards. But it comes after nearly two years of contraction. And to bring even more Christmas cheer to its resilient but still suffering citizenry, inflation fell last month to 2.6 per cent from 3.3 per cent in October, the lowest level since 2004. And the benchmark interest rate has dropped to a more manageable 4.5 per cent.
Tuesday, December 14, 2010 2:27 PM EST
The first monetary sign of recovery?
The folks who run the U.S. Federal Reserve have been on an unusual media blitz that culminated in a rather downbeat appearance on 60 Minutes Sunday night by Chairman Ben Bernanke. This was not the Fed chief’s first visit to the CBS program, which is not exactly known for its coverage of monetary affairs. But it was the first time he has so ardently defended the policy of quantitative easing and sought to shoot down its critics. Which, after all, is the purpose of the Fed’s new we-are-an-open-book media tactics.
He effectively promised that QE3 is on the way. To do anything less would risk frightening a bond market that has already been factoring in much more aggressive bond buying by the Fed, once it becomes clear that the $600-billion (U.S.) allotted under QE2 isn’t going to do much to boost business activity, let alone make a dent in unemployment.
Monday, December 6, 2010 7:21 AM EST
A euro zone bond will never fly
As European policy makers search frantically for ways out of their current bond market woes, there is growing talk that the European Central Bank will follow the lead of the U.S. and Japanese central banks and embark on major quantitative easing.
But the ECB is already engaged in stealth QE, and has been ever since it started buying up debt issued by troubled governments and accepting vast quantities of sovereign bonds and far more questionable assets as collateral for loans to struggling banks. In practice, the ECB has been loading considerably more risk on to its balance sheet than the Fed.
Now there is also talk of issuing euro zone bonds to meet the financing needs of its various members.
Monday, November 29, 2010 3:55 PM EST
Why macroeconomics 'gives economics a bad name'
In the course of a long conversation, Columbia economics professor Jagdish Bhagwati remarked the other day on his fellow practitioners’ remarkably wide range of assured opinions on everything from Federal Reserve policies (he likes them) and European bailouts (which have been botched) to Chinese currency manipulation.
“In my judgment, macroeconomics is what gives economics a bad name. You don’t get that kind of variance – totally opposed points of view – in fields like public finance or trade. Consensus is never there, but the disagreements are always reasonable within certain parameters.”
Monday, November 29, 2010 3:51 PM EST
IMF bullied Argentina, former president says
Former Argentine president Fernando De la Rua says Greece and Ireland are benefiting from the nasty way his own country was treated by the International Monetary Fund back in 2001, when a full-blown financial crisis hit.
The IMF failed Argentines by insisting on the "dogmatic application of the moral hazard theory," Mr. de la Rua said on Tuesday in Toronto, where he's attending the two-day Toronto Forum for Global Cities.
The U.S. Did the same when it allowed Lehman to fail. Now both are going easier on the PIGS.
Mr. De la Rua is still bitter about the IMF because he was president at the time and it cost him his job. His successor simply decided it was safer politically to default on the sovereign debt.
Monday, November 29, 2010 3:50 PM EST
Forget Ireland, Spain is the real nightmare
Now that the second charter member of the PIGS has turned into a reluctant recipient of EU-IMF largesse, the question is not whether there will be more bailouts, because they are inevitable.
The whole Irish exercise is not about rescuing Ireland’s public finances, but restoring confidence in the bond market and saving the hides of all the European banks on the hook if the Irish banks go bust.
Brian Milner on the economy Contributors
Brian Milner
Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, the debt markets and banking. He spent two years as an associate managing editor in the Report on Business, before becoming The Globe's New York bureau chief in 1994. From his vantage point in the world's financial capital, he covered the greatest economic and stock market boom in modern history, as well as a raft of U.S. political, cultural and social topics.
Mr. Milner first began writing a markets column called Taking Stock in late 2000, before joining the editorial board in 2003. He resumed writing the column on a weekly basis in 2007 after returning to the ROB. He is the author of a best-seller, The Hidden Establishment (Viking, 1991), which profiled secretive, wealthy immigrants. He is an award-winning magazine writer and has also written a history of Toronto for a popular guide book. And in his spare time, he has ghost-written and edited books on economic, social and sports subjects. The best known is Shifting Gears (Harper Collins 1993), one of the first books to examine the impact of the technological boom on the economy. He is a frequent commentator on radio and television.
