Former prime ministers Michel Rocard and Alain Juppé (pictured) have handed the president a long awaited report on the post-credit crisis economy. Its conclusion is proving controversial, with many baulking at the 35 billion euro bill.The report into France's "Grand Emprunt" or "National Loan" was handed today to French President Nicolas Sarkozy. Its authors, former prime pinisters Alain Juppé and Michel Rocard, looked at various ways to finance long-term projects to boost France's growth potential after the current economic crisis is over. But the report has proved controversial, inside and outside of government circles. The National Loan could end up totalling 35 billion euros. It will be financed in part by 13 billion euros that various banks owe the state, while the rest will be raised by auctioning off government bonds on the financial markets.
The report into France's "Grand Emprunt" or "National Loan" was handed today to French President Nicolas Sarkozy. Its authors, former prime pinisters Alain Juppé and Michel Rocard, looked at various ways to finance long-term projects to boost France's growth potential after the current economic crisis is over.
But the report has proved controversial, inside and outside of government circles.
The National Loan could end up totalling 35 billion euros. It will be financed in part by 13 billion euros that various banks owe the state, while the rest will be raised by auctioning off government bonds on the financial markets.
HONG KONG/SINGAPORE (Reuters) - Federal Reserve officials on Thursday downplayed the consequences of the falling U.S. dollar, underscoring that deflation is still a threat, especially with commercial real estate prices falling. Dallas Fed President Richard Fisher said in an interview with Market News International that the weakening dollar, which hit a 15-month low against major currencies on Monday, is only one of the factors the Fed watches when setting policy. "You pay attention to this," Fisher said in reply to a question about the effects of a weaker dollar. "On the other hand, in terms of its inflationary input, unless it becomes disorderly, a depreciating dollar -- a gradually depreciating dollar -- doesn't necessarily add an enormous inflation impulse." Fisher will become a voting member of the Fed's policy-setting committee in 2011. The dollar has fallen 7 percent so far this year and likely has become a funding vehicle for bets on higher-yielding currencies in growing emerging markets.
HONG KONG/SINGAPORE (Reuters) - Federal Reserve officials on Thursday downplayed the consequences of the falling U.S. dollar, underscoring that deflation is still a threat, especially with commercial real estate prices falling.
Dallas Fed President Richard Fisher said in an interview with Market News International that the weakening dollar, which hit a 15-month low against major currencies on Monday, is only one of the factors the Fed watches when setting policy.
"You pay attention to this," Fisher said in reply to a question about the effects of a weaker dollar.
"On the other hand, in terms of its inflationary input, unless it becomes disorderly, a depreciating dollar -- a gradually depreciating dollar -- doesn't necessarily add an enormous inflation impulse."
Fisher will become a voting member of the Fed's policy-setting committee in 2011.
The dollar has fallen 7 percent so far this year and likely has become a funding vehicle for bets on higher-yielding currencies in growing emerging markets.
WASHINGTON (Reuters) - Any tax imposed on financial transactions would have to take effect internationally to prevent Wall Street jobs moving overseas, U.S. House Speaker Nancy Pelosi said on Thursday. "It would have to be an international rule," Pelosi said at a news conference. "We couldn't do it alone." The top Democrat's comments seemed to spell longer odds for the Wall Street tax, which some Democrats in the House of Representatives are proposing as a way to pay for job-creating legislation. The tax, which could raise $150 billion per year, would tap into widespread public outrage at Wall Street in the wake of the financial crisis, but support is lackluster among key legislators.
WASHINGTON (Reuters) - Any tax imposed on financial transactions would have to take effect internationally to prevent Wall Street jobs moving overseas, U.S. House Speaker Nancy Pelosi said on Thursday.
"It would have to be an international rule," Pelosi said at a news conference. "We couldn't do it alone."
The top Democrat's comments seemed to spell longer odds for the Wall Street tax, which some Democrats in the House of Representatives are proposing as a way to pay for job-creating legislation.
The tax, which could raise $150 billion per year, would tap into widespread public outrage at Wall Street in the wake of the financial crisis, but support is lackluster among key legislators.
October's public borrowing figures will make dismal reading for Alistair Darling, the chancellor, ahead of next month's pre-Budget report, as debt soared by £11.4bn in the month.The unexpectedly sharp increase in borrowing takes the total debt racked up by the government in the first seven months of fiscal 2009 beyond the amount accumated in the whole of last year.The £86.9bn borrowed already, with only slightly more than half the fiscal year gone, already tops the total debt for 2008-9 of £84.7bn, in a sign of how the financial crisis has hit taxes from the City, even as unemployment nearing 2.5m increases the demand for social welfare payments.The deterioration in the public finances announced on Thursday was worse than the £7bn that economists had predicted, and takes the rolling 12-month total of debt to £138bn, close to triple the level a year earlier. Mr Darling, the chancellor of the Exchequer, will have to present the pre-Budget report in December in what will be one of the Labour government's final opportunities to lay out its spending plans before the election next year.
October's public borrowing figures will make dismal reading for Alistair Darling, the chancellor, ahead of next month's pre-Budget report, as debt soared by £11.4bn in the month.
The unexpectedly sharp increase in borrowing takes the total debt racked up by the government in the first seven months of fiscal 2009 beyond the amount accumated in the whole of last year.
The £86.9bn borrowed already, with only slightly more than half the fiscal year gone, already tops the total debt for 2008-9 of £84.7bn, in a sign of how the financial crisis has hit taxes from the City, even as unemployment nearing 2.5m increases the demand for social welfare payments.
The deterioration in the public finances announced on Thursday was worse than the £7bn that economists had predicted, and takes the rolling 12-month total of debt to £138bn, close to triple the level a year earlier.
Mr Darling, the chancellor of the Exchequer, will have to present the pre-Budget report in December in what will be one of the Labour government's final opportunities to lay out its spending plans before the election next year.
The pressure on both Geithner and Bernanke is finally reaching a crescendo. Fixing the US economy would start with the departure of Geithner (forced or otherwise) and the full audit of the Fed. Everything else is smoke and overleveraged, uncollateralized mirrors (perfectly acceptable in the Fed's discount window). An interview by Dylan Ratigan of Ryan Grim and Naomi Klein makes this point loud and clear. The castration of Ron Paul's bill must not occur if America does not want to end up in the same financial collapse gutter it found itself in 2008. Mel Watt and others have to look beyond their immediate financial gain and consider what is critical for the American people. DYLAN RATIGAN: How is the Federal Reserve trying to basically game this Ron Paul amendment which looks like it will pass, and then chop its head off just as soon as it makes it into the room? RYAN GRIM: This is an immensely consequential debate that's going on in the House right now, and it also tells you a little bit about how Congress works. The Ron Paul/Alan Grayson bill has enough support to pass. So instead of trying to kill it, which they can't do any more they come in with what they call a "compromise." A serious with a capital "s" amendment, but if you look at the fine print of it, it actually just extends the secrecy of the federal reserve, and as you said it's backed by prominent economists at the fed and formerly at the Fed. They didn't say that they that they were wit the Fed when they sent a letter around backing it, but a Google search checking their resumes show that these are Fed bankers behind it.There is really unprecedented and very meaningful opposition to the Federal Reserve that has come together from the left and the right kind of opposing the center that is trying to hold.
DYLAN RATIGAN: How is the Federal Reserve trying to basically game this Ron Paul amendment which looks like it will pass, and then chop its head off just as soon as it makes it into the room? RYAN GRIM: This is an immensely consequential debate that's going on in the House right now, and it also tells you a little bit about how Congress works. The Ron Paul/Alan Grayson bill has enough support to pass. So instead of trying to kill it, which they can't do any more they come in with what they call a "compromise." A serious with a capital "s" amendment, but if you look at the fine print of it, it actually just extends the secrecy of the federal reserve, and as you said it's backed by prominent economists at the fed and formerly at the Fed. They didn't say that they that they were wit the Fed when they sent a letter around backing it, but a Google search checking their resumes show that these are Fed bankers behind it.There is really unprecedented and very meaningful opposition to the Federal Reserve that has come together from the left and the right kind of opposing the center that is trying to hold.
RYAN GRIM: This is an immensely consequential debate that's going on in the House right now, and it also tells you a little bit about how Congress works.
The Ron Paul/Alan Grayson bill has enough support to pass. So instead of trying to kill it, which they can't do any more they come in with what they call a "compromise." A serious with a capital "s" amendment, but if you look at the fine print of it, it actually just extends the secrecy of the federal reserve, and as you said it's backed by prominent economists at the fed and formerly at the Fed. They didn't say that they that they were wit the Fed when they sent a letter around backing it, but a Google search checking their resumes show that these are Fed bankers behind it.There is really unprecedented and very meaningful opposition to the Federal Reserve that has come together from the left and the right kind of opposing the center that is trying to hold.
Nov. 19 (Bloomberg) -- U.S. stocks extended a global drop as concern grew that the rally has outpaced the prospects for economic growth. The yen and the dollar strengthened, oil tumbled and yields on Treasury three-month bills turned negative for the first time since financial markets froze last year. The MSCI World Index of equities 23 developed countries dropped 1.7 percent at 4:31 p.m. in New York, its steepest loss this month. The Standard & Poor's 500 Index fell 1.3 percent to 1,094.90 as Bank of America Corp. downgraded chipmakers, sending Intel Corp. and Texas Instruments Inc. down at least 3.4 percent. The yen climbed against all 16 of its most-traded counterparts and the Dollar Index rose as much as 0.5 percent. Aluminum and copper led declines in industrial metals. Stocks slid amid speculation the eight-month, 68 percent rally that drove the valuation of the MSCI World Index to the most expensive level in seven years already reflects forecasts for a 25 percent rebound in corporate earnings next year. The Organization for Economic Cooperation and Development doubled its growth forecast for the leading developed economies next year to 1.9 percent in a report today, while saying that mounting debt burdens will keep the expansion in check.
The MSCI World Index of equities 23 developed countries dropped 1.7 percent at 4:31 p.m. in New York, its steepest loss this month. The Standard & Poor's 500 Index fell 1.3 percent to 1,094.90 as Bank of America Corp. downgraded chipmakers, sending Intel Corp. and Texas Instruments Inc. down at least 3.4 percent. The yen climbed against all 16 of its most-traded counterparts and the Dollar Index rose as much as 0.5 percent. Aluminum and copper led declines in industrial metals.
Stocks slid amid speculation the eight-month, 68 percent rally that drove the valuation of the MSCI World Index to the most expensive level in seven years already reflects forecasts for a 25 percent rebound in corporate earnings next year. The Organization for Economic Cooperation and Development doubled its growth forecast for the leading developed economies next year to 1.9 percent in a report today, while saying that mounting debt burdens will keep the expansion in check.
Rep. Ron Paul, the Texas Republican who is perhaps the Federal Reserve's most implacable enemy, scored a big win Thursday on Capitol Hill: The House Financial Services Committee approved a bill with Paul's provision to begin federal reviews of the central bank's interest-rate decisions. The vote on the audit provision amendment was 43-26. Paul has for years asserted that the Fed, which by design is independent of the federal government, was corrupt and that its monetary policy would drive America to ruin by debasing the dollar. He has sought to abolish the Fed entirely, but because that almost certainly would never fly in Congress, Paul has worked for Plan B: He wants the Government Accountability Office to have full power to audit the central bank's operations -- a measure the Fed bitterly opposes. "If we get the audit and get the books open, make them answer the questions, I am convinced that the American people will be so outraged that then we will have reform of the monetary system," Paul has said. Fed Chairman Ben S. Bernanke told Congress in June that Paul's audit provision "would effectively be a takeover of policy by the Congress . . . [and] would be highly destructive to the stability of the financial system, the dollar and our national economic situation." Paul contends that the Fed is overreacting. Here's how he describes what the provision would do: --- Removes blanket restrictions on GAO audits of the Fed; --- Allows the audit of every item on the Fed's balance sheet, all credit facilities, all securities purchase programs, etc.; --- Retains limited audit exemption on unreleased transcripts and minutes; --- Sets a 180-day time lag before details of Fed's market actions may be released; --- Provides that nothing in the amendment should be construed as interference in or dictation of monetary policy by Congress or the GAO.
Paul has for years asserted that the Fed, which by design is independent of the federal government, was corrupt and that its monetary policy would drive America to ruin by debasing the dollar. He has sought to abolish the Fed entirely, but because that almost certainly would never fly in Congress, Paul has worked for Plan B: He wants the Government Accountability Office to have full power to audit the central bank's operations -- a measure the Fed bitterly opposes.
"If we get the audit and get the books open, make them answer the questions, I am convinced that the American people will be so outraged that then we will have reform of the monetary system," Paul has said. Fed Chairman Ben S. Bernanke told Congress in June that Paul's audit provision "would effectively be a takeover of policy by the Congress . . . [and] would be highly destructive to the stability of the financial system, the dollar and our national economic situation."
Paul contends that the Fed is overreacting. Here's how he describes what the provision would do:
--- Removes blanket restrictions on GAO audits of the Fed;
--- Allows the audit of every item on the Fed's balance sheet, all credit facilities, all securities purchase programs, etc.;
--- Retains limited audit exemption on unreleased transcripts and minutes;
--- Sets a 180-day time lag before details of Fed's market actions may be released;
--- Provides that nothing in the amendment should be construed as interference in or dictation of monetary policy by Congress or the GAO.
The economy and the stock market may be recovering from their swoon, but more homeowners than ever are having trouble making their monthly mortgage payments, according to figures released Thursday. Nearly one in 10 homeowners with mortgages was at least one payment behind in the third quarter, the Mortgage Bankers Association said in its survey. That translates into about five million households. The delinquency figure, and a corresponding rise in the number of those losing their homes to foreclosure, was expected to be bad. Nevertheless, the figures underlined the level of stress on a large segment of the country, a situation that could snuff out the modest recovery in home prices over the last few months and impede any economic rebound. .... The overall third-quarter delinquency rate is the highest since the association began keeping records in 1972. It is up from about one in 14 mortgage holders in the third quarter of 2008. The combined percentage of those in foreclosure as well as delinquent homeowners is 14.41 percent, or about one in seven mortgage holders. Mortgages with problems are concentrated in four states: California, Florida, Arizona and Nevada. One in four people with mortgages in Florida is behind in payments.
Nearly one in 10 homeowners with mortgages was at least one payment behind in the third quarter, the Mortgage Bankers Association said in its survey. That translates into about five million households.
The delinquency figure, and a corresponding rise in the number of those losing their homes to foreclosure, was expected to be bad. Nevertheless, the figures underlined the level of stress on a large segment of the country, a situation that could snuff out the modest recovery in home prices over the last few months and impede any economic rebound.
....
The overall third-quarter delinquency rate is the highest since the association began keeping records in 1972. It is up from about one in 14 mortgage holders in the third quarter of 2008. The combined percentage of those in foreclosure as well as delinquent homeowners is 14.41 percent, or about one in seven mortgage holders. Mortgages with problems are concentrated in four states: California, Florida, Arizona and Nevada. One in four people with mortgages in Florida is behind in payments.
Testimony submitted to the Congressional Oversight Panel, hearing on "The overall impact of the Troubled Asset Relief Program (TARP) on the health of the financial system and the general U.S. economy," Thursday, November 19, 2009. (pdf version) Submitted by Simon Johnson, Ronald Kurtz Professor of Entrepreneurship, MIT Sloan School of Management; Senior Fellow, Peterson Institute for International Economics; and co-founder of http://BaselineScenario.com. Summary 1) In the immediate policy response to any major financial crisis - involving a generalized loss of confidence in major lending institutions - there are three main goals: 1. To stabilize the core banking system, 2. To prevent the overall level of spending from collapsing, 3. To lay the groundwork for a sustainable recovery. .... If any country pursues (a) unlimited government financial support, while not implementing (b) orderly resolution for troubled large institutions, and refusing to take on (c) serious governance reform, it would be castigated by the United States and come under pressure from the IMF. At the heart of every crisis is a political problem - powerful people, and the firms they control, have gotten out of hand. Unless this is dealt with as part of the stabilization program, all the government has done is provide an unconditional bailout. That may be consistent with a short-term recovery, but it creates major problems for the sustainability of the recovery and for the medium-term. Serious countries do not do this. Seen in this context, TARP has been badly mismanaged. In its initial implementation, the signals were mixed - particularly as the Bush administration sought to provide support to essentially insolvent banks without taking them over. Standard FDIC-type procedures, which are best practice internationally, were applied to small- and medium-banks, but studiously avoided for large banks. As a result, there was a great deal of confusion in financial markets about what exactly was the Bush/Paulson policy that lay behind various ad hoc deals. The Obama administration, after some initial hesitation, used "stress tests" to signal unconditional support for the largest financial institutions. By determining officially that these firms did not lack capital - on a forward looking basis - the administration effectively communicated that it was pursuing a strategy of "regulatory forbearance" (much as the US did after the Latin American debt crisis of 1982). The existence of TARP, in that context, made the approach credible - but the availability of unconditional loans from the Federal Reserve remains the bedrock of the strategy. The downside scenario in the stress tests was overly optimistic, with regard to credit losses in real estate (residential and commercial), credit cards, auto loans, and in terms of the assumed time path for unemployment. As a result, our largest banks remain undercapitalized, given the likely trajectory of the US and global economy. This is a serious impediment to a sustained rebound in the real economy - already reflected in continued tight credit for small- and medium-sized business. Even more problematic is the underlying incentive to take excessive risk in the financial sector. With downside limited by government guarantees of various kinds, the head of financial stability at the Bank of England (Andrew Haldane) bluntly characterizes our repeated boom-bailout-bust cycle as a "doom loop." Exacerbating this issue, TARP funds supported not only troubled banks, but also the executives who ran those institutions into the ground. The banking system had to be saved, but specific banks could have wound down and leading bankers could and should have lost their jobs. Keeping these people and their management systems in place serious trouble for the future. The implementation of TARP exacerbated the perception (and the reality) that some financial institutions are "Too Big to Fail." This lowers their funding costs, enabling them to borrow more and to take more risk. The Obama administration argues that its regulatory reforms will rein in the financial sector in this regard. Very few outside observers - other than at the largest banks - find this convincing. In fact, TARP also allowed the US Treasury to make it clear that some individuals are "Too Connected to Fail". Financial executives with strong connections to the current and previous leadership of the New York Fed (e.g., through network connections of various kinds) have great power and enormous market value in this situation. The US recovery strategy hinges on continued low interest rates (and a continuation of quantitative easing). This creates risks of a new global asset bubble, funded in dollars and driven by exuberance about prospects in emerging markets. The Fed has already signaled clearly that it will not raise interest rates for a long while. Unless bank regulators limit the direct and indirect risk exposure of US financial institutions to this new supposedly low risk "carry trade", we face the very real prospect of another, even larger crisis.
Submitted by Simon Johnson, Ronald Kurtz Professor of Entrepreneurship, MIT Sloan School of Management; Senior Fellow, Peterson Institute for International Economics; and co-founder of http://BaselineScenario.com.
Summary
1) In the immediate policy response to any major financial crisis - involving a generalized loss of confidence in major lending institutions - there are three main goals:
1. To stabilize the core banking system, 2. To prevent the overall level of spending from collapsing, 3. To lay the groundwork for a sustainable recovery.
