Comment, analysis and other offerings from Tuesday’s FT,
Editorial Comment: Shifting away from export-led growth
It is official: Japan has followed Germany into recession, as defined by two quarters of negative growth. China’s rate of expansion also looks set to slow more than previously expected. What do these countries have in common? All rely on exports to keep their economies going, while their own consumers are reluctant to spend.
Editorial Comment: Careless talk?
George Osborne has been on the back foot throughout the financial crisis. Now the UK opposition Conservatives’ shadow chancellor has been accused of irresponsibility by talking about a potential run on sterling. This criticism is absurd, but it is time Mr Osborne responded to the recession with greater steadiness and a clearer strategy.
Opinion: Saving, not spending, is the ket to salvation
Sir Martin Jacomb, former Prudential chairman, writes: The Bank of England’s 1.5 percentage point interest rate cut was a shock. It looked like a panic measure. The trouble is that such violent, surprise action causes people to draw in their horns in fear, and thus tends to counteract the desired effect.
But how sensible is it to encourage borrowing for personal consumption? Keynes, it is true, wanted people to spend in a downturn and loathed the idea of increasing savings at such a time. But he was not visualising a society that was already seriously over-indebted.
Opinion: Europe needs a concerted fiscal stimulus
Resident scholars Bruegel, the European think-tank write: The Group of 20 communique calls for “fiscal measures to stimulate domestic demand to rapid effect” and underlines the needs to maintain “a policy framework conducive to fiscal sustainability”. The European Union should heed the G20’s advice. Without a budgetary stimulus the recession will lead to a second round of credit stress. However, structural deficits in many EU member states were high even in good times, so fiscal sustainability is also a concern.
Gideon Rachman: Is Obama a Middle East ’splitter’?
Historians are sometimes divided into lumpers and splitters. The splitters like to chop problems up into lots of small bits. The lumpers like to link them altogether. Would-be Middle East peacemakers can be categorised in the same way. The lumpers want a “comprehensive peace settlement” that links together all the problems in the region – Iraq, Lebanon, Syria, Israel-Palestine, even Iran. The splitters want to deal with all these problems separately.
John Authers: The Short View
Many investment bubbles have deflated in the past 18 months. Could a bubble in expectations of deflation itself need to deflate before long? Bond yields are low for understandable reasons. With investors fleeing risky assets, it is no surprise that they are buying bonds. Financial stocks, in the US and globally, are plumbing new lows, showing concern about financial activity. The ongoing collapse in commodity prices virtually guarantees that inflation is vanquished for the short-term.
Lex on credit insurers
Talk about shooting the messenger. Credit insurers, which protect suppliers from the risk that customers do not pay bills, have withdrawn some of their cover. This is seen as yet another turn of the screw that could send waves of companies to the wall. Of course, it is bad news when cover is pulled. Quite a few suppliers – although still a minority, for example, of UK companies – rely on this insurance. Not only does insurance cover protect small suppliers from the devastation of one very large bad debt, but it can also encourage banks to keep lending to these suppliers because they enjoy an added layer of security.
Brooke Masters: The new austerity
The party is over and the hangover has kicked in. In economies all over the western world, corporate executives and the rising stars of finance are beginning to think that this downturn could be different. Unlike the dotcom bust, which briefly crimped sales of champagne and Porsches before the good times started again, this slump is prompting Wall Street executives and Kensington yummy mummies alike to rethink their attitudes to their career, values and spending habits.
