Comment, analysis and other offerings from Friday’s FT,
Gillian Tett: Road map that opens up shadow banking 
In a document recently compiled by the New York Federal Reserve called The Shadow Banking System, international money flows are represented as several flowcharts, writes the FT’s US editor. The first chart, titled “The Traditional Banking System”, shows the simple relationship between investors and traditional commercial banks. That’s where the easy part ends. The subsequent charts are so complicated they resemble a high-tech circuit board. The best thing the NY Fed could do is to print many, many more copies and distribute the charts all over the world, making it mandatory reading for bankers, regulators, investors and politicians
Samuel Brittan: Conventional wisdom, and the royals
The last few days have been extraordinary, writes Sir Samuel. The announcement of Prince William’s engagement has been accompanied by suggestions there should be an austere royal wedding in keeping with the spirit of the times – as if we should counter the threat of a double-dip recession by encouraging people to spend less. Meanwhile, in a reversal of the normal creditor-debtor relationships, Ireland’s EU partners have been thrusting a loan at the country that its own government, far from requesting, was originally anxious not to receive. The Irish euro problem is more complicated in detail than the royal wedding but also lends itself to simplification.
Lex: Quantitative erasing
The Federal Reserve is determined to drive down bond yields, but it looks like the so-called QE2 Treasury bond purchases have had the opposite effect, big time, notes Lex. The benchmark 10-year Treasury was yielding 2.47 per cent at the end of August, as it became clear the Fed would act. Two weeks after the actual announcement, the yield is 2.92 per cent. Barely anyone now trading can remember a world where Treasury yields did not naturally move downwards. If bond yields ever do manage to break that downward trend line, those assumptions would shatter – and life could get very difficult for the Fed indeed.
Minxin Pei: Inflation scare will hurt China
The unexpected rise of inflation in October in China – 4.4 per cent on a year-on-year basis – spooked global equity and commodities markets, writes Pei, professor of government at Claremont McKenna College. As soon as Beijing announced the news and declared measures to curb price rises, investors sold off equities and commodities in anticipation of a significant Chinese slowdown. As the Communist party prepares to select new leaders in the next two years, Beijing is likely to become more keen to postpone painful but necessary reforms. In the end, of course, it will have to clean up the mess. But the price by then will then be much higher.
Philip Stephens: An assertive China stirs anxious talk
The harsher China’s tone, the more eager its neighbours are to get closer to the US, writes the FT columnist. As demonstrated by Beijing’s reaction to Japan’s arrest of the Chinese fishermen in the recent Senkaku Islands incident, it will not tolerate challenges from lesser powers. At the G20 summit in Seoul, the unstoppable force that is the US met the immovable wall called China, and realised it is no longer unstoppable. Despite talk about its decline, however, the US is now more welcome than ever amidst the insecurities of China’s neighbours, namely countries such as South Korea, Japan, India and Vietnam.
FT Special Report: Debt capital markets
Debt capital markets are rarely dull, as their sheer breadth and variety means that if one corner is quiet, something is heating up somewhere else, writes the FT’s Jennifer Hughes. Yet, this year it is fair to say there is hardly a corner that has not seen interest. From intense debate about the impact of quantitative easing and questions over the emergence of a bond bubble to arguments over the role of borrowing in bank capital, debt-related themes are rarely far from the headlines. Read the FT’s special report for analysis, comment and reports on the sector.
Gavyn Davies: Inflation up in China, down in the US
Consumer price inflation has started to diverge sharply in China and the US in recent months”, writes FT blogger Gavyn Davies. As China moves towards a market system, interventionist economic policy is no longer working as well as it did; and attempts to keep the yuan down against the dollar will inevitably cause a rise in inflation. The US, on the other hand, is facing record low inflation rates of 0.6% over 12 months despite the weak dollar and rising commodity prices. This further supports QE2 as an attempt to breathe some life into the dying economy.
MoneySupply: Ireland does not intend to use loan
Ireland is “likely” to ask for loans running to tens of billions of dollars, but only for display purposes, says MoneySupply’s Emma Saunders. This must rank as one of the most market-reassuring options available – assuming, of course, that market volatility is caused by the possibility of default. But what if volatility is caused by uncertainty over what happens in the case of default? Does family friction subside when the patient is pronounced cured but their will is in disarray?
The Short View (video): Containing contagion
Talks about an Irish bail-out are well advanced in Dublin. But as James Mackintosh, investment editor, explains, while a deal may contain the financial contagion destabilising the eurozone, it is a long way from a cure.
BeyondBrics: Dissecting South Africa’s rate cut
To many observers, the question of whether South Africa’s Reserve Bank would cut interest rates on Thursday looked like a no-brainer, writes the FT’s Simon Mundy. At 3.2 per cent in September, consumer price inflation is scraping the bottom of the bank’s 3-6 per cent target zone; the bank has come under mounting pressure to weaken the rand, now at its strongest in nearly three years; and economic recovery is still weak. Yet, the monetary policy committee’s decision to cut base rates by 50 basis points, to 5.5 per cent, was not a foregone conclusion.