Comment, analysis and other offerings from Tuesday’s FT,
Japan’s recent twin disasters have prompted questions about the country’s ability to issue new debt to raise money to rebuild its ruined towns and infrastructure. Japan already has an enormous fiscal deficit – what would happen if it issued even more government bonds (JGBs)? I would argue that by tapping domestic demand this would be accomplished with relative ease, writes Nakamae, President of Nakamae International Economic Research. Indeed, given the distribution of household savings, it might be in Japan’s long-term interest for bond yields to go up, rather than down.
Philip Stephens: A dangerous ride in the Treasury Trabant
The Treasury’s metamorphosis from gleaming Rolls-Royce to spluttering Trabant should by now be a familiar tale. You might imagine it has also been a salutary one, inducing a moment of reflection, and perhaps humility, in Whitehall’s most powerful department. Think again, the FT columnist writes. The Treasury was not responsible for the financial crash. But its manifest failures during the boom years did serve to amplify the consequences. Yet by the accounts of ministers and senior officials across Whitehall, the Treasury’s swagger is ever more pronounced. It does not do contrition.
Jeffrey Sachs: Stop this race to the bottom on corporate tax
With a quarter of a million people on the streets of London protesting against the UK budget cuts, and with the US government days away from a potential shutdown, the social divisions over fiscal policy are deepening, writes Sachs, director of the Earth Institute at Columbia University. We surely need to reduce the deficits but in a fair, efficient, and sustainable manner, by levying higher taxation on the rich, who are enjoying a boom in living standards and a share of the national income unprecedented in modern history.
Economists’ Forum: There is no US federal debt crisis
Our arguments about the US federal budget are now all about deficits and debt: the effect of the budget on the budget. We are cutting government spending with little thought to the value of the public services forgone, and no thought at all to the effect on production, jobs and incomes, writes Francis Bator, Littauer professor of political economy emeritus at Harvard Kennedy School. Fiscal prudence matters. But the helter skelter rush to cut this year’s and next year’s budget deficits is high-priced folly.
Lex on bond defaults: Is history bunk?
How good a guide is history? If the future is like the past, then yields on debt issued by banks are too high, Lex says. But the market is pricing a new normal, a worse one, for big banks. Investors do not trust the ratings of investment-grade senior credit of European financial institutions. The expectation of higher default rates looks rational. Market mathematics seems like a better guide than history.
FT Tilt: The bluffer’s guide to Syria, Yemen and Bahrain energy risks
Yemen, Bahrain and Syria — the latest trio of unstable MENA countries – have wildly different political complexions while opposition movements face varying degrees of success, FT Tilt’s Sid Verma reports. But investors are saddled with the same questions: what’s the strategic importance of these esoteric countries in global energy markets? And what are the fat tail risks?