Comment, analysis, and other offerings from Wednesday’s FT,
Martin Wolf: We must listen to what bond markets are telling us
What is to be done? To find an answer, listen to the markets, the FT columnist says. They are saying: borrow and spend, please. Yet those who profess faith in the magic of the markets are most determined to ignore the cry. The fiscal skies are falling, they insist. But as Richard Koo of Nomura Research has argued, fiscal deficits help the private sector deleverage. That is precisely what is happening in the US and UK.
Bill Gross: ‘Helicopter Ben’ risks destroying credit creation
“Helicopter Ben” Bernanke is a second-generation pilot, the Pimco founder and co-chief investment officer writes. As he himself acknowledged in his now well-known 2002 speech, the term was an original of economist Milton Friedman. Whether father or child, the concept of showering money over national economies to combat deflation has been an accepted principle of monetarism for decades. A helicopter, however, is not your average aeroplane, and the usual laws of aerodynamics do not necessarily apply in all cases.
Chris Giles: Buy gilts – or even schools – to boost demand
Normally, the Bank of England’s monetary policy committee would think long and hard before relaunching quantitative easing, the FT’s economic editor writes. But on Wednesday, as it begins its two-day meeting, the presumption should be that a move is required. Once QE2 is under way, the Bank should start to ask which other assets it should buy. The power of a central bank lies in its monopoly right to create and destroy money and nothing restricts it merely to purchasing gilts.
Gavyn Davies: The impact of Switzerland’s dramatic action
If the world had decided that Mars Bars represented a safe haven, then the same might have happened to the price of the chocolate bar as has happened to the Swiss Franc, the FT blogger writes. Mars Inc. could have stopped this happening by creating a huge number of extra Mars bars, and this is what the SNB has now threatened to do to its currency. The alternative would have been to allow the franc to strengthen further, with the Swiss economy becoming an largely innocent casualty of the rising distaste which investors are showing for the prospects in other economies.
Paul Sheard: America is not going the way of Japan
It is important to be clear about what “turning into Japan” means, writes Sheard, global chief economist and head of economic research at Nomura. The US is like Japan in that both economies experienced big asset price and credit bubbles and their bursting left an overhang of debt on private sector balance sheets. But what marks Japan out since the bursting of its asset price bubble in 1990 is not these similarities to the US today. Rather it is that, as a result of a series of policy errors, the economy slipped into deflation and has stayed there ever since.
John Kay: Economics fails to resolve exceptions to the rule
The efficient market hypothesis is substantially true, says the FT columnist. The growth prospects of Apple and Google, the problems of Greece and the eurozone, are reflected in the prices of shares, bonds and currencies. It is a mistake to ignore the efficient market hypothesis; it is also a mistake to take it too seriously. Market prices incorporate much information, but not necessarily accurately, or completely. There are usually wide and persistent differences in beliefs, and different perceptions of an uncertain future.
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Lex on Carlyle Group
Warren Buffett-types should not rush into Carlyle’s initial public offering, Lex says. The private equity group filed its preliminary form on Tuesday and is expected to list early next year. For investors like Mr Buffett who prefer to understand the value of what they own, the private equity business model could hardly be less attractive.
Short View: Too late for safety
It used to be so easy to panic. Your friendly local Swiss bank representative was happy to take your money, hold it in the safety of Swiss francs, and sidestep tax issues to boot, writes James Mackintosh, the FT investment editor. Anyone who thought the Alpine fastness was the key to preserving their capital was roundly disabused on Tuesday.