Deficit continues to be a dirty word in the US (despite *those* findings about the holier-than-thou Clinton surpluses not being all that great), whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.
But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate: Read more
On the danger or not of China’s inflation rate:
The FTSE index people at the LSE on Tuesday published their annual review of country classifications. There were no actual movements between the categories — Developed, Advanced Emerging, Secondary Emerging and Frontier — although two countries have joined the FTSE watch list:
Ukraine has been thrown off the list completely and is no longer being considered as a possible Frontier entrant. Too many problems with regulatory oversight and capital controls, it seems. Read more
*Use interesting onion stat to highlight Indian inflation problem ahead of Rajan’s first rate decision where the expectation is for a hold, but language and liquidity steps are in the spotlight*
*Attempt weak onion+tears metaphor*
*Delete because too weak/awful* Read more
There’s an interesting debate going on between Steve Randy Waldman, Karl Smith, Scott Sumner, Evan Soltas, Mark Sadkowski (and more).
It started when Waldman proposed a simple but elegant argument that the 1970s great inflation period may have driven not so much by expansionary monetary policy but rather population demographics: namely the baby boom and the entrance of female workers into the economy. Read more
The great chart above comes via Mark Perry of AEI. Read more
Here’s a funny thing.
There was an amusing altercation between self-declared Austrian Peter Schiff (of “I see inflation everywhere” fame) versus The Money Illusion‘s Scott Sumner on Monday. It happened on Larry Kudlow’s show on CNBC. Read more
Gold descended through the key psychological level of $1,200 on Thursday:
This has now led a whole bunch of people getting excited about an upcoming bottom in gold, as well its prospective speedy revival. Read more
That’s from Deutsche Bank today.
We joke, we joke. A little. Deutsche had of course already joined the commodities-supercycle-is-dead chorus, and this note is not from the commodities side but by Asia chief economists Taimur Baig and Jun Ma. Read more
Nomura’s Richard Koo put out a note on Tuesday reacting to the rise in JGB yields since the Bank of Japan went into QE overdrive that seems worthy of some attention.
He thinks the Bank of Japan, in reaction to yields heading upwards, needs to declare that it will not tolerate overshooting of inflation. They’ll need to rein themselves in:
What can the BOJ do? To begin with, the Bank and the government could make it clear that they are targeting a 2% rate of inflation but at the same time, they will not under any condition tolerate a significant overshooting of that rate.
The chart above is from Credit Suisse economists, who add: Read more
Gavyn Davies has a great post looking at the recent work by Fed researchers and the Goldman Sachs economics team on trends in US labour force participation and their implications for US monetary policy. See also Robin Harding last month.
To recapitulate, the US unemployment rate has continued to decline steadily, and at its current pace would hit the Fed’s 6.5 per cent threshold to begin raising rates by roughly the middle of next year. Read more
Bank of Korea has done its bit to stoke the currency wars…
Although they insist that it’s not. From BAML’s Jaewoo Lee:
In the press interview, the Governor cited a few main changes since April which led the BoK to cut in May rather than in April: the supplementary budget was finalized; many central banks, including the ECB, turned to easing mode; and the easing can help further with improving sentiments. The Governor, on the other hand, stated that today’s decision was not a response to the yen weakness, contrary to the often-voiced speculation.
(Charts via Capital Economics.)
The trend is consistent with what appears to be a spring slowdown in global growth. It’s probably worth noting that the wild fluctuations in the headline rate have had only a muted impact on core inflation in the past decade. Just something to keep in mind when you start hearing calls for policy action at the first hint of commodity price gyrations. Read more
Barclays economists write that the gap between core CPI and core PCE in the United States has widened to its largest in about a decade. They have an interesting note explaining some of the reasons why, though not all of them are clear and right now this is mainly an academic issue:
Some stagnant stats out of Eurostat on Tuesday….
Euro area unemployment rate at 12.1%
EU27 at 10.9%
Here’s the damage, broken down… Read more
Thursday’s 5-year US Treasury TIPS auction was something of a noteworthy one, according to Kit Juckes at Societe Generale. Click to enlarge…
The IMF’s latest World Economic Outlook has made some very interesting observations about the changing nature and growing stability of inflation.
Most notable is the following chart:
Don’t go to Australia (but do click to enlarge the charts):
Here follows a thoughtful commentary on the changes going on in gold market from BNY Mellon’s Neil Mellor, including the point that central bank purchases are in many ways helping to stabilise what might otherwise be a much more substantial slump.
Our emphasis throughout… Read more
Cheery chap, Tim Morgan, chief economist at money broker Tullett Prebon. Here’s a few charts to warm us all up on a cold February day…
Dario Perkins at Lombard Street Research has a great little note out on Tuesday arguing why it’s absolutely wrong to assume the current bond sell-off is in any shape or form a repeat of 1994.
As he notes (our emphasis): Read more
Welcome to FT Alphaville’s extraordinarily infrequent podcast… (click through for the podcast link).
The following chart, we propose, has the potential to inspire a whole new way of looking at the gold and Treasury market:
So Glenn Stevens likes the nags after all.
Well, sort of.
For the first time since he took the helm of the RBA in 2006, the governor did not tinker with interest rates on Melbourne Cup day (a public holiday across parts of the country). Read more
From the ECB’s September update on monetary developments in the euro-area released on Thursday:
That’s euroland M3 – the broad money supply measure — coming in below expectations and dropping again to 2.7. Really brings to mind Draghi’s warning to the Bundestag that “In our assessment, the greater risk to price stability is currently falling prices in some euro area countries”, doesn’t it? Read more
Mervyn King gave a “personal assessment” of the inflation targeting regime over the past twenty years on Tuesday night. And seemed to suggest that it may be best to allow UK inflation to over-shoot the 2 per cent target given the current economic environment in order to minimise volatility. Read more
Capital Economics put out a cracker of a note on UK output this week. It’s taken us a while to get through it but we wanted to do it justice. Here’s the key extract:
‘Supply pessimists’ point to high inflation and growing employment as evidence of a small output gap. But inflation was pushed up by temporary factors and has eased recently, while domestically generated inflation has remained low.