Macro Roundup, Feb 17
"As the Japanese and American experiences in the late 1980s and 2008 show, cheap or free credit is a sure way towards bad investment decisions and asset bubbles. Bank loans for fixed asset investment in China has jumped from $750bn in 2008 to $1.2tn a year – and this does not include hundreds of billions of “hot money” entering the country. Amid all the talk of a China-dominated Asian century, the country’s modern version of a gold rush is a sober reminder that locals could be losing faith in the growth miracle that appears the brightest light in a dimming global economy." (China's gold rush reflects a loss of faith in the growth miracle, FT)
"The implication of this warning is about the longer term, not about the fiscal deficits being run right now. As Robert Neild, emeritus professor at Cambridge university, points out in the Royal Economic Society’s newsletter, “the application again of the balanced budget policy of the interwar years, justified by alarmism, is leading us into an unnecessarily deep recession”. He is quite correct. Prof Neild also writes: “Britain, a leader in the management of government finances, has maintained a national debt without default for more than three centuries. The ratio of debt to gross domestic product has often been far higher than it is today.” Why do so many regard this successful history as nigh on irrelevant and the dire experience of Greece or Italy inside the eurozone as far more relevant?" (Britain needs to whittle down corporate cash pile, FT)
"In narrow economic terms, there is no reason why central bank bureaucrats should ever be terrified of balance sheet losses. Central banks exist to support the financial system; they are not driven by profit motives. Since an institution such as the European Central Bank, BoJ or Federal Reserve can always create more money, “losses” are primarily an accounting issue. That point was hammered home by Thomas Jordan, acting head of the Swiss National Bank. (Eurozone central bankers and the taboo subject of losses, FT)
Franklin Templeton is one of the big winners as Investors gain from bet on Irish recovery (FT)
As Philip Coggan, financial markets columnist at The Economist, noted in my recent interview with him, "in the Second World War, the Germans printed fake pound notes and dropped them in Britain as a way of sabotaging the British economy; now expanding the money supply is seen as the way to save it." According to recently released files from MI5 (the CIA's UK counterpart), they were partially successful in that Nazi forgeries hit confidence in sterling internationally.