Wednesday, October 17, 2007

IMF = Buzzkill

Few would be surprised to hear bleak assessments of this or that markets or currency, but hearing them all at once is somehow jarring. The IMF's recent assessments of world economic growth shows that they see harder times to come and note they even this view may be too rosy.

The IMF lowered its projection for the global expansion next year to 4.8 percent in its semiannual World Economic Outlook, from an estimate of 5.2 percent in July. A weaker outlook for the U.S. was mostly to blame, as the fund reduced its forecast to 1.9 percent, from 2.8 percent.

Far from bringing a sense of containment to the perplexing fallout from the sub-prime issue, the IMF, like so many others, seems to have thrown up its hands as if to say 'buckle-up kids, this could be a rough ride'.

``Risks to the outlook lie firmly on the downside, centering around concern that financial-market strains could continue and trigger a more pronounced global slowdown,'' the Washington-based fund said. ``The immediate task for policy makers is to restore more normal financial-market conditions.''

The IMF built into their analysis a further 50bp reduction in the Fed Funds rate, which I've head/read as a reasonable estimate from many, but with inflation still kicking, who knows what's next?

Aside from predictions of steady, rapid growth in India (8.4%) and China and reasonable growth in Brazil (4%), the IMF report offers little to assuage the nervous. Perhaps the topic that's generating the most worry lately, the value of the dollar, will be them most remembered prediction from the IMF. The headlines will read, "IMF Says Dollar Going to Hell, Fast!"

In foreign-exchange markets, the dollar ``remains overvalued relative to medium term-fundamentals,'' the IMF said, echoing remarks by Managing Director Rodrigo de Rato two days ago. So far, the U.S. currency's depreciation has been ``orderly,'' Johnson said today.

Well, lets hope it's orderly. Looking at a Canadian dollar on par and a Euro closing in on $1.43 could just as easily cause more panic. Dismal science baby - dismal science!

Tuesday, October 2, 2007

Bribes to Saddam via UN's Oil For Food Program

Sometimes the satisfaction of seeing justice done is immediately overpowered by disillusionment and the realization of just how often good intentions are poisoned by bad deeds. The United Nations Oil for Food Program (OFF), designed to deliver humanitarian aid to war-ravaged Iraq has been revealed as an unholy perversion of attempted-aid. Even when carried out by experienced bureaucracies ostensibly governed by a large and diverse board of overseers, aid efforts that involve lots of money are irrestible lures for the corrupt and easily corruptible. Cynically, I must admit that the math seems all too simple for someone who studies such efforts. The disbursement of billions of dollars by hundreds of bureaucrats to thousands of organizations in a virtually intstitution-free environment that just happens to pump industrial oxygen is bound to be corrupted.

Mr. Wyatt was charged in 2005 with conspiracy, wire fraud and trading with a country that supports terrorism. The indictment alleged he arranged for at least $3.9 million in secret payments to the Iraqi government from 2000 through 2002 funneled through companies he set up and Swiss intermediaries. He could have received more than 70 years in prison if convicted on all counts.

Mr. Wyatt started what became Coastal Corp., which grew into one of the largest importers of Iraqi crude oil to the U.S. The World War II veteran was friends with nearly every president since John F. Kennedy. However, he clashed with both the current President Bush and his father over their handling of Iraq.
At trial, federal prosecutors painted Mr. Wyatt as a friend of the late Saddam Hussein and said the executive cozied up to high-ranking Iraqi officials to win oil contracts.

Texas Tycoon Oscal Wyatt, father of oil giant Coastal Corp. is just one of many who sought to pilfer funds from a program designed to bring food to the hungry, in exchange for oil for the masses. Oh yeah, Wyatt sought to do so by kicking-back funds to Saddam's regime while the UN's weapon's inspectors were rather busy in Iraq. Regrettagbly, he is joined by misdoers in the UN, in Iraq and literally around the world, all of whom saw OFF as a pirate's treasure just waiting to be looted. Making aid work is extraordinarily important for living standards in many parts of the world, but corruption makes is deadly difficult at times. Makes you wonder how best to improve living standards if even the organizations we design to do so often fail miserably. And you thought all those Clooney movies were fiction.

Monday, September 24, 2007

Economics Blog : Greenspan Cracks a Joke and Breaks It Down

Few if any figures draw as much attention as Alan Greenspan when they speak about the economy. Watch Greenspan discuss the economy and his new book with Jon Stewart of the Daily Show. You won't be disappointed.

Economics Blog : Greenspan Cracks a Joke and Breaks It Down

Thursday, September 13, 2007

Krugman on the US housing bubble

Here's an interesting clip of Paul Krugman speculating about the housing market's effects on the economy. Note he also mentions the 'other shoe' which is an old favorite, the current account deficit. Paul always draws lots of fire and support so check-out his take and see what you think.

Wednesday, September 12, 2007

Jim Cramer's Bernanke/Armageddon Rant

I must admit, the intensity of Cramer's rant caught me by surprise, which is itself a surprise because, well, it's Jim Cramer. Cramer, who visited Darden only a few months ago goes thermonuclear while saying Bernanke has 'NO IDEA WHAT IT'S LIKE OUT THERE' and imploring him to 'OPEN THE DARNED WINDOW!!' Take five minutes of your day and watch this, you won'd be disappointed. Then, be sure to ask yourself why lies behind Cramer's reasoning. Is it a just liquidity issue? Or, is it a question of bad loans coming due? Cramer argues that Chairman Greenspan would have cut more by now, but whether or not that's true, the question is should the Fed add liquidity through the discount window, cut the target Fed Funds rate, or both? Or maybe, it shouldn't act at all.

Why Running the Fed is Art and Science

The Journal of Turkish Weekly (JTW) probably doesn't make your weekly reading list, or mine, but I couldn't resist commenting on this article written by one of my former professors about another. It's worth wondering why it is so hard for even sophisticated thinkers with billions at stake to settle on what the Fed will do next. Former Chief Economist at the IMF Ken Rogoff offers a brief, clear statement on why central banking and 'real life' macroeconomics is so important and tough. Chairman Bernanke's thinking on a crisis just like our current one isn't really a mystery to anyone, but how he will choose to steer the economy now that his hands are at the big wheel is. Rogoff rightly points out that the academic literature suggests a steady hand most times asset prices fall sharply.

On the surface, Bernanke’s view seems intellectually unassailable. Central bankers cannot explain equity or housing prices and their movements any better than investors can. And Bernanke knows as well as anyone that none of the vast academic literature suggests a large role for asset prices in setting monetary policy, except in the face of extraordinary shocks that influence output and inflation, such as the Great Depression of the 1930’s.

On the other hand, (as we economists are infamous for saying) reading the economy is no simple trick. I'm not saying we all sit around reading tea leaves, but that may not be as much of a stretch as you think. Even for an Academic superstar with an army of SAT-crushers to do his bidding, knowing where the economy has been can be tough; knowing just where it is now and will be tomorrow can be Everest.

But, while Bernanke’s view is theoretically rigorous, reality is not. One problem is that academic models assume that central banks actually know what output and inflation are in real time. In fact, central banks typically only have very fuzzy measures. Just a month ago, for example, the US statistical authorities significantly downgraded their estimate of national output for 2004!

Even if, like Chairman Bernanke, you are true to your academic convictions and have the mettle to risk being unpopular, the nature of beast offers no simple solutions. We can and do 'science' our way to a set of reasonable decisions but it's still 'art' that finally pulls the levers. Thinking about both the art, and a bit about the science, is what fills the Wall Street Journal, countless Bloomberg screens and makes bank for an endless supply of pundits.

For the rest, follow this link

Tuesday, September 11, 2007

China's Inflation, Trade Surplus Surge, Bolstering Need to Tighten Liquidity -

Inflationary pressures in China are closely related to events in the US economy and elsewhere; consider the following.

BEIJING -- China's inflation surged in August to the highest level in more than a decade as meat and vegetable prices skyrocketed, putting the central bank on track to raise interest rates again soon as government efforts to curb food prices fail.

Also keeping up the pressure on the People's Bank of China to tighten liquidity, China's trade surplus in August climbed to its second-highest ever. But growth in exports to the U.S. slowed, in what may be a sign that the meltdown of the subprime-mortgage market is having economic effects beyond America's borders.

Without some structure to your thinking about an issue like this one, you'll be lost in trying to make informed decisions or to consider the implications for your firm, career or investments. How about the following sentences - do they make sense to you? Are the implied relationships familiar?

It is "just a matter of time when the market will enter the [correction] period," said Xu Yinghui, an analyst at Guotai Junan Securities. "The government is using a variety of measures to rein in the economy and fast-rising markets, including accelerating the pace of new share issuance."

Government bonds also fell on the strong inflation data and a looming bond sale from the Finance Ministry.

Good stuff - expect to become much more familiar and comfortable with readings like this one. Don't worry if this seems mysterious. Soon you'll be at home with discussions like these.

China's Inflation, Trade Surplus Surge, Bolstering Need to Tighten Liquidity -