Links 11 October 2012

Global Macro:

  • BlackRock’s Fink calls for sharper global bank-recapitalization – euromoney.com
  • Quantitative easing only benefits the financial sector, UK research finds – phys.org
  • Fiscal policy: Let go of the brakes – The Economist
  • In the battle of the generations, the battleground will be inflation – The Economist

North America:

  • FRB: Beige Book – October 10, 2012 – Federal Reserve
  • Tracking the U.S. Banking Industry – Liberty Street Economics – New York Fed
  • MBA: Mortgage Purchase activity highest since June – Calculated Risk
  • Fiscal Cliff May Be Felt Gradually, Analysts Say – New York Times
  • U.S. Downgrade Seen as Upgrade as U.S. Debt Dissolved – Bloomberg
  • U.S. shadow homes inventory lowest in over three years: CoreLogic – Reuters
  • Is Canada immune from a housing bubble? – The Globe & Mail

Europe:

  • IMF Sees European Banks Facing $4.5 Trillion Sell-Off – Bloomberg
  • Italy set to ease austerity with tax cuts – Financial Times
  • IMF warns eurozone on capital flight – Financial Times
  • Spain may get nod to ease pace of fiscal cuts – Reuters

Asia:

  • China Gets Back to Work – New York Times
  • China’s Economic Slowdown Felt By Its Young Generation – PBS.org

Local:

  • Perth & Sydney rents hit a record high – the AFR
  • Banks ease lending standards but no bubble: APRA – the AFR – no macroprudential either!
  • Why interest rates will go lower for longer – the AFR – just look to NZ: OCR at 2.5% since 2009
  • Two sides of the labour market coin – the AFR
  • Unemployment expected to rise: economists – The SMH

 

Comments

  1. Re that Economist fiscal article. Don’t forget that NZ had to accommodate the Christchurch earthquake in the 10/11 figures. In that light it’s easy to see why the change appears to be so dramatic.

  2. The economist article about the baby boomers is really good.

    A few years of higher inflation is not only the best route to take in terms of policy. Because higher inflation would rapidly redistribute wealth from the boomers to younger generations, it is also the fairest.

    • Agreed it’s a good article, but I’m curious about the claim that inflation would be a gift to younger generations. Surely boomers still hold the majority of assets which would benefit from running higher inflation (residential property. equities through their 401K plans, etc)

      • As they head towards retirement the boomers are selling real assets (equities, land etc.) and investing in fixed income.

        The final line of the article is spot on:
        “The political power of the boomers is formidable. But sooner or later, it cannot escape the maths”.

        Overcoming the political power of the boomers is the key to escaping the post-GFC environment, and creating a new and better economy which isn’t burdened by excessive debt.

        • The higher prices inflate, the higher the amount of real borrowing the next set of buyers has to do to lift the assets of those who currently own them. Wages rarely, if ever, keep up with all the costs that rise ( look at how property prices have escalated in terms of the single wage earned over the last 40 years More work has to be done to earn the same asset!). The higher prices go, the more the young will have to borrow, no matter who does the selling to them.

          • When inflation rises, so do interest rates. When interest rates are high, real estate prices are low. The initial repayments on a loan to buy property seem high(because of the high interest rate), but inflation soon erodes their impact.

    • How would inflation redistribute wealth. rising inflation in a low growth environment always sucks.
      Its good though if your are a banker.
      Redistribution actually occurs more effectivily in a deflationary environment so long as you are patient and dont load up on deb

    • I’d have to go with other commenters and questioning whether inflation will really redistrubte wealth inter-generationally.

      Perhaps somewhat if the younger generation are categorically more indebted, but i’m not sure that the amount of inter-generational wealth-transfer that has ALREADY been conducted via property prices in particular can be undone adequately by an inflationary path forward, in a “reasonable” time frame – that would simply be crippling inflation!

      Not to mention that inflation is rarely homogeneous, and different people have different capabilities to cope with it, particularly the poorer, younger people.

      IRs are more likely to adjust upwards in response to the inflationary pressures and crush the most indebted with the least ability to afford it – the younger generations.

      My 2c

      • Agree that higher inflation would hurt poorer people (regardless of generation) – because poorer people hold a greater % of their savings in cash.

        But on the whole, higher inflation definitely would redistribute wealth from the boomers to the younger generations. It would actually do it very quickly as well.

        • Sorry. But that’s not right. All higher prices do is make whoever is the holder of an asset realise more for what they sell; the new buyer pays/borrows more. Whichever way you choose to look at it, a higher price is a higher price. And when you have to pay more for whatever it is, or borrow even more to buy it, you loose. Even if you hold until you pass it on to the next inflated buyer, the cost of living will beat you.

          • “All higher prices do is make whoever is the holder of an asset realise more for what they sell”

            Right, so I own an asset (it’s called cash), under your theory should inflation mean that when I sell this asset (buy something) I can expect to realise more for it?

            You have to consider the difference between nominal vs real assets. A nominal asset is a future claim on cash, a real asset is a future claim on output.

          • Precisely! So if you hold cash…. which is better; a higher set of prices or lower? My guess is you’ll see that a lower price of any and all things (deflation) gets you more bang for you buck – especially if you are from the younger generation, who you are looking to pass the wealth over to! So have another guess as to why many people are stuffing their ‘cash’ away at 0% in JGB’s, for instance? Because lower wages, lower prices and lower everything, is just around the corner. Central bank meddling will only hold the juggling balls in the air for so long, until such time as ‘people’ refuse to pay any more for whatever they wish to buy. When that day arrives, watch what happens to asset prices – stock and property prices, especially. Cheers.

          • So you admit that inflation will mean I will realise *less* when I sell my asset (if my asset is cash).

            I don’t understand how that agrees with what you just said before:

            “All higher prices do is make whoever is the holder of an asset realise more for what they sell”

            Re. JGB’s. Why are people still buying them? Because the BoJ has indicated countless times that they would rather see the government default than (heaven forbid) see inflation above 1-2%.

            And why would they be so opposed to that? Look at Japanese demographics.

          • The crux of you position is your quote ” higher inflation would rapidly redistribute wealth from the boomers to younger generations” It won’t. All it will do is make it more expensive for those non BBers to assume. Wages will not keep up; and debt uptake is at stall speed. The end is nigh for deficit financing on any scale. Have a look about you in the world, and tell me that every second, if not every, article is about the amount of debt that is strangling the world. Inflation has been tried 3 or 4 times over the last 40 years to alleviate global economic problems. It’s ultimately failed. If it hadn’t, why are we here? The next path of economic adventure will be asset price deflation. It’s being resisted, at every turn. That tells me it’s the right path!

      • Spot on, BW. Price inflation can’t make ‘things’ cheaper’ for the next buyer if their income hasn’t matched the pace of general price rises. And if it has – what was the point? Prices up; wages up; same real cost of everything, but the dollar sign is, say, twice what it was! “Inflation” can only work its magic if wages fails to match price increases; and that’s pretty much what always happens. So a deflationary environment; the one ‘they’ fear, is what makes intergenerational transfer effective. The new buyers pay…..less.. for whatever it is.