Central banks are still worried about the danger of deflation, even though they have timidly started to lift interest rates. How else would they explain real negative rates almost everywhere in the developed economies?
The news that the US Federal Deposit Insurance Corporation (FDIC) is suing European banks in London for manipulating Libor should worry central bankers everywhere.
It’s all hush-hush, with details coming from reports in newspapers, rather than made public officially. The Financial Times reported that the FDIC is suing Barclays, Deutsche Bank, Lloyds Banking Group, Royal Bank of Scotland, Rabobank and UBS, as well as the British Bankers’ Association, accusing them of fraudulent misrepresentation.
Lloyds said it doesn’t believe the claim has any merit, while the others did not comment, according to the report.
The Bank of England will publish its inflation report next Thursday, and this time it will get even more attention than usual.
Brexit is being felt in prices more and more now, with the cost of grocery bills jumping and prices for essentials going up. The phenomenon of “shrinkflation” is in full swing as well; many products are mysteriously losing weight, but maintain their price.
No matter how much it would like to help (or to meet its inflation target), the Bank of England cannot do anything to prevent prices from rising. In fact, to be more accurate, it could, but it will not. The central bank could raise interest rates, stopping the pound’s depreciation — but if it does this, the housing market would crash.
The financial repression that central banks started after the global financial crisis of 2007-2009 does not seem to be close to an end. The central banks argue that inflation has not come back to their target of around 2%, but their definition of inflation is flawed.
There is a widespread view that the Federal Reserve will have to raise interest rates at a steady pace this year, because it cannot afford to fall behind the curve.
I would argue that it has already fallen behind the curve and has no choice but to remain there. And it is not the only one in this situation. All major central banks are playing the same game; they have no choice.
If you’re like me, you’ve certainly wondered why economic growth has been so sluggish after the worst post-war recession — the Great Recession, or Great Financial Crisis as some have callednthe 2007-2009 crisis. Normally, the economy should have surged, after such a deep slump.
Instead, we’re proud of economic growth figures around 2% in Britain and the US and cheer when the eurozone posts a meager GDP advance of above 1% almost a decade after the crisis.
By Sourajit Aiyer
Last week, in an article, I looked at the reasons behind the slow growth of wages in India. They have a lot to do with the slowdown of profit growth. One way to boost profits is to invest, but for this you need to raise capital; so let’s take a look at the background and prospects for capital raising by Indian companies.
The European Commission’s ruling requesting Ireland to ask Apple to pay back around €13 billion in tax arguing that it distorted competition has led to some enthusiastic commentary in the media that a post-Brexit U.K. would become more attractive for multinationals. I am not sure that will be the case. At least, not without a big compromise over what Brexit means.
“Happiness is a candle. In fact, don’t laugh too loud, you risk putting it out.”
— Christophe Maé – Il est où le bonheur
“Brexit Armageddon simply hasn’t happened,” writes with delight the Guardian’s economics editor, Larry Elliot.
“The 1.4% jump in retail sales in July showed that consumers have not stopped spending, and seem to be more influenced by the weather than they are by fear of the consequences of what happened on 23 June. Retailers are licking their lips in anticipation of an Olympics feelgood factor.
The financial markets are serene. Share prices are close to a record high, and fears that companies would find it difficult and expensive to borrow have proved wide of the mark. Far from dumping UK government gilts, pension funds and insurance companies have been keen to hold on to them,” writes Elliot.
Perhaps this optimism is partly justified. After all, confidence goes a long way in financial markets, as any observer of emerging markets can testify. As long as you can project confidence, the battle is, if not won, at least not entirely lost. In most cases, anyway.
The Bank of England’s decision to borrow Mario Draghi’s bazooka has had immediate consequences: investors rushed into bonds like they’re the best investment out there. And what else could they have done? Ever since the financial crisis, central banks have dictated where investors should put their money, picking winners and losers in the markets with their asset purchases.