I’ve just added a Facebook page for the blog – though I have only a vague idea of what I’m going to do with it or how I’m going to discriminate between that and the blog proper. My idea is to have most of the media coverage to shift there, as that usually doesn’t require much in the way of data support or graphs. The blog in the meantime would concentrate mainly on wonkish stuff.
Let me know in the comments if there’s anything different I ought to be doing here.
Twitter? One thing at a time!
Responsible corporate citizen or conniving oligopolist? I’ll plop for the former for now, despite the inherent conflict of interest in the CEO of the country’s largest bank pleading “over-competition” in the domestic banking sector. Why? Because I think he’s right as far as non-bank lending is concerned, and because if the remark came from outside the banking community it would have been accepted without reservation (excerpt):
‘Rein in super-easy personal loans’
KUALA LUMPUR: Maybank wants the authorities to tighten control on the ease with which personal loans are being given out to consumers.
CEO Datuk Seri Abdul Wahid Omar cited personal loans given out either by non-bank entities or “over-competitive” banks, as worrying.
“We need stronger enforcement from the authorities on the personal loans issue as it is becoming a cause for concern,” he said after the group's annual general meeting.
Wahid suggested that non-bank lenders were quite lax when giving out personal loans, saying that these institutions should look at adopting some of the same standards as banks, especially when underwriting the loans.
Now that the NWCC has started meeting, we’re on a countdown to implementing a minimum wage for Malaysia. The composition of the Council puzzles me though.
From todays The Star (excerpt):
Vote for a minimum wage across all sectors
Friday Reflections - By B.K. SidhuRAISING the retirement age and implementing a minimum wage are topics that hogged the limelight this week…
…The Government has finally agreed to set a minimum retirement age for the private sector, though, the age has not been specified, but 60 will be a good start…
…Despite initial setbacks, the National Wages Consultative Council Bill was gazetted on Sept 15 and comes into effect on Sept 23. With that, the National Wages Consultative Council (NWCC) had on Wednesday appointed 25 members to start working on recommendations on a minimum wage. They have 2 months to come up with a proposal since the Government's target to announce the minimum wage for workers is before year-end.
Former Chief Judge of Sabah and Sarawak Tan Sri Steve Shim Lip Kiong is the chairman of NWCC and former Human Resources Ministry secretary-general Datuk Dr Syed Mohamad Syed Abdul Kadir his deputy. The council has six members representing workers and employees, five from other sectors and five from the Government and a secretary.
Jeff Frankel of Harvard summarises the current thinking:
The 2008-09 Global Financial Crisis: Lessons for Country Vulnerability
After the currency crises of 1994-2001, and especially the East Asia crises of 1997-98, a lot of research investigated what countries could do to protect themselves against a future repeat. More importantly, policy makers in emerging markets took some serious measures. Some countries abandoned exchange rate targets and began to float. Many accumulated high levels of foreign exchange reserves. Many moved away from dollar-denominated debt, toward other kinds of capital inflow that would be less vulnerable to currency mismatch, such as domestic currency debt or Foreign Direct Investment. Some instituted Collective Action Clauses in their debt contracts to facilitate otherwise-messy restructuring of debt in the event of a severe negative shock. A few raised reserve requirements or otherwise tightened prudential banking regulations (clearly not enough, in retrospect). And so on.
"In Canada there is a small radical group that refuses to speak English and no one can understand them. They are called separatists…In this country (USA) we have the same kind of group. They are called economists."
Nation's Business (via JokEc)
I was reminded of the above when reading this rather plaintive post on the World Bank’s Development Impact Blog:
The perfectionists versus the reductionists
Women perform 66 percent of the world’s work, and produce 50 percent of the food, yet earn only 10 percent of the income….
--Former President Bill Clinton addressing the annual meeting of the Clinton Global Initiative (September 2009)Impressive, heart-wrenching, charity-inducing, get off your sofa and go do something heartbreaking.
But Wrong...
From the Business Times (excerpt):
BNM seeking inputs on property gains tax
Property developers are concerned that imposing fresh regulation will be an unwelcome game-changer.Petaling Jaya: Bank Negara Malaysia had consulted property developers, seeking their inputs on increasing the real property gains tax (RPGT) to curb speculation, people familiar with the matter said yesterday.
Such a move, if announced in the upcoming Budget 2012, will be the second time the central bank will have moved to curb excessive speculation in the property market this year.
File this under, “Duh, why didn’t I think of that”. But pay close attention to the last couple of paragraphs (excerpt, emphasis added):
Money can’t buy citizens’ love, but integrity and performance can
…Technologies to enhance public sector performance are widely known and available nowadays, but we still can't predict when governments are likely to take risks in the implementation of complex public sector reforms. One prerequisite for any government attempting to implement reforms is that it has sufficient political capital…
Via Ryan Avent and Paul Krugman, Goldman Sachs has a chart showing the impact of the US fiscal stimulus of 2008-2009:
Basically from the last quarter of 2009 onwards, fiscal policy acted as a brake to the economy, not as a boost. And monetary policy was not much better.
If you want a more wonkish look at this, there’s an interesting paper on NBER I pointed to last year. And Malaysia’s fiscal “stimulus” of the same period was not much more effective.
Chris Sebrowski argues that whether or not we’re coming up against geological peak oil, we’re likely to come up against economic peak oil first (excerpts, emphasis from source):
A Brief Economic Explanation of Peak Oil
For a number of years there has been an arid debate between economists and geologists about Peak Oil. The geologists maintain that Peak Oil (maximal production) is a geological imperative imposed because reserves are finite even if their exact magnitude is not, and cannot be, known.
In contrast many economists maintain prices will resolve any sustained supply shortfalls by providing incentives to develop more expensive sources or substitutes. The more sanguine economists do concede that the adaptation may be slow, uncomfortable and economically disruptive.
The reality, I believe, is that both groups have part of the answer but that Peak Oil is, in fact, a complex but largely an economically driven phenomenon that is caused because the point is reached when: The cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time. While hard to definitively prove, there is considerable circumstantial evidence that there is an oil price economies cannot afford without severe negative impacts.
The corollary is that if oil prices fall back to and sustain levels that do not inhibit growth, then economic growth will resume, with both recoveries and downturns lagging oil price changes by 1-6 months.
The current failure of most western economies to achieve anything more than minimal growth this year (2011) is most likely because oil prices are already at levels that severely inhibit growth. Indeed, research by energy consultants Douglas-Westwood concludes that oil price spikes of the magnitude seen this year correlate one-for-one with recessions...
Three months and counting (exceprt):
25-member wage council to hold first meeting today
PETALING JAYA: The 25-member National Wage Consultative Council will have their first meeting today after their appointment ceremony, bringing the much anticipated discussion about minimum wage into reality.
The minimum wage policy is expected to come into effect at the end of this year despite its initial setbacks.
Human Resources Minister Datuk Dr S. Subramaniam said the 25 members would be appointed into the council today in a simple ceremony at the ministry’s Putrajaya office.
I wonder if there will be any avenue for public feedback, or if the NWCC will use close door sessions. In any case, the long awaited process to implementing a minimum wage(s) for Malaysia has begun.
As I covered in the last update, the borrowing binge of the last quarter was largely due to the need to rollover maturing debt from 2008. Although the pace of borrowing has not slackened, redemptions hit RM23.2 billion in 2Q, mostly in April (RM millions):
This is likely to be a continuing feature over the next year or so, as that covers the period between the onset of the commodities bubble of 2008, and the borrowing to cover the shortfall in tax collection during the trough of the recession.
One of the ways of handling the Euro (and US) debt crises is slowly coming into focus – inflate it away. Since public debt is denominated largely in nominal historical terms, but public revenue is paid in current terms, inflation effectively reduces the debt burden. It’s an inequitable solution because it favours debtors over creditors, but it has traditionally been one of the main avenues for public debt relief – about half the reduction in the debt to GDP ratio after WWII was due to inflation (the other half from growth).
Since growth is obviously going to be lacking in developed countries over the near future, the inflation weapon is slowly moving into mainstream discussion:
Higher Inflation: Scourge or Savior?
The Federal Reserve and other central banks ponder benefits of higher pricesWith consumer prices up 3.8 percent in the 12 months through August, you might think the Federal Reserve’s rate-setting committee would be taking stern action to lower inflation. Far from it. On Sept. 21 the Federal Open Market Committee announced it would make monetary policy even looser through what economists have dubbed “Operation Twist”—switching $400 billion worth of its Treasury holdings from short-term securities into long-term ones in a bid to bring down long-term interest rates.
From the World Bank blog:
Family planning, healthier economies
Countries like South Korea and Thailand have seen similar demographic formulas work to their advantage in recent decades: falling fertility rates lead to burgeoning adult working populations lead to greater economic productivity.
Funny how the subject keeps popping up. First the IMF, then this lovely history lesson from Prof Frances Wooley (excerpt):
Stephen Gordon recently posted an excellent analysis of trends in income inequality in Canada and elsewhere. Stephen, like almost all of the other authors cited in his post and the subsequent discussion, measured inequality using the Gini coefficient.
The very next day, I saw a paper by Francesca Greselin arguing that the Gini is inferior to the new Zenga inequality index and should be replaced.
Talk about deja vu all over again. Various limitations of the Gini inequality index have been known for years. Tony Atkinson described some and proposed an alternative to back in 1970; other indices for measuring inequality are the Theil index, and the Hoover index. Greselin and co-authors set out new arguments, and make a convincing case for replacing the Gini. But I don't expect to see the Zenga index in wide use any time soon.
We keep on using the Gini because that's the way people have always done it. But why did people even start using the Gini in the first place?...
In today’s the Star (excerpt):
IN just over two weeks, the Budget will again be presented to the people and like always, Malaysians will be wondering what goodies the Finance Minister will have in his briefcase for them…
…Realism, however, dictates that the giving will be hamstrung by the state of finances.
Dishing out more tax cuts, waivers or rebates could mean less tax collection in the future and with the Federal deficit expected to hit 5.4% this year and at around the 5% range for Budget 2012, the realism of public finance is that more money will need to come in before money is lavished elsewhere.
Yesterday’s release of the August CPI numbers was a mixed bag – on the one hand, in the biggest weighted items of food and transport cost increases went almost flat, but on the other, many other expenditure items went up in price (log annual and monthly changes; 2000=100):
The July employment numbers point sustained relative strength in both demand and supply:
This is more of a first stab at the subject, as I haven’t had time to really play with the data yet. So there won’t be much in the way of analysis beyond eyeballing the charts. The source of the data is from the Economic Planning Unit, and appears to be aggregated from various Household Income Surveys (HIS).
Here’s the time series for Malaysia’s Gini Coefficient:
Another paper from this week’s NBER working paper series – chalk this one up as adding to the literature over the ambiguous relationship between democracy and democratic institutions on the one hand, and economic growth and development on the other (abstract; emphasis added):
The Democratic Transition
Fabrice Murtin, Romain WacziargOver the last two centuries, many countries experienced regime transitions toward democracy. We document this democratic transition over a long time horizon. We use historical time series of income, education and democracy levels from 1870 to 2000 to explore the economic factors associated with rising levels of democracy. We find that primary schooling, and to a weaker extent per capita income levels, are strong determinants of the quality of political institutions. We find little evidence of causality running the other way, from democracy to income or education.
Note that the paper defines the relationship very narrowly, examining the relationship between just three variables – education, income and democracy (here proxied by the Polity index). I can’t speak to the methodology used here as I’m not fully conversant with it, but I would be concerned over possible omission of other variables that might change the results. Single equation methods, even with a large panel dataset, might lead to spurious regression results.
Nevertheless, the results obtained here resonate with my own views. Economic institutions and legal frameworks (probably) matter for development and growth, political institutions not so much.
Technical Notes
Murtin, Fabrice & Romain Wacziarg, "The Democratic Transition", NBER Working Paper No. 17432, Issued in September 2011
There’s plenty of blame to go around in looking at the causes of the Great Recession, and there’s also plenty of controversy and tension between major and emerging economies regarding the policies followed in its aftermath, in particular the role of monetary policies.
A new report published today discusses the future of central banking in this context:
Central banks have massively broadened their remit in recent crisis-laden years, but the standard analytic framework – ‘flexible inflation targeting’ – has not changed. This column argues that it is time to properly flesh out an alternative framework. Financial stability should be an explicit mandate of central banks, and international coordination among central banks should be boosted by forming a small group of systemically significant central banks that regularly meets and issues reports to the G20 on their financial-stability policies.
The VoxEU article linked to above summarises the findings, but you can read the original report here. The authors are some of the heavy hitters of the economics and finance profession, so the report should be taken seriously. And the recommendations aren’t too far-fetched either, in fact largely in line with what many central banks have attempted both during and after 2008. Perhaps the biggest change from past orthodoxy is the addition of financial stability as an explicit mandate, and the backing of the use of macro and micro prudential tools.
An additional difference is a proposal for systemically important central banks to meet regularly, report to the G20, and (hopefully) coordinate and communicate their policies jointly. In the absence of a global central bank, this is perhaps the next best alternative to a unified global monetary policy. Whether anyone will actually implement any of this is of course another thing entirely.
Technical Notes:
Eichengreen et al, “Rethinking the Role of Central Banking", The Committee on International Economic and Policy Reform, The Brookings Institution, September 2011
From this week’s round of NBER working papers (abstract; emphasis added):
The Political Economy of Deforestation in the Tropics
Robin Burgess, Matthew Hansen, Benjamin A. Olken, Peter Potapov, Stefanie SieberTropical deforestation accounts for almost one-fifth of greenhouse gas emissions worldwide and threatens the world's most diverse ecosystems. The prevalence of illegal forest extraction in the tropics suggests that understanding the incentives of local bureaucrats and politicians who enforce forest policy may be critical to understanding tropical deforestation. We find support for this thesis using a novel satellite-based dataset that tracks annual changes in forest cover across eight years of institutional change in post-Soeharto Indonesia. Increases in the numbers of political jurisdictions are associated with increased deforestation and with lower prices in local wood markets, consistent with a model of Cournot competition between jurisdictions. Illegal logging increases dramatically in the years leading up to local elections, suggesting the presence of "political logging cycles". And, illegal logging and rents from unevenly distributed oil and gas revenues are short run substitutes, but this effect dissapears over time as political turnover occurs. The results illustrate how incentives faced by local government officials affect deforestation, and provide an example of how standard economic theories can explain illegal behavior.
Sound familiar? Just sayin'
Technical Notes
Burgess, Robin and Matthew Hansen, Benjamin A. Olken, Peter Potapov, Stefanie Sieber, "The Political Economy of Deforestation in the Tropics", NBER Working Paper No. 17417, September 2011
From last Saturday’s Star (excerpt):
…Over the last one to two years, the increase in Malaysia's household debt has been largely fuelled by the availability of cheap mortgage rates arising from the cut-throat competition in the housing loan market.
Cheap money has enticed people to borrow and the rate of which households are taking on debt to buy houses, cars or finance renovations or holidays has indeed grown.
Since the 2008 global financial crisis, Malaysia's household debt service ratio, which measures the ratio of debt payments to disposable personal income, has jumped about 10 percentage points to 49% in 2009 before easing slightly to 47.8% last year…
I hadn’t intended to post on anything today (too busy), but the PM’s Malaysia day announcement quite overturned that intention. I’ll be the first to admit my innocence with respect to political and social matters, but even to these tyro’s eyes, the promised repeal of the ISA and emergency ordinances, and the abolishment of annual reviews of media licenses, is a pretty significant step:
PM announces repeal of ISA, three Emergency proclamations
KUALA LUMPUR: Several draconian laws including the ISA and the three Emergency proclamations are to be repealed under major civil liberty reforms announced by Prime Minister Datuk Seri Najib Tun Razak on Thursday.
The historic changes, he stressed, were to accommodate and realise a mature, modern and functioning democracy; to preserve public order; enhance civil liberty and maintain racial harmony.
The changes, which represent the biggest shake-up of the Malaysian system since independence from Britain in 1957, were announced by the Prime Minister in a prime-time television address on the eve of celebrations marking the anniversary of the foundation of modern Malaysia.
If Tunku was the father of the nation, and Tun Mahathir oversaw its economic maturation, would Najib be acknowledged as beginning our political maturation? Only the passage of time will answer that – and to be fair, none of these changes will significantly impact the day-to-day lives of ordinary Malaysians. But the change in the atmosphere, of the constant self-censorship, of affirming the right of freedom of expression and assembly; these things matter.
So happy birthday Malaysia, we’ve just gotten one hell of a birthday present.
P.S. Is it too much now to ask for local government elections?
Once upon a time, four development economists decided to start blogging. At the same time, two of them wondered whether blogging had any impact or was at all worthwhile. To make a long story short, they decided to research the issue, and made an experiment out of the launch of their own blog (abstract):
The Impact of Economics Blogs
McKenzie, David; Ozler, BerkSummary: There is a proliferation of economics blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, this study quantifies some of their effects. First, links from blogs cause a striking increase in the number of abstract views and downloads of economics papers. Second, blogging raises the profile of the blogger (and his or her institution) and boosts their reputation above economists with similar publication records. Finally, a blog can transform attitudes about some of the topics it covers.
I don’t know enough to know if school-based management systems are implemented here in Malaysia (if not, why not?). I do know that some schools have been given greater autonomy in managing their affairs, but I confess I can’t recall to what degree, how many are involved, and at what level. But it’s an interesting idea – anybody have further info on this topic, feel free to sound off in the comments.
While I’ve been upfront about my support for expanding access to tertiary education and prioritising vocational education, the fact is and remains that pre-school education might be more crucial than the rest of the education system put together (here and here for reference), and primary education more important than latter levels. Of course, in this context, the role of parental role models and tutoring is evident – the point of education in these early years is not about gaining knowledge, but about gaining skills, particularly the ability to learn as opposed to learning. It’s about the habit of thinking and interpersonal interaction, and not about facts and theorems.
I stumbled upon this article yesterday and couldn’t quite believe what Thailand is attempting (excerpt):
Thailand May Cede No. 1 Rice Ranking to Raise Rural Incomes
Sept. 13 (Bloomberg) -- Thailand is willing to relinquish its role as the world’s biggest rice exporter as the government prepares to buy grain directly from farmers to boost prices and rural incomes, Deputy Prime Minister Kittiratt Na-Ranong said…
…Prime Minister Yingluck Shinawatra aims to insulate the country of 66 million people from a global slowdown by lifting incomes of poorer Thais who propelled her party to victory in a July election. The plan to guarantee rice prices may boost export rates by almost 20 percent and erode the nation’s share of the global market, said Sarunyu Jeamsinkul, deputy managing director at Asia Golden Rice Ltd., Thailand’s largest shipper…
...The government plans to pay 15,000 baht per ton ($498) for unmilled white rice and 20,000 baht for Hom Mali fragrant rice, as much as 47 percent above current market rates, according to Bloomberg News calculations based on data from the Thai Rice Mills Association. Purchases are due to start on Oct. 7.
The September 2011 issue of the IMF’s Finance and Development magazine takes a look at global income inequality (from the Editorial; link to the table of contents at the end of this post):
WE used to think that overall economic growth would pull everyone up. While the rich might be getting richer, everyone would benefit and would see higher living standards. That was the unspoken bargain of the market system.
But now research is showing that, in many countries, inequality is on the rise and the gap between the rich and the poor is widening, particularly over the past quarter-century.
With taxpayers forced to pay for troubles in the financial industry in advanced economies during the global economic crisis, this discrepancy seems particularly galling to wage-earners who have seen their pay stagnate or worse. Inequality has started to attract more research by economists.
This issue of Finance & Development looks at income inequality around the world and how it matters.
As a follow up to my post last week on economic dynamics:
Carry Trades Lose Most in Year as Slow Growth Boosts Dollar
Sept. 12 (Bloomberg) -- Slowing economic growth around the world is punishing investors who bet on Australian and Brazilian assets using money borrowed in dollars and yen with the biggest losses in more than a year.
A UBS AG index tracking the performance of carry trades where investors sell currencies with low interest rates to buy ones in 24 markets with higher yields has tumbled 2.6 percent this month after losing 2.2 percent in August and 3.1 percent in July, the biggest back-to-back monthly drop since May and June 2010. The dollar has appreciated 6.2 percent against a basket of nine developed-nation peers from its low this year on Aug. 1, with the yen up more than 5 percent from the same day, according to Bloomberg Correlation-Weighted Currency Indexes.
Following on the poor trade numbers, industrial production for July didn’t offer much better comfort (log annual and monthly changes; seasonally adjusted; 2000=100):
From today’s Utusan (excerpt):
Vocational foundation programme at 15 selected day schools beginning 2013
IPOH Sept 11 — The Vocational Foundation Programme (VFP) for Form 1 to Form 3 students would be implemented from 2013 to make vocational studies mainstream education, said Deputy Education Minister Dr Mohd Puad Zarkashi.
He said the VFP would replace the vocational subject currently being taught in the day schools and this move was in line with the transformation of technical and vocational studies.
July’s trade report shows realisation almost exactly hitting last month’s forecasts. None of its good news though (log annual and monthly changes; seasonally adjusted):
Unlike the last time, the Monetary Policy Committee’s statement yesterday was an anticlimax (excerpt):
At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.
Global growth has moderated in the recent months as growth in the advanced economies slowed by more than expected following the greater policy uncertainties, worsening of confidence and heightened financial market volatilities, amidst continued weaknesses in labour market conditions. Going forward, the advanced economies are expected to register a slower pace of growth than earlier anticipated...
...In the domestic economy, recent indicators point to slower growth in external demand following the weaker global economic environment. Domestic growth prospects, however, continue to remain positive, underpinned by the expansion in private consumption and private investment. Employment conditions remain favourable amid sustained business and consumer confidence. The public sector will also continue to support economic growth. Moving forward, the more challenging external environment has, however, increased the downside risks to the domestic economy...
...Going forward, inflation is expected to remain relatively stable for the rest of the year. While cost-push inflation continues to remain, the pace of increase is expected to be more gradual. The upside risks to inflation will also be contingent on whether the strength of domestic demand will be sustained, in the event of further deterioration in the external conditions...
There was also no mention or separate statement on the SRR, which remains at 4%. Given the data coming out lately, the chance of an interest hike at the next meeting on November 11 (also the last for the year) is also vanishing – though that outlook may change if, as they say, conditions change in the next couple of months.
*Sigh* You would think that a ministry dedicated to fostering higher education – in fact, set up recently to provide better more focused guidance to the sector – would have thought of doing this from the get-go (excerpt):
Study on total universities required
PUTRAJAYA (Sept 6, 2011): The government is conducting a study to find out the total number of universities – public and private – needed by the country in order to produce the desired number of graduates.
Higher Education Minister Datuk Seri Khaled Nordin said the purpose of the study is to maintain the quality of Malaysian universities and strengthen the position of the higher education sector.
At the same time, any decision to build new universities or foreign university branch campuses here should benefit the country in producing human capital and contributing towards economic growth.
I’ve said what I wanted to say on this subject yesterday, but in case anyone missed it, I agree with the consensus – the Monetary Policy Committee won’t increase interest rates at today’s meeting. Also this time, the Stat Reserve Ratio is likely to stay on hold too, though for a different reason – seasonally adjusted growth in M2 crashed in July on a month on month basis:
A lot may change between now and the next meeting on November 11, but if I had to bet I’d put my money on BNM staying pat in that meeting too.
Hands up everyone who thought that the S&P downgrade of the US would raise the Federal government’s borrowing costs. A funny thing happened on the way from theory to reality – the markets aren’t cooperating (excerpt):
Treasury yields plunge as stock markets swoon
WASHINGTON: Fears about the weakness in the U.S. economy and Europe's financial crisis caused Treasury prices to rally on Tuesday, sending long-term interest rates lower. Traders dumped stocks in search of lower-risk investments.
The yield on the 10-year Treasury note traded below 2 percent, near the lowest point on record, as strong demand for U.S. government debt boosted Treasury prices...
...Treasurys were plenty attractive on Tuesday as global stock markets fell. The Dow Jones industrial average lost as many as 307 points in morning trading, but recouped much of those losses and closed down 100 points. European markets had plunged on Monday, sending the Stoxx 600 index 4.1 percent lower. U.S. markets were closed Monday for the Labor Day holiday...
...The yield on the 10-year note was 1.97 percent at 4:30 p.m. EST, compared with 2 percent late Friday. Its price rose 12.5 cents for every $100 invested.
The yield fell as low as 1.91 percent late Monday, the lowest yield on record since the Federal Reserve Bank of St. Louis began keeping daily records in 1962.
Again late, though this time there’s more meat to get into. The July numbers don’t make comfortable viewing (log annual and monthly changes):
From yesterday’s The Star (excerpt):
ECB spent US$18.8 billion on bond buys last week
FRANKFURT, Germany (AP) - The European Central Bank stepped up its emergency bond purchases last week to keep the eurozone debt crisis from infecting Italy and Spain. The move, however, was accompanied by a warning to governments that the support is temporary.
The 13.3 billion ($18.7 billion) purchases announced on the bank's Twitter feed Monday were double the 6.65 billion spent the previous week.
The bank has been buying Italian and Spanish government bonds since Aug. 8. The purchases hold down the interest yields on the bonds, and have kept bond market turmoil from pushing those countries over the edge while European political leaders struggle to come up with more permanent fixes…
If you’re not clear what this means here’s a primer. In essence, the ECB is printing money – “temporarily” to use their term – to provide short term support to Euro area countries having trouble refinancing their government debt. The ECB is also claiming that they’re “sterilising” their bond purchases, indicating that they’re also issuing their own debt to pull back the implied liquidity injection from the bond purchases into the Euro banking system. In short, if you net off the transactions, the ECB is providing it’s own more credible debt in exchange for the troubled debt of the PIGS.
This report came out near two weeks ago, but I haven’t covered it yet. Not that we’re missing very much – hardly any “real” changes have occurred since May:
I’ve been taking it reeaalll easy the last two weeks, so much so that I haven’t even touched my laptop (or even a newspaper) since before the holidays started. Not intentionally mind you…it just happened that way, and I’ve had a heck of a good and enjoyable break.
Beginning today, I’ll be in catch-up mode, so expect posts to accelerate from now on. There’s quite a bit of data to post on, which will have to be slotted in along with my “official” work, but hopefully from now until the end of the year holidays, I’ll be posting more regularly.
Stay tuned…
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