There has been very little news this weekend in regards to the financial markets. Reuters reported that the IMF will delay aid to Hungary as the new government is perceived as dragging its feet in installing the fiscal reforms that are needed to meet IMF demands. We don’t think this is a major event yet, as the Hungarians are trying to buy some time for domestic political reasons and the situation is not dire at this time. Also, the IMF has requested another $250 billion in additional commitments in order to boost its lending resources to $1 trillion. IMF officials want to build a larger safety net so it’s prepared to help head off future global crises.
We have a problem with this since the IMF, a totally undemocratic institution with no real accountability, is given the ability to increase its liquidity. Is there a plan to increase global liquidity by blowing up the IMF balance sheet and relieve the responsibility of some of the world’s central banks? Is the IMF going to become the newest SPV?
Larry Summers has an opinion piece in Monday’s Financial Times and after several reads we are not sure what he is really trying to convey. Summers’s piece is an attempt to analyze the austerity/further stimulus discussion and this piece just confuses us even more about what the Obama administration really wants. When Summers says Mr.Obama “welcomed the Group of 20 leading nations’ emphasis last month on the importance of global actions to ensure that sound fiscal policies are in place and also that economic recovery has sufficient momentum.”
Huh? Did we read the same post-G-20-meeting release as Summers? Is he unaware the of intense criticism that Secretary Geithner leveled at Germany and the austerity advocates? Even the Canadians broke from the U.S. and was seeking a consensus on reining in fiscal deficits.
In the same Financial Times, Martin Wolf also has an opinion piece and it is far more clear in discussing the issue of whether to tighten or not. Wolf sets the argument of those favoring raising rates and fiscal retrenchment versus those who want to delay any type of AUSTERITY. The last two sentences sum it up very well:
“We cannot be sure who is right.But we can be sure that,if policymakers get it wrong,the results may well be dire.”
From our perspective, that is exactly the issue and why the recent volatility in all markets is based on the hope of success by policy makers versus the sense of failure on the part of traders. It seems that investors are on the sidelines waiting for a greater sense of certainty. We agree with WOLF that the possibility of a grim outcome overhangs the market. The release of the FOMC minutes certainly didn’t provide those looking for some relief from the dire theme any more secure. Last week, we noted that Brad DeLong used the word ominous to describe the democrats political outlook because of the stalling economy and the poor employment situation. Wolf describes a failed policy outcome as dire … being a trader doesn’t get any easier from here.
Tags: austerity, Brad DeLong, Financial Times, FOMC, G-20, Hungary, IMF, Larry Summers, Martin Wolf, Obama
July 19, 2010 at 3:45 am |
As WOLF said “We cannot be sure who is right. But we can be sure that,if policymakers get it wrong,the results may well be dire.” Different countries, different policies. I don´t see G20´s coordination, as YOU pointed out. So, probably will have stimulus in the US, austerity in Europe, and different kind of policies in the EM. So, what´s the panorama?
My best wishes
July 19, 2010 at 3:26 pm |
Maybe will be interesting Mr. Bernanke´s hearing at Hill. The Semiannual Monetary Policy Report to the Congress, Wednesday, July 21, 2010.
July 20, 2010 at 10:21 am |
Bernanke will not be forthright —the FOMC minutes will do hid talking but he will be very cautious as the austerity/stimulus debate is on the boil—see Niall ferguson’s piece going after krugman in the FT