Archive for August, 2016

IN 1993 James Carville, an American political operative, quipped that should reincarnation turn out to be real, “I want to come back as the bond market. You can intimidate everyone.” Today, bond markets are more powerful than ever. Traders, politicians and financial journalists keep constant watch over bond yields as they wobble up and down. And when a missed budget forecast in Portugal sends its bond yields soaring, or unexpected murmurs from a Federal Reserve governor cause Treasury yields to tumble, the reaction from all three can be immediate and dramatic. But just what is a bond yield and why does anyone care how it moves?A bond is a financial security which allows a government or firm to borrow money from markets. Bonds come in many different varieties. The most common sort entitle the owner to occasional interest payments and the return of the principal on a specified maturity date. The governments or firms issuing the bonds typically auction them off, and buyer appetite determines the interest rate the bond carries. Once out in the wild, bonds change hands repeatedly. As they do so the interest payment and maturity dates remain constant, and changes in demand are instead reflected in movements in the price; someone who bought a bond for $1,000 in March might sell it for much more or less in August. Because different bond vintages might carry slightly different …

via Economic Crisis http://ift.tt/2bijj4r

Print section

UK Only Article: 
standard article

Issue: 

Nightmare on Main Street

Fly Title: 

Housing in America

Main image: 

20160820_FBD001_0.jpg

Rubric: 

How America accidentally nationalised its mortgage market

THE most dramatic moment of the global financial crisis of the late 2000s was the collapse of Lehman Brothers on September 15th 2008. The point at which the drama became inevitable, though—the crossroads on the way to Thebes—came two years earlier, in the summer of 2006. That August house prices in America, which had been rising almost without interruption for as long as anyone could remember, began to fall—a fall that went on for 31 months (see chart 1). In early 2007 mortgage defaults spiked and a mounting panic gripped Wall Street. The money markets dried up as banks became too scared to lend to each other. The lenders with the largest losses and smallest capital buffers began to topple. Thebes fell to the plague.

Ten years on, and America’s banks have been remade to withstand …

via Economic Crisis http://ift.tt/2aYXjxf

Print section

UK Only Article: 
standard article

Issue: 

Cheating death

Fly Title: 

Fiscal multipliers

Main image: 

20160813_BBD001_0.jpg

Rubric: 

Fiscal stimulus, an idea championed by John Maynard Keynes, has gone in and out of fashion

AT THE height of the euro crisis, with government-bond yields soaring in several southern European countries and defaults looming, the European Central Bank and the healthier members of the currency club fended off disaster by offering bail-outs. But these came with conditions, most notably strict fiscal discipline, intended to put government finances back on a sustainable footing. Some economists argued that painful budget cuts were an unfortunate necessity. Others said that the cuts might well prove counterproductive, by lowering growth and therefore government revenues, leaving the affected countries even poorer and more indebted.
In 2013 economists at the IMF rendered their verdict on these austerity programmes: they had done far more economic damage than …

via Economic Crisis http://ift.tt/2bmpcMy

Print section

UK Only Article: 
standard article

Fly Title: 

Treating the hangover

Main image: 

20160806_brp502_0.jpg

Rubric: 

The bank acts to limit economic damage from Brexit

THE Bank of England had not changed base rates in seven years, but when it finally moved, it did so with a bang. In response to the low growth it expects in the wake of Brexit, it cut rates by a quarter point, to 0.25%, expanded its quantitative easing scheme and introduced a new funding scheme for banks. The move came on August 4th—three prime ministers, two disappointing European football championships and one referendum since the last wiggle in the rate.

The cut, when it finally came, was fully expected by markets and indeed looked overdue. In the days immediately after the Brexit vote, Mark Carney, the governor of the bank, hinted that the MPC would be ready to respond aggressively to the presumed economic blowback. Yet at its July meeting the MPC held fast while awaiting more data. The news since has been almost uniformly bad. Manufacturing, service-sector and construction …

via Economic Crisis http://ift.tt/2axa6b6

IN 2014 the median American worker earned the same each week, in inflation-adjusted terms, as in 2000. Over the intervening period, GDP per person grew by 13%. But during this time, the country lost about a third of its 17m manufacturing jobs, which are often middle-paying, largely because of trade, technology and outsourcing. The global financial crisis battered the labour market. And the economy developed more acute winner-takes-all dynamics, in which the highly skilled thrive but less-educated workers suffer. (The workforce aged slightly, too, which may have affected earnings.) It is unsurprising, then, that wage stagnation has been a recurring theme in this year’s presidential race. Both Hillary Clinton and Donald Trump promise to raise America’s pay. How do they intend to do it?Start with higher minimum wages. Hillary Clinton supports raising the federal minimum wage to $12 an hour, up from today’s $7.25, and supports a higher floor in some cities. Donald Trump has—true to form—changed his position multiple times. His most recent view, which emerged on July 26th, is that the federal minimum wage should rise to $10 an hour. A higher minimum wage would help some workers in the low-paying food services and accommodation industries, but would not much boost the pay of middle-earners. It might aid those middle-income households that contain a low-paid second-earner (so …

via Economic Crisis http://ift.tt/2ayXDy7