Overwhelming

The world has shifted its gaze from Japan. Western powers have launched air strikes on Libya. The price of oil is set to rise. India and China are still tightening policy. I do not think they are done yet even though many are predicting an end to the tightening in China soon. Some are calling the tightening (in India, for example) plain wrong. I do not agree with that, given what happened in Japan and what is happening in the Middle East and the impact both would have on the price of crude oil. India seems to be facing many challenges – domestic and global , political and economic – at the same time. At some level, it is all overwhelming.

Some good readings:

This raises perhaps the most troublesome concern of all: with a post-crisis world getting hit by one shock after another, and with central banks having no latitude to cut interest rates, it is not hard to envision a scenario of open-ended monetary expansion that ends in tears. The dreaded inflationary endgame suddenly looms as a very real possibility.

The significance of the earthquake and tsunami of 2011 is not the relatively low magnitude of Japan’s direct impact on the broader global economy. The more meaningful message is how these shocks box the rest of us into an even tighter corner.

[Stephen Roach says these in his piece over at ‘Project Syndicate. Very well said. Captures my thoughts well].

Buttonwood (‘The Economist’) gets it right on Bernanke and quantitative easing:

Note that Mr Bernanke seems to treat both lower and higher bond yields as evidence for the success of the policy. And note also how his first two references are to the recovery in the stockmarket. His big speech on QE, back in January 2009, did not mention share prices at all.

If it is vital to maintain stockmarket confidence, then equity jitters—whether caused by Japanese earthquakes, European fiscal problems or something else—are a reason to keep QE going. And the bigger the programme, the harder it is to unwind. Mr Gross is right to worry. [More here]

James Kwak has this lovely piece at Baseline Scenario on American banks raising their dividends. Readers should note Prof. Anat Admati’s relentless campaign on banking reforms. Her letter co-signed by 16 other economists on the issues of banks paying dividends can be found here.

This blog post by Emanuel Derman is a gem (ht: Dr. Vidyasagar).


Originally published at The Gold Standard and reproduced here with permission.