本文发表在 rolia.net 枫下论坛U.S. stuck with economic ills - Victory won't correct woes
Hope that a quick victory in Iraq would lift the pall of gloom over the global economy has officially been replaced with anxiety over the economy's more fundamental problems.
No victory, analysts worry, can fix the fact the United States is stuck with a yawning output gap, an anemic labour market, gargantuan current-account and budget deficits, businesses unwilling to spend and flagging consumers.
No victory will stop prices falling in Japan or make the German economy more competitive.
The time has come, some analysts say, to give the global economy some additional help.
Goldman Sachs went so far as to issue a detailed prescription to policymakers last week to help ward off a global recession.
The plan includes an increase in the value of the Chinese currency -- something that is increasingly being touted as a necessary step for global convalescence.
The Wall Street investment bank says the global economy is likely to post a modest expansion of around 2.5% this year -- the third consecutive year of below-trend growth.
"To boost it closer to its potential of 3.5% and avoid the risk of global recession, we need more stimulative economic policies from the Group of Seven and China," Jim O'Neill, head of global economic research for Goldman, wrote in a special report.
For Goldman, it's all about financial conditions -- that combination of short- and long-term interest rates, exchange rates and equity markets that either supports or suppresses investment and growth.
The historical record shows loose financial conditions mean strong real GDP growth.
But thanks to continued weakness in world equity markets and unco-operative currencies, global financial conditions have moved close to their tightest levels since 1999 -- even after central bankers have slashed interest rates to 40-year lows.
The rise of the euro and the yen against the U.S. dollar has only led to tighter conditions in the eurozone and Japan but, unfortunately, has done little for the United States, Goldman said.
The U.S. Federal Reserve's broad trade-weighted dollar index -- which includes the stable Chinese renminbi -- has dropped only about 5.5% from its peak, equating to only 25 basis points of easing in overall financial conditions.
A strong rally in the equity markets would change the picture dramatically, Goldman concedes. Markets have risen about 10% since the United States said it was moving forward with its campaign against Iraq. Goldman says permanent gains of 30% to 40% will be needed to loosen financial conditions enough to make a difference.
But what if the market doesn't hold its gains?
Goldman suggests a triple dose of policy initiatives: the United States should slash short-term rates to zero; force triple-B rated corporate bond yields to drop 100 basis points through Fed purchases; and encourage a further 10% drop in the the trade-weighted dollar.
"Each of these three goals are readily achievable if the U.S. authorities become focused and targeted enough," Mr. O'Neill said.
The eurozone would have to do its part too. A 10% drop in the U.S. dollar would require the European Central Bank to offset a rising euro with a hefty chop in interest rates.
With Japanese interest rates already near zero, authorities don't have much leeway there but Japan would be helped by a recovery in Europe and the United States.
Finally, with its economy growing at about 8%, China could easily swallow a stronger currency, Goldman said. A stronger renminbi would take some of the heat off other exporting nations, particularly Japan.
The renminbi is currently kept in a narrow plus or minus 0.3% band of 8.28 to the U.S. dollar through capital controls and heavy intervention by Chinese central bankers on foreign exchange markets.
Goldman's prescription sounds complicated and would require some major co-operation between central bankers.
Jeff Rubin, chief economist at CIBC World Markets, said the renminbi would have to rise dramatically to offset manufacturing labour costs that are one-thirtieth of those in North America.
"Right now, U.S. industry selling prices are falling in every industry in which Chinese import competition is making significant inroads," he said. "You'd need a big-time appreciation to stop that."
Stephen Poloz, chief economist at Export Development Canada, says a revaluation of any significance would only lead to further deflation in China and risks choking off one-third of world growth this year. "Forcing China to boost its currency would inject even more deflation into the Chinese economy, and would repeat the same mistake made in the late 1980s, when the major economies talked Japan into engineering a 50% increase in their currency," he said. "The yen appreciation paved the way for over a decade [so far] of sluggish Japanese growth and deflation."
Mr. Poloz said as China gradually exhausts its supply of surplus labour, inflationary pressures will emerge. That will be the time for China to let its currency rise.
Mr. Rubin, meanwhile, is relying on tried and trusted interest rate cuts to pull the United States out of its slump. He sees another 50 basis points off the federal funds target rate by June, bringing it down to 0.75%.
This will keep the consumer ticking over a little while yet, while bond markets do some more remedial work and ease financial conditions further, he said.
A stock market rally or more rate cuts -- it's probably going to be one or the other.更多精彩文章及讨论，请光临枫下论坛 rolia.net
Hope that a quick victory in Iraq would lift the pall of gloom over the global economy has officially been replaced with anxiety over the economy's more fundamental problems.
No victory, analysts worry, can fix the fact the United States is stuck with a yawning output gap, an anemic labour market, gargantuan current-account and budget deficits, businesses unwilling to spend and flagging consumers.
No victory will stop prices falling in Japan or make the German economy more competitive.
The time has come, some analysts say, to give the global economy some additional help.
Goldman Sachs went so far as to issue a detailed prescription to policymakers last week to help ward off a global recession.
The plan includes an increase in the value of the Chinese currency -- something that is increasingly being touted as a necessary step for global convalescence.
The Wall Street investment bank says the global economy is likely to post a modest expansion of around 2.5% this year -- the third consecutive year of below-trend growth.
"To boost it closer to its potential of 3.5% and avoid the risk of global recession, we need more stimulative economic policies from the Group of Seven and China," Jim O'Neill, head of global economic research for Goldman, wrote in a special report.
For Goldman, it's all about financial conditions -- that combination of short- and long-term interest rates, exchange rates and equity markets that either supports or suppresses investment and growth.
The historical record shows loose financial conditions mean strong real GDP growth.
But thanks to continued weakness in world equity markets and unco-operative currencies, global financial conditions have moved close to their tightest levels since 1999 -- even after central bankers have slashed interest rates to 40-year lows.
The rise of the euro and the yen against the U.S. dollar has only led to tighter conditions in the eurozone and Japan but, unfortunately, has done little for the United States, Goldman said.
The U.S. Federal Reserve's broad trade-weighted dollar index -- which includes the stable Chinese renminbi -- has dropped only about 5.5% from its peak, equating to only 25 basis points of easing in overall financial conditions.
A strong rally in the equity markets would change the picture dramatically, Goldman concedes. Markets have risen about 10% since the United States said it was moving forward with its campaign against Iraq. Goldman says permanent gains of 30% to 40% will be needed to loosen financial conditions enough to make a difference.
But what if the market doesn't hold its gains?
Goldman suggests a triple dose of policy initiatives: the United States should slash short-term rates to zero; force triple-B rated corporate bond yields to drop 100 basis points through Fed purchases; and encourage a further 10% drop in the the trade-weighted dollar.
"Each of these three goals are readily achievable if the U.S. authorities become focused and targeted enough," Mr. O'Neill said.
The eurozone would have to do its part too. A 10% drop in the U.S. dollar would require the European Central Bank to offset a rising euro with a hefty chop in interest rates.
With Japanese interest rates already near zero, authorities don't have much leeway there but Japan would be helped by a recovery in Europe and the United States.
Finally, with its economy growing at about 8%, China could easily swallow a stronger currency, Goldman said. A stronger renminbi would take some of the heat off other exporting nations, particularly Japan.
The renminbi is currently kept in a narrow plus or minus 0.3% band of 8.28 to the U.S. dollar through capital controls and heavy intervention by Chinese central bankers on foreign exchange markets.
Goldman's prescription sounds complicated and would require some major co-operation between central bankers.
Jeff Rubin, chief economist at CIBC World Markets, said the renminbi would have to rise dramatically to offset manufacturing labour costs that are one-thirtieth of those in North America.
"Right now, U.S. industry selling prices are falling in every industry in which Chinese import competition is making significant inroads," he said. "You'd need a big-time appreciation to stop that."
Stephen Poloz, chief economist at Export Development Canada, says a revaluation of any significance would only lead to further deflation in China and risks choking off one-third of world growth this year. "Forcing China to boost its currency would inject even more deflation into the Chinese economy, and would repeat the same mistake made in the late 1980s, when the major economies talked Japan into engineering a 50% increase in their currency," he said. "The yen appreciation paved the way for over a decade [so far] of sluggish Japanese growth and deflation."
Mr. Poloz said as China gradually exhausts its supply of surplus labour, inflationary pressures will emerge. That will be the time for China to let its currency rise.
Mr. Rubin, meanwhile, is relying on tried and trusted interest rate cuts to pull the United States out of its slump. He sees another 50 basis points off the federal funds target rate by June, bringing it down to 0.75%.
This will keep the consumer ticking over a little while yet, while bond markets do some more remedial work and ease financial conditions further, he said.
A stock market rally or more rate cuts -- it's probably going to be one or the other.更多精彩文章及讨论，请光临枫下论坛 rolia.net