Unemployment in the UK is slowing and the Bank of England is forecasting an improving outlook for growth. But it’s not all good news: ratings agency Fitch has warned that the UK is the likeliest of all big economies to lose its AAA rating.
Chinese industrial output has increased at the fastest rate in 18 months, but fears of excess capacity may be groundless as the Economist points out that there is no precedent of development at this pace with which to compare the data. Asset bubbles do have precedents, however, and there are continuing concerns about the Chinese property market.
China is not alone. “A crisis of unprecedented proportions is approaching” in American commercial real estate. Lockhart’s speech revealed fears for the sector, and FDIC chief Sheila Bair has said loan-related bank failures have not yet peaked: they will peak next year. In other property news, Calculated Risk blog asks why key loan modification numbers have not been released, and bond insurer Ambac has warned of possible bankruptcy.
But who will be looking after this bankruptcy, should it happen? There are at least two options on the table: the Treasury suggestion (which gives more power to the Fed) and Chris Dodd’s recent proposal (which does not). In essence, Dodd’s suggestion would (1) create a single national regulator from the current four; (2) create a consumer financial protection body; (3) create an agency for financial stability. The latter would be in charge of identifying and responding to risks, including writing regulation.
Krishna Guha and Felix Salmon appear to disagree on the merits of the bill. In fact, their views are quite similar. Krishna says that removing the Fed’s banking supervision role would strip the central bank of a vital information flow, and that “an economy with a systemic risk or macroprudential regulator and a separate central bank would be like a car with two drivers”. Felix also believes that monitoring systemic risk should stay with the Fed, and that it is dangerous to ban the Fed from bailing out failing institution. He is, however, keen on items 1 and 2.
There is further regulatory opinion from John Kay. A summary: We can create wealth or appropriate the wealth created by others. Where the latter practice is legal, it is called rent-seeking. Rent-seeking, which has risen sharply in recent years by corporations, is found wherever there is a concentration of economic power. New wealth requires innovation, which in turn requires new entry to market. This means it is essential to resist the concentration of economic power. A stance which is pro-business must be distinguished from a stance which is pro-market. The essence of a free market economy is not that the government does not control it. It is that nobody does.
And why are we not more excited about a rock that absorbs CO2? The climate debate should move on, and invest in the potential of peridotite.