Economic news digest

Britain’s financial regulator enters the raging international debate about how to prevent a recurrence of last year’s financial crisis. It’s a more nuanced, if long-winded, approach than that of Mervyn King, the Bank of England governor, says FT Alphaville. The governor’s call for Britain’s biggest banks to be broken up echoes arguments made by Paul Volcker: it marks the beginning of a new stage of real reform, says a former IMF chief economist. An FT commentator says that not only should Goldman Sachs be structured so that it is allowed to fail: bonuses for senior staff should be locked up until they retire.

Mervyn King’s speech prompts a rebuke from the UK’s prime minister and chancellor; the market’s reaction suggests there is little chance he will prevail, says Lex. An FT editorial argues that there is a simpler route to banking reform: requiring bigger institutions to hold more capital. Holding debt that converts into equity when certain triggers are met may be part of the answer, a Fed governor says. One blogger complains that nothing even remotely approaches a realistic discussion on how to deal with “too big to fail” banks, while another commentator says it will take an even bigger disaster than the recent crisis to bring real change to Wall Street.

As China’s recovery accelerated in the third quarter, optimism has returned for China’s job seekers and Japan, its biggest trading partner, saw a boost to its exports volume. But Lex worries about a risk of an investment-led slump, while a top Chinese banker calls for an urgent tightening of monetary policy to stop the stimulus measures creating new asset bubbles.

The British Chancellor hints at more fiscal stimulus, noting that the recovery is not yet firmly established. In the US, the Fed reports a weak rebound. The outlook for unemployment looks bad, say economists who worry that job creation by small businesses will be hit by the shortage of bank loans. High unemployment will put downward pressure on US inflation: how much will a weaker dollar and higher commodity prices pull in the other direction? A blogger worries about the dubious quality of some of the assets on the Fed’s balance sheet, while another ponders the significance of central bankers’ metaphors: could a shift from death to dancing be a telling insight into their changing mood?

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