IMF says the “special cases” of India, China and Australia are recovering rapidly and that tightening monetary policy will be needed to combat inflationary pressures. China’s confidence is signified by launch of trade investigation into US car subsidies. But in India, a stark reminder of the disconnect between economic policy and the real economy: the world’s second largest producer of rice has scrapped an import duty on the foodstuff as it deploys emergency measures following severe drought.
In a short, round-the-world sweep, “emerging economies” are doing well: a Polish company has raised €1.4bn, €400m more than first expected, at Europe’s largest IPO this year; Tunisia is benefiting unexpectedly as European manufacturers move production to the country; Malaysia is opening its protected car industry to foreign producers, and offering incentives for production of green cars; Tanzanian farmers are encouraged to move from subsistence to commercial farming in a $300m German-funded UN programme that aims to give the farmers market access; Gulf companies show signs of recovery and Dubai returns to the world of fixed income.
Less good news for more “developed” economies: Spain must refund some money and abolish a corporate tax break that allowed a write-off of some acquisition costs; the break encouraged a lot of M&A activity in the country.
As US house sales drop 3.6 per cent in September, the likely continuation of the home tax credit continues to be criticised. S&P issues a warning on US mortgage insurers as mortgage applications decrease. Not to worry, though: the Fed has released a working paper on the Home Affordable Modification Plan (Hamp), which intends to make mortgages more affordable by reducing interest payments, with the cost borne equally by investors and government. The authors do point out that the plan might not help those in negative equity or those who’d just lost their jobs – those who would presumably need the most assistance. The idea behind the scheme is that loan modification is cheaper than foreclosure.
The Hamp is just one of a sheaf of proposed new laws in the US. Tax dodgers should beware. So too should those wanting to access their retirement savings early. Another draft law proposes creditors keep 10 per cent or more of the credit risk of loans they transfer or sell on and a jobs tax credit is being considered to reduce unemployment – a conservative assumption is that the cost per job per year under the plan would be $40,000 net of tax receipts back to the government. If toxic assets were hard to value, how do we value the cost of a foreclosure or an unemployed person?
Venture capital returns are lagging behind equity returns and – perhaps like banks – VC firms should be smaller and more numerous. But then equity appears overvalued (depending how we adjust for QE) and the easy pickings have gone.
And two new debates:(1) To increase lending, should we raise interest rates?(2) If we want to move toward renewable energy, should we focus more attention on energy storage?