QE expands further: the World Bank group is set to launch a $5.5bn initiative to raise funds to buy distressed assets from banks in emerging and developing markets in a bid to clean up their balance sheets and free up credit flows. This as the Bank of England shifts its position on the effects of QE: it “helps a transition to something more stable; quite possibly a world where banks do less intermediating between savers and investors.” With pleasing circularity, banks’ need for additional capital will help out their respective governments, as part of the money will be government bonds. QE hasn’t helped as expected (i.e. money flowing from government, through banks, to the man on the street): this, as research finds that fiscal multipliers are much weaker in countries with high debt, low income, flexible exchange rates and greater international openness.
Support for the IMF forecast that banks have only realised half their losses: the Inter-American Development Bank, the biggest source of development finance for Latin America, will have to slash lending to the region by 60 per cent unless its members agree to stump up more capital. The IMF also said that Britain’s recovery is most vulnerable to a shortage of credit.
British consumers may be wise to deleverage as London’s competitiveness looks set to shift. Business rates in the capital are set to rise by 40 per cent; there are signs of a hedge fund exodus from London to New York; and there may be a flight of talent to the US, which wants to interpret banker pay rules flexibly. Perhaps unsurprising that the US public thinks Obama has helped the banks more than the public.
But is the US administration helping or harming industry? The solar panel industry apparently faces payments of up to $70m on the import of solar panels because they did not realise a duty was imposed eight months ago. Raising prices to cover the duty on already imported goods will be hard in an industry competing with Chinese production. But China plans to cut back production of solar panels, as well as production in traditional heavy industries, fearing overcapacity as manufacturing expands for seventh straight month.
Rumours of devaluation abound. There is strong demand for Venezuela’s $3bn inflation-targeted sovereign debt issue – a rare opportunity for Venezuelans to buy foreign currency, which is much more stable than the country’s own overvalued bolivar, fixed at 2.15 to the dollar (- trading at 7.0 to the dollar on the black market; Venezuelan inflation is high for the region at 26.7 per cent). This as the Swiss central bank is thought to have intervened to weaken its currency to address the issue of deflation.
In other currency news, Poland is seeking to raise about $500m from issuing a second round of five-year yen-denominated bonds to sell in Japan during October. Poland has already issued bonds this year in the euro, dollar and swiss francs, leaving it exposed to fluctuations in the exchange rate and fuelling debate about the world’s reserve currencies. But a defence of the primacy of the dollar as a reserve currency argues that it is relative performance that matters, and the dollar is not underperforming compared, for example, to the euro.
And has the global financial crisis had a good – if expensive – outcome of a baby boom? Research shows that married women tend to conceive when unemployment is higher, and there is anecdotal evidence of more births in Iceland, almost exactly nine months after the collapse of the Icelandic banks.