What will happen to Sweden if Latvia devalues? The question must be weighing on the mind of Anders Borg, Swedish finance minister: he has held secret talks with the major Swedish banks, and warned of near economic collapse in Latvia: to date, Swedbank has lent 61 billion kronor to Latvian individuals and businesses; SEB, kr 40 bn; Nordea, kr 30 bn. Latvian loans are mostly denominated in euros, so a devaluation would make repayments more expensive for Latvians. However, proposed legislation in Latvia could limit the sums lenders can collect on mortgages to the current value of properties, which are down two-thirds from their peak. So Swedish lenders may find themselves able to collect only a third of what was initially owed, from borrowers unable to repay even that amount.
The Australian rate increase has helped gold to record highs of more than $1,040. As many investors are perplexed by the strength of the precious metal, BarCap says it could be heading to $1,500.
The April G20 pledge for transparency and a rebalancing of power toward emerging markets may be undermined already. An IMF press release details the proposed appointment of Japanese national Naoyuki Shinohara to Deputy Managing Director, to replace Japanese national Takatoshi Kato.
When the US unemployment rate rises, workers aged 62-69 tend to retire more, lending a short-term boost to the economy but raising longer-term concerns over pension payments. The ageing population will require a rise in the number of workers, so should a tax credit be introduced in the US for businesses that create new jobs? And if jobs are created, will the result be fair? An FT editorial has three proposals for an equitable solution: (1) encourage global engagement by multinationals, to help create the kind of jobs Americans need; (2) focus fiscal redistribution at the correct tax, ideally the flat rate federal insurance contributions act tax for social insurance; (3) overhaul and expand America’s antiquated labour-market-adjustment programmes.
As US FDIC chair Sheila Bair considers limiting secured creditor claims to 80 per cent, FSA proposals to increase UK banks’ holdings of government bonds by roughly a third have raised fears of the competitiveness of the UK banking sector. But more than that, the idea is bad economics, according to Willem Buiter:
We are at risk of ending up with a world in which liquidity provision is privatised and insolvency risk for banks is socialised. This would be the exact opposite of what makes sense: solvency is (or should be) a private good and liquidity is (or should be) a public good
The proposals of the FSA … represent a socially inefficient use of bank capital. Banks should lend to households and to the private non-financial business sector. They should not be forced to make funding easier for the Chancellor of the Exchequer.
And pension funds might start housing industrial metals or chartering super-tankers. Facing a limit on holdings in paper futures contracts, pension funds and other big investors have apparently made enquiries to bankers about the practicality of handling the underlying commodities, including copper, aluminium and gold.