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Market Talk

Economic Growth Boost from Dollar's Decline?
October 25, 2010 | Wall Street Journal
The number of the week is 0.5. This is the potential percentage-point boost in annual U.S. economic growth from the dollar's recent decline. As finance ministers from the Group of 20 meet in South Korea in an effort to avert a currency war, it's easy to see why many are tempted to devalue. Since Aug. 27, when Ben Bernanke signaled the Fed was likely to pump more dollars into the economy, the greenback's value has fallen about 5% against the currencies of U.S. trading partners. Given the historical behavior of the U.S.
Growth Signals Continue -- As Does Subpar Consumer
October 25, 2010 | Wells Fargo
Sustained, if only moderate, growth signals came through last week as housing starts, industrial production and the leading indicators suggest further growth in the economy. Odds of a double-dip will now reflect the political agenda going forward more than the economic indicators. For the consumer, slow income growth, high unemployment rates and deleveraging suggest modest consumer spending going forward. Our outlook remains for subpar growth reflecting a cautious consumer and the end to fiscal stimulus.
The Future of the Dollar
October 22, 2010 | Martin Feldstein in Project Syndicate
The major risk to the sustained role of the dollar is the large and growing US national debt. After varying between 25% and 50% of GDP for the past half-century, the recent budget deficits have caused the debt to reach 62% of GDP. The official non-partisan Congressional Budget Office predicts that the policies that now seem most likely could push the debt to 100% of GDP by the end of the decade. The best protection of the dollar’s future role – and of the health of the US economy – will be policies that reduce the growth of the national debt.
Unraveling the Web of Fed QE
October 22, 2010 | Financial Times
It is hard to find anyone who doubts that the Federal Reserve will unleash another super-sized dose of emergency economic stimulus next month. The bigger unknown is what will happen next. And, by priming financial markets, the US central bank has triggered a wave of speculative trading. Indeed, fund managers, strategists and dealers round the world say the next round of “quantitative easing” by the Fed will be a driver of asset prices. Currencies, equities, commodities and the price of government bonds are likely to be dictated by the actions of a small group of policymakers in Washington.
Stiglitz: We Need More Stimulus, Not Quantitative Easing
October 22, 2010 | Ezra Klein Interview with Joseph Stiglitz
The Fed, and the Fed’s advocates, are falling into the same trap that led us into the crisis in the first place. Their view is that the major lever for economic policy is the interest rate, and if we just get it right, we can steer this. That didn’t work. It forgot about financial fragility and how the banking system operates. They’re thinking the interest rate is a dial you can set, and by setting that dial, you can regulate the economy. In fact, it operates primarily through the banking system, and the banking system is not functioning well.
Housing Data Wrap-Up: October 2010
October 21, 2010 | Wells Fargo
We have once again scaled back our expectations for the housing recovery and now expect housing starts to rise 30 percent in 2011. Our forecast has been scaled back slightly due to the recent increased scrutiny of the foreclosure process. We believe the foreclosure process will be slowed modestly during the latter part of 2010, which will push out the bottoming in home prices expected to occur early next year.
The Fed Debates: Is Unemployment Structural or Cyclical?
October 21, 2010 | Roubini Global Economics
The debate on whether the persistently high unemployment rate is due to structural or cyclical factors has risen to the surface—including within the Federal Open Market Committee. As the Federal Reserve regional presidents assess whether to opt for additional monetary stimulus at the November FOMC meeting, some are considering the possibility that policies to boost aggregate demand may miss the boat.
Consumer Spending Edges Up, Fed Says
October 21, 2010 | Wall Street Journal
Despite high unemployment and persistent weakness in the housing market, consumers are cautiously increasing their spending, helping keep the U.S. economic recovery going. The Federal Reserve said Wednesday that its "beige book" survey of economic conditions in the central bank's 12 districts showed that economic activity "continued to rise, albeit at a modest pace." The report, based on interviews conducted by the Fed's regional banks between September and early October, was in line with recent data showing that the period of deterioration the economy underwent in the summer has ended.
A Better Way to Fix the Foreclosure Process
October 20, 2010 | Economix
The great mortgage morass has elicited constant calls for a publicly enforced foreclosure moratorium. But shutting down the foreclosure process would only delay the inevitable and take yet another step away from the rule of law. However, the mortgage market needs greater rule of law, not less. A foreclosure moratorium moves us in the direction of greater uncertainty and legal chaos. I don’t like the idea of paying greater legal fees anymore than anyone else, but there are times when we need to improve our legal infrastructure, and that means more lawyers’ hours.
Fed's Lockhart: Bring Out the Big Guns
October 20, 2010 | Alphaville
Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday that further easing by the Fed has to be large enough to help boost demand, and purchases of $100 billion of securities a month would be a possibility. “If we’re going to pursue another round of quantitative easing, it has to be a large enough number to make a difference,” Lockhart said in an interview on CNBC.

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