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Dallas Federal Reserve President Richard Fisher warned against “Buy America” provisions in a proposed fiscal stimulus law and said it could lead to devastating trade protectionism. “Let me just be blunt. Protectionism is the crack cocaine of economics. It may provide a high. It’s addictive and it leads to economic death,” Fisher told C-Span TV. US lawmakers are debating rules that will insist that public money is spent on US made products, although the White House has already said it will review any Buy America provisions. “We just cannot afford to go down that path and I hope our senators, Democrats and Republicans, will be very sensible on that front,” said Fisher, who is not a voting member of the Fed’s policy-setting committee this year. “Our job is to maintain price stability while we engender the growth and employment of the United States … It is a very difficult balancing act, but it can only be done if it is buttressed by sensible fiscal policy,” Fisher said. The Fed has used unorthodox steps to thaw credit markets and encourage borrowing and consumption. It has cut interest rates almost to zero and has pumped hundreds of billions of dollars into the financial system, more than doubling its balance sheet in the process, to almost US$2T. Fisher said he supported the Fed’s aggressive action but stressed it was crucial that the U.S. central bank have an exit strategy to prevent this massive build-up in liquidity from fueling inflation once US growth recovers.” Right now, the pressures are not on the inflationary side; they’re on the other side. Longer term, we have to be aware of the fact that we could have, as a result of all these initiatives we’ve taken … baked-in inflationary pressures.” We’re very mindful of that and our exit strategy has to work with the fact that we cannot allow inflationary pressures to also take root. This is our job,” Fisher said.

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The world’s major financial businesses are pushing for urgent action to help the flow of funding to their subsidiaries in emerging markets and providing more support to such regions, especially Eastern Europe. The Institute for International Finance, which represents major financial institutions, intends to lobby world leaders ahead of meetings in London involving the Group of 20 finance officials, central bankers and top private bankers, according to Charles Dallara, the institute’s managing director. Among other things, the large banks would like to see the establishment of a new, powerful and global financial regulation committee, which they see as crucial to improving rules, he said. “We have seen very negative consequences from the measures taken since the fall by governments and central banks,” Dallara said by phone from Zurich, where he was attending an institute board meeting. “There has been no sense of coordination.” Referring to the mix of capital injections, deposit guarantee plans, bad asset purchases and nationalizations undertaken by governments since last summer to try to shore up lenders hit by the plunge in asset values, write-downs and the collapse in confidence.

Popularity: unranked [?]

US consumer borrowing fell for a 3rd straight month in December, the longest continuous period in 17 yrs, as households cut spending amid this steep recession and rising job layoffs. The US Federal Reserve said that consumer borrowing dropped at an annual rate of 3.1 % in December. The US$6.6B decline was nearly double what analysts expected, following a US $11B drop in November, the biggest monthly decline on record going back to 1943.

Popularity: unranked [?]

The world’s political and business leaders to meet more often to tackle the current economic problems

The world’s Political and Business leaders agreed at the Davos conference to come together more often to share the task of tackling the all the challenges of sinking consumer demand, to climate change.
Last weekend, the conference ended with no consensus on how to solve the world’s economic problems. The leaders are faced with a lack of confidence in western business, industry, and government, by people around the globe. In fact the it was reported in the Financial Times that the delegates “struggled to agree on a single answer to the crisis.”

It was reported that most executives agreed that more regulation was inevitable, but that the new regulations to be limited to, and designed to give business incentives to invest in the future and to stay focused on the consumer and on sustainable energy issues, and that more “collaboration” is necessary going forward.

Noting the theme of the 2008 forum: “The power of collaborative innovation”, contains much of what is required in theme of the 2009 forum, i.e. the shaping of the world, post financial crisis .
Lee McIntire, chief executive of CH2M Hill, an engineering and construction group, said: “Remember, we’re not always right at this conference. When I was here last year, what I kept thinking was, that if I could help my customers with water, energy and sustainability, I’d do really well profit-wise. . . The world has changed a lot since the last Davos forum.”

Trillions of US$s will have to be spent to bring confidence back into the system, thus bringing forth the question, where will this money come from?

Popularity: 11% [?]

The White House pledged action against irresponsible bonuses for executives at bailed-out Wall Street companies as a Democratic senator unveiled legislation to limit their compensation to $400,000 a year. Sen. Claire McCaskill (Democrat Missouri) proposed a law last week that would prevent executives from making more money than the US president until their companies no longer rely on the US$700B Troubled Asset Relief Program (TARP). “I am mad,” the Democrat from Missouri said. At the White House, Obama’s spokesman said the president’s upcoming plan for financial stability also would address executive compensation and bonuses. Obama last Thursday said recent Wall Street bonuses, given the current situation, were “shameful.” various experts have said the US$700B already allocated to TARP will not be enough. A senior Republican senator, Charles Grassley of Iowa, agreed.

US business group opposes “Buy American” plan

A top USA business group stepped up efforts last week to kill a “Buy American” provision that has angered USAs trading partners, and the White House said it was reviewing its position on the measure. “Some have slammed the USC hamber for opposing ‘Buy American’ provisions, calling our position ‘economic treason,’” Thomas Donohue, president of the U.S. Chamber of Commerce said in a statement. “Try ‘economic patriotism’,” he said. “Such provisions would cost American jobs, trigger retaliation from our trading partners, slow economic recovery by delaying shovel-ready infrastructure projects and cede our leadership role as a long-standing proponent of free and fair trade and global engagement.” The House of Representatives approved the measure last week as part of an US$825B bill to restart the US economy. In the House bill, the “Buy American” measure would require all public works projects funded by the stimulus package to use only US made iron and steel.European steelmakers object, saying that would violate US commitments under the World Trade Organization’s government procurement pact. Other critics say that is less than clear cut and could depend on how the measure was implemented. Several leaders at the World Economic Forum in Davos, Switzerland warned that national moves to counter the economic crisis might lead to protectionism.

Popularity: unranked [?]

China overtook Germany to become the world’s third-largest economy in 2007 after the Chinese authorities revised upwards the figures for growth during that year. China’s National Bureau of Statistics said on Wednesday that the economy expanded by 13% in 2007, a sharp increase from the 11.9% growth rate the authorities had previously stated.

Last week following US Treasury Secretary Tim Geithner’s public confirmation Secretary Geithner answered questions about currency and China, thus placing the Obama administration in the middle of the tension between the United States and the largest international buyer and holder of the USAs debt: China.

The written statement said; “President Obama believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”

“Manipulation?” “Aggressively?” This is strong language. Geithner did not do this on his own authority. These are prepared answers. He cited the new President, not once but twice.

China’s response was fast and direct. China’s commerce ministry said in Beijing that China “has never used so-called currency manipulation to gain benefits in its international trade. Directing unsubstantiated criticism at China on the exchange-rate issue will only help U.S. protectionism and will not help towards a real solution to the issue.”

Are we seeing the world’s largest and third largest economies calling each other names in the middle of a global economic and financial meltdown? Why are we picking a fight with China? The implied question is why are we alluding to one with Japan, whose currency is currently the strongest of the G4 majors? In a world where global finance is mostly in US$s, British pounds, euros, and yen, this is engaging in a dangerous sport that could result in a trade war or a threat to global financial integration.

A Big Q at Davos is how does the Obama administration believe that launching a fight with China is beneficial?

There are those that are saying that the US is now treading in the realm of fiscal policy and national policy. This is not in the realm of the central bank; the Federal Reserve is not the player here. The Fed is doing all it can to unfreeze the financial system and restore it to functionality. If stymied or corrupted by conflicting policy in trade or federal finance, the recession will worsen and the pain will become more severe.

Popularity: unranked [?]