joseph-stiglitz

Olivier Blanchard: Rewriting the Macroeconomists’ Playbook in the Wake of the Crisis

by on March 4, 2011

Huffington Post…

Before the global economic crisis, mainstream macroeconomists had largely converged on a framework for the conduct of macroeconomic policy. The framework was elegant, and conceptually simple. Caricaturing just a bit, it went like this: The essential goal of monetary policy was low and stable inflation. The best way to achieve it was to follow an interest rate rule. If designed right, the rule was not only credible, but delivered stable inflation and ensured that output was as close as it could be to its potential. This was achieved by setting the key policy rate that then affected the term structure of interest rates and asset prices, and then to aggregate demand. One could safely ignore most of the details of financial intermediation. Financial regulation was outside the macroeconomic policy framework. On currencies, countries could set an inflation target and float, or instead choose a hard currency peg or join common currency areas. In general, in a world in which central banks followed inflation targeting, there was no particular reason to worry about the level of the exchange rate or the current account balance. Certainly, attempting to control exchange rates through capital controls was undesirable. And multilateral coordination was not required. Fiscal policy had a limited role at best, at least in the short run. With the right use of monetary policy, it was not really needed. Automatic stabilizers, such as unemployment benefits, would kick in during downturns, but discretionary policy was more likely to be misused than used well. The focus had to be on the medium run, and on fiscal sustainability. These were simple principles, and they seemed to work. From the early 1980s on, macroeconomic fluctuations were increasingly muted, and the period became known as the “Great Moderation”. Then the crisis came. If nothing else, it forces us to do a wholesale reexamination of those principles . Here are some ideas to guide the conversation: Economic imbalances: Achieving stable inflation is good, but we can now see it does not guarantee stable output. Before the crisis, steady output growth and stable inflation hid growing imbalances in the composition of output and in the balance sheets of households, firms, and financial institutions, as well as growing misalignments of asset prices. These imbalances ended up being very costly. The question now is how best to address such imbalances. Should we think of macroeconomic policy as having three legs–monetary, fiscal, and financial–each with separate authorities? Or should we think of extending both the mandate and the set of tools of monetary policy to cover both output and financial stability? And, if so, what tools do we have and how do we use them? Interest rates: Early in the crisis, central banks decreased policy rates, until they reached their lower bound–namely zero. From then on, interest rate policy could not be used to prop up aggregate demand, and central banks turned to both credit and quantitative easing. This raises many questions. First, would it have helped if nominal interest rates had been higher to start, giving more margin of maneuver to central banks? Put another way, should we revisit the low inflation targets, and the associated low average nominal interest rates, that central banks had adopted pre crisis? Second, are credit and quantitative easing policies just for exceptional times, or can they work and do they make sense in more tranquil times? Fiscal policy: When interest rates reached the lower bound, fiscal policy came back to the fore. Going beyond automatic stabilizers, most countries adopted fiscal stimulus programs to increase aggregate demand, but debates about the size and even the sign of multipliers associated with different fiscal measures made clear how little work had been done on fiscal policy, and how much needed to be done. The large increase in debt since the beginning of the crisis (an increase which is overwhelmingly due to the loss of output and the implied loss in revenues rather than to the fiscal stimulus programs themselves) also raises many issues. Even though it will be a long time before debt levels are reduced sufficiently, what levels of public debt should countries aim for? Are old rules of thumb, such as trying to keep the debt to GDP ratio below 60 percent in advanced countries, still reliable? Capital flows: The crisis triggered very large capital flows. Often, these flows had little to do with conditions in the country that they left, and more to do with the need by foreign financial institutions to repatriate funds in a hurry. More recently, capital has gone back to emerging market countries, sometimes with such force as to trigger complaints of ‘currency wars,’ leading to intense discussions about capital account management. How should countries react to large capital inflows? If they want to mute their effect for example, when should they build up reserves and when should they use capital controls? Should each country be left to do what it feels is best for itself, or should there be international rules of good behavior? International monetary system: Talking about international rules of good behavior, the crisis raises both old and new questions about the international monetary system. Should benign neglect determine the coordination of monetary policies across countries? Should there be international rules not only with respect to capital controls, but with respect to reserve management, and monetary policy in general? Should countries be free to run the current account deficits or surpluses they want, or should there be restrictions on what they should do? Before the crisis, a number of emerging market countries had relied on low exchange rates and export-led growth. As these countries get larger and the competitiveness effect on other countries becomes more visible, does export-led growth remain an acceptable strategy for a multilateral point of view? Safety net: In a different dimension, the great recession has showed that not only emerging countries, but also advanced countries, can suffer sudden stops. During the crisis, foreign liquidity was provided mostly through swap lines offered by the major central banks. Since then, the IMF has created two new liquidity windows. Is the problem solved, or is more needed? These questions, and many more, will keep us busy for years to come. To take stock of the questions, and start exploring the answers, David Romer, Michael Spence, Joseph Stiglitz, and I have organized a conference on these issues. This conference will take place on March 7 and 8 at the IMF. While the conference is by invitation only due to space constraints, it will be webcast live. To follow it, and get more information please visit the conference website . After the conference, we shall open a discussion site, and continue the discussion online. I hope many can join us and contribute as we continue to search for new approaches to the world’s changing macroeconomic and growth challenges. From iMFdirect blog

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Olivier Blanchard: Rewriting the Macroeconomists’ Playbook in the Wake of the Crisis

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Stiglitz: Expect 2 Million U.S. Foreclosures This Year

by on February 9, 2011

Nobel Prize-winning economist Joseph Stiglitz said another 2 million foreclosures are expected in the U.S. this year, adding to the 7 million that have occurred since the economic crisis of 2008. “U.S. foreclosures are continuing apace,” Stiglitz told a conference near Port Louis, the capital of Mauritius, today. “A quarter of U.S. homes are underwater.”

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Stiglitz: Expect 2 Million U.S. Foreclosures This Year

Steve Clemons: Lawrence Summers Needs to Retool his Wall Street Tilt

November 1, 2010

When Senator Jeff Bingaman was working diligently in the mid-1990s to get not only the White House but also Republican and Democratic Senators and House Members to focus on the large scale, structural deficits that were building between the United States on one hand and Japan and China on the other, he tasked his team with smartening up on what leading economists of the day were saying about global imbalances but also about the dynamics of a turbo-charged, stock churning equities market. Not only were policy makers on the whole not paying attention to trade and current account deficits, they were also ignoring the impact of hot, impatient money on the domestic sector. Bingaman, via his staff including yours truly and his then chief of staff Patrick von Bargen, began quoting economists Joseph Stiglitz and Lawrence Summers on their groundbreaking, compelling work on financial equities transaction taxes — minor taxes on major equities churning that could both help promote longer term decisions in the equities markets but which also could generate revenue to fund portable educational benefits for workers and investments in high tech R&D. Stiglitz and Summers both felt that such taxes would not only not hurt markets but could help prevent excesses. I remember getting a phone call from an Assistant Secretary of Treasury on some of Jeff Bingaman’s quotes of then Deputy Secretary of the Treasury Lawrence Summers and was told “Dr. Summers changed his mind on those excise taxes when he joined the Treasury Department.” Lawrence Summers has largely been a Wall Street-tilting force ever since. And today in the Washington Post , Summers is again referenced as now opposing taxes on various financial transactions as a way to possibly generate revenue to work on global climate change challenges. One friend wrote to me and said “once bought by the financial industry, always bought.” The report : A new dispute could flare up at the end of the week, when an international task force charged with showing how rich nations can mobilize $100 billion by 2020 for climate assistance will outline options for generating that money. Lawrence H. Summers, who chairs the White House National Economic Council, has served in the group and questioned some of the proposals, including imposing a new fee on some financial transactions. Perhaps there is more to this story than we are getting — and perhaps the particular framework for taxation in this case is a bad one. But what we aren’t getting to see much of is the Lawrence Summers who recognizes that reforms and change are needed in an economy that over-kowtows to the financial sector. Summers, no matter what some critics say, is a formidable intellectual heavyweight on economics policy — and will continue to be, long after he leaves the White House. However, he needs to retool. Films like Charles Ferguson’s Inside Job and important chronicles of DC-NY financial sector structural corruption with Summers as a lead protagonist like Michael Hirsh’s Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street are going to define him if he doesn’t begin to recognize what George Soros, Joseph Stiglitz, Nouriel Roubini, and others have long understood — that this country will be ruined by further obsequiousness to “market fundamentalism.” Summers needs to get on the side where he can get back to what he believed ‘before’ he joined the Department of Treasury. — Steve Clemons publishes the popular political blog, The Washington Note . Clemons can be followed on Twitter @SCClemons

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Robert Lenzner: The Ten Most Serious Problems Facing The Stock Market and Economy

October 27, 2010

The Ten Most Serious Problems Facing The Stock Market and Economy Oct. 26 2010 – 1:19 pm | 609 views | 1 recommendation | 2 comments By ROBERT LENZNER Investor Alert; Here are the major problems you will face in the next ten years of ticklish transition from crisis to attempted normalcy. Call it the WALL OF WORRIES! Excerpted from The Economist Conference on Fixing Finance. And remember; not all problems have quick solutions, like all of the ones below. 1. Economic growth in the US unlikely to pass 2% for the next 3 to 5 years- and maybe even up to 10 years. There can be no stimulus program in light of the expected Republican victory in November. “This is going to be a period of pain,” said Joseph Stiglitz, Columbia University professor. The bottom line: unemployment will plague as because there is a 1% annual growth in labor force- but only 2% economic growth. 2. QE2 or Quantitative Easing, the expectation of pouring another trillion dollars into the banking system is seen likely to only trigger inflation, but create no new jobs. Proof positive; yesterday, the Treasury sold inflation protection bonds at negative interest rates- a major sign that investors expect treasuries to drop in price as inflation rises. 3. Expect a new bubble in sovereign debt. The sign; Mexico is ready to sell a 100 year duration bond at 6%. A very risky investment in a nation rent by a civil war with the drug lords, in the opinion of Wilbur Ross, Jr., chairman of W L Ross & Co., one of the nation’s most successful investors. 4. Large corporations are only part of private sector benefiting from cutting overhead(reducing employee count) and bringing more revenues to bottom line. 5. The Fed will be sitting on its $2 trillion in cash for a long time without any practical use for it. There is very little demand for bank loans from the private sector. Adding reserves to the banks wont accomplish any more economic activity. 6. The economics profession let the world down because it had the tools that were politically acceptable. 7. No solution in sight for the housing market. Wilbur Ross suggested a plan to reduce the amount of principal owed on homes to below the mortgage debt still owed, and then let the parties share in whatever upside can be earned on the homes. But, no plausible mechanism to get this accomplished. 8. The shadow banking system trying to escape from the regulators. Hedge fund industry official pleaded with Deputy Treasury Secretary Neil Wolin to allow hedge funds to regulate themselves. Wolin was far too polite and non-0commital. Since hedge funds gobbling up all the proprietary traders from big Wall St. investment banks. 9. China and India are graduating 7 times more engineers a year than the U.S. 10. We are papering over the structural problems in finance with bubbles. There is still great uncertainty about the efficacy of regulation by Dodd-Frank and Basel 3. Final note; at yesterday’s session, Vikram Pandit, CEO of Citigroup, gave what many believe was a most bizarre performance. For several minutes he went on at length about how worried Citi was about the ability of poor Americans to be able to borrow money in light of Dodd-Frank, the finance reform bill. Yet, he went overboard in his adamant support of the Consumer Finance part of the bill, seeming to separate himself and Citi from the opposition to the bill from other large banks, namely JP Morgan.

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Video: Stiglitz Says Recovery to Take Longer Without Stimulus: Video

October 22, 2010

Oct. 22 (Bloomberg) — Joseph Stiglitz, the Nobel Prize-winning economist and Columbia University professor, talks about the outlook for the U.S. economy. Stiglitz says the U.S. recovery will take longer without further fiscal stimulus. He speaks with Carol Massar on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: Ireland Has Long-Term Sovereign Credit Rating Cut by S&P: Video

August 24, 2010

Aug. 24 (Bloomberg) — Bloomberg’s Matt Miller, Dominic Chu and Julie Hyman discuss today’s decision by Standard and Poor’s to cut Ireland’s long-term sovereign credit rating to AA- from AA. Nobel Prize-winning economist Joseph Stiglitz told Dublin-based RTE Radio in an interview broadcast today that the European economy is at risk of sliding back into a recession as governments cut spending to reduce their budget deficits. They talk on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: Stiglitz Says Not Worried About a China `Hard Landing’: Video

August 6, 2010

Aug. 6 (Bloomberg) — Nobel Prize-winning economist Joseph Stiglitz talked with Bloomberg’s Rishaad Salamat yesterday about the outlook for China’s economy. China’s economic growth eased to 10.3 percent in the second quarter after the government succeeded in tempering credit expansion, investment spending and property speculation. Stiglitz also discussed the mainland’s currency policy. Bloomberg’s Susan Li also speaks. (Excerpt. Source: Bloomberg)

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Joseph Stiglitz: Banks ‘Gutted’ Almost Every Meaningful Provision In The Financial Reform Bill

July 28, 2010

Joseph Stiglitz is a Nobel laureate, a former chief economist of the World Bank and he chaired Bill Clinton’s presidential council of economic advisors. His latest book, ‘Freefall’, is a worrying critique of the root causes of the Global Financial Crisis, and despite President Obama’s recent banking reforms, he says it could happen again. He’s also predicting another US economic slowdown.

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Mary Bottari: A Tax Day Protest We Can All Get Behind

April 9, 2010

If you, like me, will be scrambling to complete your taxes this weekend, and feeling a bit disgruntled about being taxed more than the big boys on Wall Street, Jobs with Justice has a great plan on how to work out your angst. Jobs with Justice , the feisty union representing workers in 25 states, is calling for a Tax Wall Street Day of Action on April 15th. “Big banks helped plunge the nation into the worst financial crisis since the Great Depression. They lobbied for deregulation and corporate tax breaks, then went on a reckless gambling spree, creating complicated, risky mechanisms to make profits off of destabilizing the economy. They have tightened lending for consumers and small business, and they have refused to modify home mortgages. Millions of Americans have lost their homes, their jobs and their retirement savings,” says a Jobs with Justice flyer. Indeed, Americans have lost $14 trillion in wages, savings and housing wealth since the start of the financial crisis. According to the Center for Media and Democracy’s Wall Street Bailout Cost Table , we are still $2 trillion in the hole for the bailout, plus we read with astonishment that the bailout enabled Wall Street to pay out $140 billion in bonuses in 2009 to top executives. With tax lawyers and accountants up the wazoo, big bankers know how to dodge taxes on their earnings and bonuses leaving middle class Americans holding the bag. The solution? It’s time to take it back. Jobs with Justice, SEIU, AFL-CIO and the broad coalition Americans for Financial Reform are all calling for a teeny tiny Bankster tax, 0.20 percent, on the sale or purchase of a share of stock, bonds or derivatives would help us to recoup our losses and put the money to work rebuilding America. The idea is supported by Nobel Prize-winning economist Joseph Stiglitz as a way of dampening high-speed, high-stakes gambling on Wall Street and raising a steady stream of revenue. It was even touted at one time by President Obama’s chief economic adviser Larry Summers. A bill has been introduced in Congress recently by Rep. Peter DeFazio (D-Oregon) and Senator Tom Harkin (D-Iowa) that uses the revenue to create jobs and reduce the deficit. “Champagne, caviar, tell us where our good jobs are!” You too can join the fun. Take action on April 15th at a local branch of a big national (bailed out) bank like Bank of America, Citigroup, JP Morgan Chase, Wells Fargo or Goldman Sachs. Get an easy to use action kit and learn more by visiting the Jobs with Justice site. “Hey Wall Street, its not fair, it’s time for you to pay your share!”

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Stiglitz Urges Second Round of Stimulus to Avert a `Double-Dip’ Recession

January 20, 2010

By Carol Massar and Joshua Zumbrun Jan. 20 (Bloomberg) — Columbia University professor Joseph Stiglitz , a Nobel Prize-winning economist, said the U.S. should inject a second round of stimulus spending into the economy to avert a “double-dip” recession. It will be “2012 or 2013 at the earliest that we will be back to normality,” Stiglitz said in an interview today on Bloomberg Television. “This is a scenario that is putting us a little better but not much better than the Japanese malaise.” Stiglitz said state governments face a shortfall of $200 billion per year in tax revenue that stimulus spending should fill. Other priorities should be writing down principal on underwater mortgages and passing new financial regulation legislation, which Stiglitz said would be difficult to accomplish. Stiglitz’s concern contrasts with Warren Buffett ’s outlook. Buffett said today on Bloomberg Television, “I do not know when things will get better. I have never been more optimistic about the future of the United States and the world.” The finance industry “did not allocate financial capital well but boy did they use their political capital well,” Stiglitz said. “They bought deregulation, they got bailouts that were on very favorable terms and now they’re being quite successful in fighting the restructuring of the regulatory framework.” To contact the reporter on this story: Carol Massar in New York at cmassar@bloomberg.net ; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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Stiglitz Says Financial Crisis Exposed `Major Flaws’ in Economics Theories

January 2, 2010

By Scott Lanman Jan. 2 (Bloomberg) — Joseph Stiglitz , the Nobel Prize- winning economist and Columbia University professor, said economists are among those at fault for the financial crisis, which exposed “major flaws” in prevailing ideas. The now-flawed premises include the ideas that economic participants behave rationally and that financial markets are competitive and efficient, Stiglitz said today in a slide presentation prepared for a speech today to the Allied Social Science Associations meeting in Atlanta. Instead, for instance, the housing bubble was fueled by the idea that prices would go up forever, Stiglitz said. The bursting of the bubble resulted in the recession that began in December 2007 and is now the worst since the Great Depression, having claimed more than 7 million U.S. jobs. Homeowners, investors and “probably” financial executives showed “marked irrationalities” and may have “bought into their own false arguments,” Stiglitz said. “Economists should be included in the list of those to ‘blame’ for the crisis,” Stiglitz said in the presentation, which Bloomberg News obtained via e-mail. There’s now a “window of opportunity” to build new theories “based on more plausible accounts of individual and firm behavior,” he said. In one slide, Stiglitz repeated criticism of Alan Greenspan , the Federal Reserve chairman from 1987 to 2006, for recommending consumers take on variable-rate home loans. Greenspan responded to Stiglitz two years ago that he meant to suggest that a “narrow segment” of customers might want an alternative to long-term mortgages. In the market for securities tied to mortgages, the products were so complex that investors couldn’t determine the quality of the underlying assets, “inducing large incentives for asset quality deterioration,” Stiglitz said. “Globalization had opened up a global marketplace for fools.” Stiglitz, 66, a professor at Columbia University in New York and a White House economic adviser under President Bill Clinton, shared the Nobel Prize in 2001 with George Akerlof and Michael Spence for work on problems that arise in markets when parties don’t have equal access to information. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .

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Stiglitz Says Financial Crisis Exposed `Major Flaws’ in Economics Theories

January 2, 2010

By Scott Lanman Jan. 2 (Bloomberg) — Joseph Stiglitz , the Nobel Prize- winning economist and Columbia University professor, said economists are among those at fault for the financial crisis, which exposed “major flaws” in prevailing ideas. The now-flawed premises include the ideas that economic participants behave rationally and that financial markets are competitive and efficient, Stiglitz said today in a slide presentation prepared for a speech today to the Allied Social Science Associations meeting in Atlanta Read the original here: Stiglitz Says Financial Crisis Exposed `Major Flaws’ in Economics Theories

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Stiglitz Urges Congress to Use `Powell Doctrine’ Against 10% Jobless Rate

December 10, 2009

By Steve Matthews Dec. 10 (Bloomberg) — Nobel Prize-winning economist Joseph Stiglitz urged U.S. lawmakers to use “overwhelming force” to cut a 10 percent unemployment rate that’s forecast to rise. Stiglitz, a professor at Columbia University in New York and a former White House adviser under President Bill Clinton , told the Joint Economic Committee that more government spending and tax cuts are needed to put Americans back to work. “There is, in economics, something akin to the Powell doctrine in the military — one needs to attack the problem with overwhelming force,” Stiglitz said in prepared testimony for a congressional hearing, referring to former chairman of the Joint Chiefs of Staff Colin Powell . “As we approach the looming jobs problem, we should not repeat the mistakes we have continually made in responding to this crisis: too little, too late.” President Barack Obama this week proposed additional spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient in a second round of initiatives aimed at cutting the jobless rate. Employers have cut more than 7.2 million jobs since the recession began in December 2007. The unemployment rate last month fell to 10 percent from a 26-year high of 10.2 percent in October. The rate will exceed 10 percent through the first half of next year, according to a Bloomberg News survey of economists taken Dec. 1-8. “We should not be fooled” by the decline in the jobless rate, Stiglitz said. “Growth in private demand” will probably be “insufficient to restore employment to normal levels any time soon.” Too Small Stiglitz said the $787 billion package of spending and tax cuts enacted in February “has been working” although it was too small. “Unless action is taken, we risk facing a vicious cycle: unemployment contributing to a weak economy, more mortgage foreclosures, more bad debts, lower demand, and possibly more, but certainly not less, unemployment.” Stiglitz said priorities for spending should include extending unemployment benefits, aiding states facing revenue shortfalls, giving tax credits for weatherizing homes, government jobs programs and research and technology initiatives. The economist shared the Nobel Prize in 2001 for work on problems that may arise in markets when parties don’t have equal access to information. Stiglitz, 66, also said the Federal Reserve contributed to the financial crisis by failing to supervise banks or stem the housing bubble. He questioned proposals to give the central bank more authority to supervise firms whose failure might threaten the financial system. “Giving more power to an institution which has failed so miserably, with results that have imposed such costs on all of us, cannot be the right solution unless there are deep and fundamental reforms in the institution, of a kind that are beyond those currently being discussed,” he said. To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net ;

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Stiglitz Says U.S. Is Paying for Government’s Failure to Take Over Banks

November 1, 2009

By Bloomberg News Nov. 1 (Bloomberg) — Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis. “It we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai yesterday. “They would be lending and the economy would be stronger.” Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year. President Barack Obama said on Oct. 24 that the nation’s lenders, supported by taxpayers in the crisis, need to “fulfill their responsibility” by lending to small businesses still struggling to get credit. Companies such as Citigroup Inc. and Bank of America Corp. benefited from a $700 billion taxpayer-funded bailout package last year. In contrast, Obama said that too many small businesses are still short of money, adding that his administration will “take every appropriate step” to encourage banks to lend. “We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said yesterday. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.” While the U.S. economy grew at a 3.5 percent annual rate in the third quarter, the first expansion in more than a year, the economist said the recession is “nowhere near” its end, citing rising unemployment and weak demand. The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system. Citigroup and Bank of America shares have quadrupled from this year’s lows in March. To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net

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Stiglitz Says U.S. Is Paying for Government’s Failure to Take Over Banks

November 1, 2009

By Bloomberg News Nov. 1 (Bloomberg) — Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis. “It we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai yesterday. “They would be lending and the economy would be stronger.” Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year. President Barack Obama said on Oct. 24 that the nation’s lenders, supported by taxpayers in the crisis, need to “fulfill their responsibility” by lending to small businesses still struggling to get credit. Companies such as Citigroup Inc. and Bank of America Corp. benefited from a $700 billion taxpayer-funded bailout package last year. In contrast, Obama said that too many small businesses are still short of money, adding that his administration will “take every appropriate step” to encourage banks to lend. “We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said yesterday. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.” While the U.S. economy grew at a 3.5 percent annual rate in the third quarter, the first expansion in more than a year, the economist said the recession is “nowhere near” its end, citing rising unemployment and weak demand. The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system. Citigroup and Bank of America shares have quadrupled from this year’s lows in March. To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net

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China’s Chen Warns of World Slump If Economic Stimulus Withdrawn Too Early

October 30, 2009

By Bloomberg News Oct. 31 (Bloomberg) — Chinese Commerce Minister Chen Deming warned against the premature withdrawal of stimulus measures, citing the potential for the world economy to “plunge” again. “There are increasing signs that global economy is heading in a positive direction, but there are still many uncertainties,” Chen said at a forum in Shanghai today. Billionaire investor George Soros said yesterday that the global economy’s recovery from its worst crisis in 70 years may “run out of steam” and another recession may follow in 2010 or 2011. U.S. stocks tumbled yesterday as declines in consumer confidence and spending and the threat of a CIT Group Inc. bankruptcy underscored the risk of another slump. “For the world as a whole, it’s premature to think about exiting stimulus,” Nobel Prize-winning economist Joseph Stiglitz said at the same event in Shanghai today. While the worst of the crisis is over, challenges include high unemployment, weak investment and consumption, rising commodity costs and fluctuating currencies, Chen said. It will be difficult for consumption to return to pre-crisis levels, he added. Halting stimulus measures could lead to another global “plunge,” he said. China’s State Council, or cabinet, pledged Oct. 21 to continue with monetary and fiscal stimulus measures even after the economy exceeded officials’ expectations for the first nine months of the year. Chen acknowledged the “dilemma” that stimulus measures may cause long-term problems by swelling government debt and stoking inflation. Nations’ efforts to protect their own economies are also fueling protectionism in trade, he said. Investment to create jobs may also intensify overcapacity problems in industry, the official added. — Li Yanping , Judy Chen. Editors: Paul Panckhurst , Alex Devine . To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Equity Market May Extend Gain as ASR Says Companies Will Rebuild Inventory

October 9, 2009

By Alexis Xydias Oct. 9 (Bloomberg) — Rising industrial production and a rebound in U.S. employment will push stocks higher around the world, according to Absolute Strategy Research Ltd., the London- based firm that told clients to buy shares in March. Companies will need to re-stock inventories that were depleted more than necessary as consumer spending increases, boosting prices and helping employment recover in the world’s largest economy, said ASR, founded in 2006 by former Merrill Lynch & Co. and UBS AG strategists. Alcoa Inc. said this week in its earnings report that the replenishment of falling customer stockpiles will boost aluminum production. “The corporate sector was forced into a much more aggressive response” than needed because of speculation that the global recession would extend into next year, David Bowers , strategist at ASR, said in an interview on Oct. 6. “The recovery in 2010 is about corporates repairing their cash flows and building up inventories.” The Standard & Poor’s 500 Index’s seven-month rally paused last week as data showed U.S. manufacturing expanded less than predicted in September and unemployment climbed to a 26-year high. New York University Professor Nouriel Roubini said stocks “have gone up too much, too soon,” in an Oct. 3 interview from Istanbul, while the recovery is losing momentum, according to Nobel Prize-winning economist Joseph Stiglitz . ‘Challenge Investors’ U.S. unemployment will keep rising, while gains in the stock market show investors are “irrationally exuberant” about a recovery, Stiglitz said on Oct. 5 in a Bloomberg Television interview from Istanbul. Billionaire investor George Soros said the same day that any economic improvement will be “very slow” as “basically bankrupt” financial companies impede it. “The assumption being made across the board is that unemployment won’t come down,” said Ian Harnett , ASR’s director of European strategy. “That will challenge investors in the next six months. If that is wrong, it will take the bond market to pieces. What we’ve got is this real possibility for equities to rise another 20 percent.” In a note distributed on March 6, ASR advised buying European shares because investors were ignoring the likelihood that economic growth would resume. Gross domestic product in countries using the euro is estimated to have contracted 4 percent in the third quarter and will shrink 1.9 percent in the last three months of the year before expanding 0.95 percent in 2010, according to the median estimates of economists surveyed by Bloomberg. Global Recession Europe’s Dow Jones Euro Stoxx 50 Index has rallied 60 percent since falling to a 12-year low on March 9. Equities gained as earnings exceeded estimates and $12 trillion committed by the Group of 20 nations spurred optimism the global economy would emerge from its first recession since World War II. Three companies in the S&P 500 announced second-quarter profits that beat analysts’ estimates for each that missed, data compiled by Bloomberg show. The Washington-based International Monetary Fund raised its forecast for 2010 global growth last week, saying the economy will expand 3.1 percent, more than a July forecast of 2.5 percent. Recessions in Germany and France, Europe’s two largest economies, unexpectedly ended in the second quarter. Companies are restarting production amid a pick-up in sales, ASR said. U.S. car inventories fell to the lowest level in at least 24 years at the end of August because of demand during the “cash-for-clunkers” program, according to data from researcher Ward’s AutoInfoBank of Southfield, Michigan. Alcoa, Toyota Manufacturers’ stockpiles shrunk at a slower rate in September as the Inventories Index of the Institute for Supply Management’s report reached 42.5 percent. The index is 8.1 percentage points higher than the 34.4 percent reported in August. A reading of 42.6 is the dividing line between liquidation and replenishing of goods. A Commerce Department report yesterday showed inventories at U.S. wholesalers dropped in August for a 12th consecutive month, clearing the way for a pickup in orders as sales improve. Alcoa, the biggest U.S. aluminum producer and the first Dow Jones Industrial Average company to announce results for the third quarter, said Oct. 7 that global consumption of the metal will climb 11 percent in the second half. Shares of the New York-based company, which cited “low inventories” at distributors for its forecast, gained 1.1 percent yesterday. Toyota Motor Corp. , the world’s largest automaker, is boosting production after demand surged in August, Don Esmond , Toyota’s senior vice president of U.S. sales, said this month. The Toyota City, Japan-based carmaker began the month with an 18-day supply of vehicles, the executive said. The industry standard is 60 days. ‘More Upside’ “There is definitely more upside than downside — perhaps as much as up 50 percent,” the ASR report in March said. Bowers was previously chief global investment strategist for New York- based Merrill Lynch, where he worked for 11 years. Harnett was previously a European strategist at Zurich-based UBS. The S&P 500 slipped as much as 4.3 percent from an almost one-year high of 1,071.66 on Sept. 22, dragged down by a decline in the Tempe, Arizona-based ISM’s factory gauge to 52.6 last month from 52.9 in August. The measure topped 50, the dividing line between expansion and contraction, in August for the first time since January 2008. Demand for U.S. durable goods unexpectedly fell in August and sales of new homes rose less than forecast, reports showed last month. ‘Headwinds’ “The headwinds for economic growth still remain strong,” said Neil Dwane , who helps oversee $80 billion as chief investment officer at Allianz Global Investors’ RCM unit in Frankfurt. “Any recovery we get will be disappointing relative to current market expectations.” Central banks trying to revive growth will probably hold borrowing costs at or near record lows, Harnett said. That will spur inflation, boosting assets such as equities, he said. The European Central Bank left its benchmark lending rate at a record low of 1 percent yesterday. The U.S.’s Federal Reserve has frozen the rate banks charge each other for overnight loans between zero and 0.25 percent since December 2008. “We could end up in a world where growth is much higher than people expect,” Bowers added. “People are desperate for the jobless recovery. If this rally continues, it is career- threatening for a lot of investors.” To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net .

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Economist Stiglitz Says Bank Stress Tests May Not Reflect Industry Health

October 7, 2009

By Simone Meier and Louisa Fahy Oct. 7 (Bloomberg) — Nobel Prize-winning economist Joseph Stiglitz said stress tests carried out across the financial system may not reflect the health of the banking industry . “There’s a question of whether you can trust stress tests,” Stiglitz told Bloomberg News today at an event in Dublin. “If you had announced at the end of stress tests” that the banks “would not pass, it would have caused panic.” A stress test of the European Union’s biggest banks published last week showed financial institutions are able to withstand an even deeper recession . Under current EU economic forecasts for 2009 and 2010, the 22 largest banks in the region would maintain an average Tier 1 capital ratio “well above” 9 percent, with none of the surveyed companies expected to see its ratio fall below 6 percent. The EU didn’t publish the names of the banks it studied. “You worry that the stress test was designed to make sure that they passed,” Stiglitz, a professor at Columbia University in New York, said in the interview. “Given the high level of leverage and the high levels of default, it provided a little bit more comfort than I would have taken.” The five-month stress test was ordered by European officials after the global credit crisis prompted the U.S. to conduct stress tests on its banking system. The minimum Tier 1 capital requirement under the Basel accords is 4 percent. Stress tests “seem to provide some assurance to the markets,” said Stiglitz, a former chief economist at the World Bank. “It was remarkably reassuring to know they would at least survive the normal case if not the stress case,” he said. ‘Highly Leveraged’ European financial institutions have posted $498 billion in losses since the onset of the credit crunch in mid-2007, less than half the $1.08 trillion in losses reported in the U.S., according to Bloomberg data. “The banking sector’s problem, in Europe perhaps more than in the U.S., is that banks are highly leveraged,” Stiglitz said. “There is a risk of a fall in the value of the assets by the amount that would wipe them out, wipe out the net worth.” U.S. stress tests found that 10 financial companies led by Bank of America Corp. needed to raise a total of $74.6 billion of capital, in results made public on May 8. Releasing the findings helped calm investors, U.S. Comptroller of the Currency John Dugan, who oversees national banks, said at the time. European Central Bank President Jean-Claude Trichet and other officials have said the methodology used in the report, prepared by the Committee of European Banking Supervisors, differed from that used by U.S. authorities and the International Monetary Fund. The divergence in part reflects different accounting standards, they said. ‘Probably All’ “We probably should have let most, probably all, of the banks fail,” Stiglitz said. “I find it very ironic that people who have always been in favor of market economics all of a sudden suspended the rules of capitalism. It really undermines the functioning of the economy. It’s a distortion to the economy.” The Washington-based IMF last week cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion, citing improvements in credit markets and initial signs of economic growth. The tally was based on a new methodology after criticism of an April estimate of about $4 trillion. Losses on bad assets are projected to increase from July 2009 through next year by $470 billion in the euro area, according to the report. Stimulus Measures With companies still cutting jobs and the economy struggling to emerge from its worst recession since World War II, governments and central banks across Europe have indicated they are in no rush to end their special measures to revive growth. ECB council member George Provopoulos said on Oct. 6 that it is “too soon to begin withdrawing the stimulus measures” and U.K. Chancellor of the Exchequer Alistair Darling said earlier this month it was “absolutely vital” to continue supporting the economy. “This is a situation where monetary policy has pretty much reached the limit of what it can do,” Stiglitz said. “We need fiscal policies as the major lever” to fight the crisis. To contact the reporters on this story: Simone Meier in Dublin at smeier@bloombert.net ; Louisa Fahy in Dublin at lnesbitt@bloombert.net .

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Stiglitz Says Markets Are `Irrationally Exuberant’ About Economic Recovery

October 5, 2009

By Jeremy Torobin Oct. 5 (Bloomberg) — Nobel Prize-winning economist Joseph Stiglitz said unemployment is going to keep rising and should be the main focus for policy makers, and that gains in the stock market indicate investors have been “irrationally exuberant” about a recovery. “There’s a lot of risk going ahead of some big bumps,” he said today in a Bloomberg Television interview from Istanbul, citing housing, commercial real estate and consumers’ inability to pay off credit cards because of job losses. “There’s a very big risk that markets have been irrationally exuberant.” The likelihood that the U.S. economy will be “out of the woods” before most of the measures in the Obama administration’s stimulus package expire in 2011 is “very small,” he also said. In a separate Bloomberg Television interview today, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said the International Monetary Fund meetings in Istanbul are “stuck” in an outdated mentality that doesn’t reflect the rising power of emerging economies following the global financial crisis. O’Neill also said the dollar probably isn’t the No. 1 concern for U.S. policy makers, and predicted 4.1 percent growth for the global economy next year. Many countries will be “surprising” in their economic growth in 2010, he said, while adding that there is a potential for more “positive surprises” that could help fuel global expansion. To contact the reporter on this story: Jeremy Torobin in Washington at jtorobin1@bloomberg.net

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Age of Austerity Awaits G-20 as $9 Trillion Debt Haunts Rogoff, Greenspan

September 24, 2009

By Simon Kennedy Sept. 24 (Bloomberg) — Global leaders may be saddled with the weakest recovery since World War II if they are to pay off the $9 trillion tab they ran up rescuing the world economy from the deepest financial slump in seven decades. U.S. President Barack Obama and his counterparts from the Group of 20 nations meet in Pittsburgh today warning that the recovery is still too weak to start reversing lifelines to banks and the broader economy. Their next challenge will be to reduce the resulting debt before it sparks higher bond yields and erodes their governments’ creditworthiness. “There’s no question that the most significant vulnerability as we emerge from recession is the soaring government debt,” said Harvard University Professor Kenneth Rogoff who is a co-author of a new history on financial crises. “It’s very likely that will trigger the next crisis as governments have been stretched so wide.” Unwinding the borrowing will probably require leaders to raise taxes and cut spending, ushering in what HSBC Holdings Plc Chief Economist Stephen King calls an “age of austerity” that saps growth prospects for years to come even amid recovery. Surging Debt The Organization for Economic Cooperation and Development predicts the world economy’s potential growth rate will fall to 1.1 percent next year, compared with 2.4 percent in the decade before the crisis. The International Monetary Fund says G-20 debt will reach 82.1 percent of gross domestic product in 2010, almost 20 percentage points more than two years ago and the equivalent of about $37 trillion. “Economies have stabilized and now governments have to think more clearly about the fiscal mess,” said HSBC’s King, a former U.K. Treasury official. Former Federal Reserve Chairman Alan Greenspan said Sept. 16 that U.S. debt, already about 84 percent of GDP, is “very dangerous” and threatens both Treasuries and the dollar. The G-20 meeting will start at 6 p.m., when Obama hosts a dinner for the leaders, and concludes at about 4 p.m. tomorrow with a statement and press conferences. On the agenda for the leaders’ third talks in a year: bankers’ pay, setting rules for banking capital and devising coherent exit strategies from stimulus packages totaling more than $2 trillion. Voter Anxiety Voters are starting to signal discomfort with the global round of fiscal excess, adding to pressure on politicians. The budget deficit was listed as the third most-important issue facing the U.S. after the economy and healthcare in a Bloomberg News poll this month and a majority of those surveyed criticized Obama’s handling of it. In the U.K., Brown’s Labour Party received the support of just 26 percent of those polled by ICM this month, while backing for German Chancellor Angela Merkel’s Christian Democrats slid further in two surveys released yesterday before Sept. 27 elections. Central bankers are sounding the alarm too in a sign they worry interest rates will have to be raised higher than they otherwise would be if governments don’t cut budgets. “Everyone is concerned that we get back to a position where the public finances are clearly on a sound footing,” Bank of England Governor Mervyn King said Sept. 15. Bond Investors For now, bond investors are showing little concern about the debt as they focus on weak growth and indications from central banks that they’re not ready to start increasing interest rates. The Merrill Lynch & Co. Global Sovereign Broad Market Plus Index shows government debt yields this month reached the lowest since April. Leaders say they are starting to plot how to withdraw the stimulus. Facing the biggest budget deficit in the G-20 at about 12 percent of GDP, Brown last week promised to make “hard choices” to cut U.K. costs. Goldman Sachs Group Inc. estimates U.S. fiscal policy will tighten by at least 1.6 percent of GDP in 2011. The crisis has nevertheless permanently scarred the G-20’s economies by reducing their potential to grow, says James Nixon , co-chief European economist at Societe Generale SA in London. He estimates that the U.K. will have to raise taxes or cut spending to the tune of 9.1 percent of GDP to balance its books. “This will depress growth for years to come,” said Nixon, a former economist at the European Central Bank . Weaker long-term growth could compound the impact of a jump in interest rates should investor concern about deficits return. The Basel, Switzerland-based Bank for International Settlements said Sept. 13 that long-term bond yields will likely rise as investors refocus on the widening budget deficits. “We could be in a pickle,” Nobel laureate Joseph Stiglitz , a professor at Columbia University in New York, said in an interview. “If long-term interest rates go up, that could be a damper.” To contact the reporters on this story: Simon Kennedy in Pittsburgh at skennedy4@bloomberg.net

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France To Use Happiness As Economic Indicator

September 14, 2009

PARIS — France plans to include happiness and well-being in its measurements of economic progress, French President Nicolas Sarkozy said Monday, beckoning other countries to join in a “revolution” in the way growth is tracked after the global economic crisis. France will adapt its statistical toolbox as recommended by two Nobel economists whom Sarkozy commissioned 18 months ago to analyze new ways of measuring social progress, he said in a speech in Paris on the first anniversary of the collapse of Lehman Brothers. France – whose growth has lagged its peers in recent decades according to standard measures – will also try to convince other governments to change their economic tracking, Sarkozy said “A great revolution is waiting for us,” he said. “For years, people said that finance was a formidable creator of wealth, only to discover one day that it accumulated so many risks that the world almost plunged into chaos.” “The crisis doesn’t only make us free to imagine other models, another future, another world. It obliges us to do so,” he said. Measuring well-being would make France’s economy, famous for its short workweek and generous social benefits, look more rosy. “If leisure has no accounting value because it’s essentially full of non-market activities like sport or culture, we put productivity below human fulfillment,” Sarkozy said. Sarkozy asked U.S. economist Joseph Stiglitz, winner of the 2001 Nobel economics prize and a critic of free-market economists, and Armatya Sen of India, who won the 1998 Nobel prize for work on developing countries, to lead the analysis of growth tracking. Sen helped create the U.N. Human Development Index, a yearly welfare indicator designed to gear international policy decisions to take account of health and living standards. Their report, delivered to Sarkozy on Monday, recommends shifting the emphasis from gross domestic product, which measures economic production, to well-being and sustainability. The report recommends looking at household income, consumption and wealth rather than production in the economy as a whole for a better reflection of material living standards. Non-market activities such as house cleaning should also be tracked, it says. More prominence should be given to the distribution of income and wealth, as well as to access to education and health. Attention should also be given to whether countries are over-consuming their economic wealth and damaging the environment, the report says. In terms of GDP, the internationally recognized way of measuring an economy, French growth has lagged behind the U.S. throughout most of the past 30 years, although recent turmoil in financial markets has hit the U.S. economy harder. France appears to be weathering the worst economic downturn since the Great Depression better than most, recording a small level of growth – 0.3 percent – in the second quarter this year. But economists warn that the good news won’t last. “France seems to be resisting better on the downside but it is increasing less in the upside of the cycle which means it is collecting less wealth and it will be more difficult to rebound afterward,” said Laurence Boone, an economist with Barclays Capital in Paris.

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Global Financial Market Crisis Hasn’t Ended Yet, Fund Manager Survey Says

September 14, 2009

By Kevin Crowley Sept. 14 (Bloomberg) — Most fund managers say the financial crisis has not yet ended, with companies still burdened by large amounts of debt and credit markets still fragile, according to a survey by FTI Consulting Inc. Almost two-thirds of fund managers said the financial crisis is continuing, with U.K., U.S. and Australian investors the most pessimistic, the survey said. West Palm Beach, Florida- based FTI said 153 investors with $2.8 trillion of equity funds under management took part in the research. “Investors were still concerned that the amount of leverage in the system that caused the original problem has not been reduced,” said Jack Dunn , FTI’s chief executive officer. “There has been so much economic stimulus that markets cannot help but go up. The concern was what would happen when government money runs out.” Central banks in Europe, the U.K. and the U.S. lowered their benchmark interest rates to record lows and spent billions of dollars to stimulate lending and economic growth after the worst financial crisis since the 1930s. Joseph Stiglitz , the Nobel Price-winning economist, said yesterday problems in the banking industry are worse now than before the crisis, which began in 2007. The MSCI World Index has rallied 61 percent to 1110.98 since its low in March. To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Goldman’s O’Neill Sees `Silly September’ as Yen Appreciates Against Dollar

September 14, 2009

By Brian Swint and Rishaad Salamat Sept. 14 (Bloomberg) — Foreign-exchange markets have embarked on a “silly September” as traders focus too much on government debt in the U.S. and U.K. while pushing up the value of the yen, said Goldman Sachs Group Inc.’s Jim O’Neill . “There is a very popular notion that you’ve got to sell the pound and the dollar because of the rising government debt, whereas the one that everyone’s seemingly buying is the yen,” O’Neill, head of global economic research at Goldman, said in Bloomberg Television interview in London today. “It’s ridiculous” and “I think of it as ‘silly September.’” Currency strategists are trying to calculate which economies will benefit most from signs of a global economic recovery. While the dollar has dropped 11 percent in the past months on a trade-weighted basis, the yen has appreciated 9 percent against the U.S. currency and 6 percent against the pound since April. “If I look at the underlying fundamentals, virtually everything that drove the yen stronger in its floating exchange history isn’t there anymore,” O’Neill said. “The yen doesn’t deserve to be anywhere near this, and I don’t see it lasting.” The Democratic Party of Japan, which won the election last month to oust the Liberal Democratic Party that had governed Asia’s biggest economy for all but 10 months since 1955, has pledged not to increase new bond sales to avoid expanding a debt burden that’s the largest in the industrialized world. The Japanese economy grew at an annual 2.3 percent in the second quarter. The yen rose as high as 90.21 against the dollar today, the highest level since Feb. 12. The currency traded at 90.79 against the dollar as of 10:28 a.m. in London. Stiglitz Comments O’Neill said that the world economy is in better shape than it was a year ago, in contrast to Joseph Stiglitz , who said yesterday that the U.S. economy is “far from out of the woods” after the government allowed Lehman Brothers Holdings Inc. to collapse a year ago. “It looks like the third quarter is going to be pretty strong for many countries,” O’Neill said. “The underlying message seems to be that the emerging world seems to getting through it better than the developed world.” O’Neill also disagreed with Stiglitz by saying that gross domestic product is probably still the best measure of wealth. Stiglitz is urging world leaders to drop a “fetish” for focusing on GDP in favor of broader measures of prosperity. “It’s the perennial search for happiness,” said O’Neill, suggesting that people might be as well off watching his favorite soccer team. “Our profession and others have been trying to find the right measure of contentment, and happiness I think is what Joe seems to be on about for a long time. Maybe everyone should become Manchester United fans, I don’t know.” Manchester United finished the last soccer season at the top of England’s Premier League. The team came from behind to beat Tottenham Hotspur 3-1 on Sept. 12. To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net ; Rishaad Salamat in London at rishaad@bloomberg.net .

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Goldman’s O’Neill Sees `Silly September’ as Yen Appreciates Against Dollar

September 14, 2009

By Brian Swint and Rishaad Salamat Sept. 14 (Bloomberg) — Foreign-exchange markets have embarked on a “silly September” as traders focus too much on government debt in the U.S. and U.K. while pushing up the value of the yen, said Goldman Sachs Group Inc.’s Jim O’Neill . “There is a very popular notion that you’ve got to sell the pound and the dollar because of the rising government debt, whereas the one that everyone’s seemingly buying is the yen,” O’Neill, head of global economic research at Goldman, said in Bloomberg Television interview in London today. “It’s ridiculous” and “I think of it as ‘silly September.’” Currency strategists are trying to calculate which economies will benefit most from signs of a global economic recovery. While the dollar has dropped 11 percent in the past months on a trade-weighted basis, the yen has appreciated 9 percent against the U.S. currency and 6 percent against the pound since April. “If I look at the underlying fundamentals, virtually everything that drove the yen stronger in its floating exchange history isn’t there anymore,” O’Neill said. “The yen doesn’t deserve to be anywhere near this, and I don’t see it lasting.” The Democratic Party of Japan, which won the election last month to oust the Liberal Democratic Party that had governed Asia’s biggest economy for all but 10 months since 1955, has pledged not to increase new bond sales to avoid expanding a debt burden that’s the largest in the industrialized world. The Japanese economy grew at an annual 2.3 percent in the second quarter. The yen rose as high as 90.21 against the dollar today, the highest level since Feb. 12. The currency traded at 90.79 against the dollar as of 10:28 a.m. in London. Stiglitz Comments O’Neill said that the world economy is in better shape than it was a year ago, in contrast to Joseph Stiglitz , who said yesterday that the U.S. economy is “far from out of the woods” after the government allowed Lehman Brothers Holdings Inc. to collapse a year ago. “It looks like the third quarter is going to be pretty strong for many countries,” O’Neill said. “The underlying message seems to be that the emerging world seems to getting through it better than the developed world.” O’Neill also disagreed with Stiglitz by saying that gross domestic product is probably still the best measure of wealth. Stiglitz is urging world leaders to drop a “fetish” for focusing on GDP in favor of broader measures of prosperity. “It’s the perennial search for happiness,” said O’Neill, suggesting that people might be as well off watching his favorite soccer team. “Our profession and others have been trying to find the right measure of contentment, and happiness I think is what Joe seems to be on about for a long time. Maybe everyone should become Manchester United fans, I don’t know.” Manchester United finished the last soccer season at the top of England’s Premier League. The team came from behind to beat Tottenham Hotspur 3-1 on Sept. 12. To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net ; Rishaad Salamat in London at rishaad@bloomberg.net .

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Stocks in U.S. Advance After Job Losses Fall Short of Analysts’ Estimates

September 4, 2009

By Lynn Thomasson Sept. 4 (Bloomberg) — U.S. stocks gained for a second day, paring a weekly decline for the Standard & Poor’s 500 Index, as the pace of job losses slowed and the earnings outlook for technology companies improved. Bank of America Corp., Walt Disney Co. and Caterpillar Inc. climbed at least 1 percent as the government said the nation lost 216,000 jobs in August, less than economists forecast. Ciena Corp., which makes computer-networking equipment, jumped after Avondale Partners LLC upgraded the stock. Novellus Systems Inc. added 1.6 percent as the maker of semiconductor equipment boosted its forecast for orders amid improving demand for chips. The S&P 500 added 1.2 percent to 1,015.67 at 1:28 p.m. in New York. The Dow Jones Industrial Average increased 98.47 points, or 1.1 percent, to 9,443.08. About 4.5 billion shares changed hands on U.S. exchanges, 29 percent less than at the same time last week as trading slowed before the holiday weekend. “There’s been a tremendous string of data points that have consistently beat expectations,” said Liam Dalton , who oversees about $1.1 billion as the New York-based chief executive officer of Axiom Capital Management. “It’s holding up the market.” The S&P 500 is poised for its biggest weekly decline in two months with a 2.2 percent loss amid speculation the rally in equities has outpaced prospects for an economic recovery. The measure, now valued at about 19 times earnings from its companies during the past year, has soared 50 percent since reaching a 12-year low in March. ‘Too Early’ Today’s report eased concern that the economy is weakening after ADP Employer Services said employers cut 298,000 jobs in August, more than economists’ forecasts, and growth in factory orders trailed projections. Gains were limited today as the jobs report also said the unemployment rate climbed to a 26-year high of 9.7 percent last month, a steeper increase than economists projected. Rising joblessness underscores Treasury Secretary Timothy Geithner ’s judgment that it’s “too early” to start exiting from the unprecedented stimulus measures helping stabilize the economy. Policy makers are signaling they plan to leave emergency stimulus in place even as the global recession ends, delivering what Credit Suisse Group AG and Bank of America call a “sweet spot” for financial markets. Canada recorded a surprise job gain in August, the first in four months, suggesting the country is emerging from its first recession since 1992. Bank of America, the largest U.S. bank by assets, added 1.7 percent to $17.12. Disney rose 1.8 percent to $25.90, while Caterpillar climbed 2.5 percent to $46.15. Tech Gains Ciena jumped 4.3 percent to $13.56. The company was raised to “market outperform” from “market perform” at Avondale, which set an 18-month target price of $18.00 a share. Novellus gained 1.6 percent to $19.38. The company , which produces equipment that helps turn silicon wafers into computer chips, said it expects third-quarter orders to rise as much as 55 percent, compared with a July forecast for a gain of as much as 50 percent. Freddie Mac increased 5.4 percent to $1.97 and Fannie Mae added 7.9 percent to $1.77. The mortgage-finance companies under U.S. government control said they were notified by the New York Stock Exchange that they had returned to compliance with the NYSE’s minimum share-price listing requirement. Abercrombie & Fitch Co. had the S&P 500’s steepest decline , losing 4 percent to $29.75. The teen clothing retailer was cut to “ sell ” from “hold” at Citigroup Inc., which said same- store sales will probably continue falling. G-20 Meets Russia’s economy will return to growth in the third quarter, Finance Minister Alexei Kudrin said while attending the Group of 20 meeting of finance officials in London today. Canadian Finance Minister Jim Flaherty said the world’s largest economies should maintain planned stimulus measures because the economic recovery remains “fragile.” Federal Reserve Bank of Dallas President Richard Fisher said the U.S. economy will probably undergo an extended period of slow growth while facing “financial headwinds” that will take years to wane. Separately, Nobel Prize-winning economist Joseph Stiglitz said the economy faces a “significant chance” of contracting again. To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net .

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Stiglitz Says Dollar’s Role as Store of Value Is `Questionable,’ Has Risk

August 20, 2009

By Shiyin Chen Aug. 21 (Bloomberg) — The dollar’s role as a good store of value is “questionable” and the currency has a high degree of risk, said Nobel Prize-winning economist Joseph Stiglitz . “There is a need for a global reserve system,” Stiglitz, a Columbia University economics professor, said at a conference in Bangkok today. Support from countries like China should ensure orderly discussions on a new reserve system, he added. Policy makers in the U.S. and Europe have flooded the global economy with liquidity, which could lead to speculative bubbles due to limited opportunities for investment, he said. Stiglitz said he was not confident of the Fed’s claim that it would withdraw liquidity when needed. The global financial crisis signals the failure of American-style capitalism, Stiglitz told the conference. The worldwide financial system only worked because of repeated government bailouts and markets have been saved from their failures to allocate risk, he said. Stiglitz said more collective action was needed on a global level to address the crisis and that the Group of 20 has been slow in addressing fundamental problems such as weak aggregate demand. Finance ministers and central bankers from the G20 are due to meet in London on Sept. 4-5. The global financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007, has led to almost $1.6 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg. Stiglitz shared the Nobel Prize in 2001 for work on problems that may arise in markets when parties don’t have equal access to information. He was formerly chief economist at the World Bank and chairman of the White House Council of Economic Advisers under Bill Clinton. To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net .

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Stiglitz Says Dollar’s Role as Store of Value Is `Questionable,’ Has Risk

August 20, 2009

By Shiyin Chen Aug. 21 (Bloomberg) — The dollar’s role as a good store of value is “questionable” and the currency has a high degree of risk, said Nobel Prize-winning economist Joseph Stiglitz . “There is a need for a global reserve system,” Stiglitz, a Columbia University economics professor, said at a conference in Bangkok today. Support from countries like China should ensure orderly discussions on a new reserve system, he added. Policy makers in the U.S. and Europe have flooded the global economy with liquidity, which could lead to speculative bubbles due to limited opportunities for investment, he said. Stiglitz said he was not confident of the Fed’s claim that it would withdraw liquidity when needed. The global financial crisis signals the failure of American-style capitalism, Stiglitz told the conference. The worldwide financial system only worked because of repeated government bailouts and markets have been saved from their failures to allocate risk, he said. Stiglitz said more collective action was needed on a global level to address the crisis and that the Group of 20 has been slow in addressing fundamental problems such as weak aggregate demand. Finance ministers and central bankers from the G20 are due to meet in London on Sept. 4-5. The global financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007, has led to almost $1.6 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg. Stiglitz shared the Nobel Prize in 2001 for work on problems that may arise in markets when parties don’t have equal access to information. He was formerly chief economist at the World Bank and chairman of the White House Council of Economic Advisers under Bill Clinton. To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net .

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