Bernanke optimistic on US economy
Bernanke optimistic on US economy
Since Bernanke, even more than other central bankers, has spent the past four years warning of perils such as the "fiscal cliff" and the dismal condition of the US labor market, this statement, delivered in the carefully worded peroration of a speech to the prestigious Economic Club of New York, marks an important turning point.
Not because Bernanke has a crystal ball that offers him economic clairvoyance. But because his views have an enormous impact on business and financial sentiment around the world. And sentiment — especially about government policies — is the biggest problem for the world economy today.
In terms of objective economic and financial conditions, the end of this year looks like a turning point in the slow recovery from the global financial crisis. Outside the euro zone, which now accounts for just 17 percent of global output and will shrink to just 9 percent by 2060 according to the Organization of Economic Co-operation and Development, economic statistics are clearly improving.
Unemployment, though still high, is steadily falling. Banks are now adequately capitalized. Property prices have stabilized, stock markets are rising and credit conditions have returned more or less to normal. For much of this year, the main obstacle to hiring and investment decisions, according to many business surveys, has been uncertainty about politics and monetary policy. That uncertainty is almost over.
This may sound preposterous. After all, businesses and financiers have been obsessed all year with the euro crisis or speculation about Fed monetary policy or the US presidential election or China's surprisingly chaotic leadership transition — and now the prospect that the United States will fall off a fiscal cliff, dragging down the whole world economy.
But that is the point. Political uncertainties have been resolved or dramatically improved in all the most important economies. Yet business sentiment is so negative that almost nobody believes this.
Consider what is happening around the world — with the glaring exception of the Middle East, where war and political chaos is unfortunately quite normal. China has belatedly anointed its new leadership, which should end the paralysis in economic policy and ensure that the country's gradual adjustment to a slower growth does not deteriorate into an economic collapse. In Europe, the crisis has certainly not ended, but German Chancellor Angela Merkel's decision to back unlimited ECB bailouts and to keep Greece within the euro, essentially guarantees that the euro will not disintegrate, nor the banking system suffer a Lehman-style meltdown. At least until next October's German elections.
Best of all, the uncertainty about US politics and monetary policy, which have preoccupied businesses and investors this year to the exclusion of almost all other issues, is about to disappear.
Bernanke made clear on Tuesday that his optimism about the economic outlook depended entirely on the assumption that Congress would ultimately back away from suicidal legislation that would deliberately push the US economy over a fiscal cliff on Jan. 1. The bad news is that a plausible deal to avert this self-inflicted catastrophe has not yet been outlined. Fear of another Lehman-style financial crisis therefore quite reasonably restrains business decisions around the world.
But the good news is that this uncertainty is almost over. By New Year's Day, 2013, Congress and President Barack Obama will have chosen one of two options. The first is to deliberately sabotage their nation — in which case the world will be back to economic Armageddon. The second will be to tear up the fiscal suicide pact.
As long as Washington decides to avoid fiscal suicide, it hardly matters how. The best outcome would be to agree on broad outlines of long-term fiscal consolidation, while avoiding any spending cuts or tax hikes in 2013. The alternative would be merely to "kick the can down the road" by extending today's fiscal legislation and increasing the Treasury's borrowing powers. This is not ideal, but investors and business leaders could live with it.
The Fed would then continue financing Washington's deficits at near-zero interest rates for another two or three years, as explained last week in this column — and as Bernanke has now promised again. The long-term problems of demographics and healthcare costs would then have to be addressed in the next election cycle, after 2016.
Whichever option Washington chooses, the current uncertainty about US fiscal policy will, for better or worse, be resolved by Jan. 1. Assuming the fiscal cliff is averted, investors and businesses around the globe will have lost their main excuses for avoiding decisions.
When they look at Europe, they will see a continental economy in recession, but no longer close to a Lehman-style financial shock. In China, the new leadership is now in a position to act, if necessary, against risks of the economic slowdown getting out of hand. In the United States, monetary policy is now fixed until 2014 and the presidential election is out of the way.
Business leaders may like Obama or hate him. They may agree with Fed policy or disapprove. But there is no longer any point in delaying business decisions until after the next Fed meeting, or until healthcare reform is abandoned or until a new president with new policies is inaugurated next year. That leaves the fiscal cliff as the only serious policy uncertainty to fret about.
Assuming that Washington decides not to commit economic suicide on Jan. 1, the business obsession with politics will then have nothing left to feed on. Business leaders and investors will be forced to redirect their attention to economics and the financial fundamentals of their businesses. They may be pleasantly surprised. Once this political uncertainty is neutralized, prospects for most of the world economy look pretty good.
— Anatole Kaletsky is a Reuters
columnist. His opinions are his own.
Asian stocks hit as Trump drops Kim summit but losses tempered
- Traders had already been nervous in recent days after the US president warned he could pull out of the June 12 meeting with the North Korean leader, while also voicing his displeasure at a deal to avert a trade war with China.
- In a letter released by the White House, Trump told Kim he was canceling the summit because of North Korea’s “anger” and “hostility.”
HONG KONG: Asian markets mostly fell on Friday as Donald Trump shocked the world by pulling out of next month’s historic summit with Kim Jong Un, though analysts said the losses were tempered by hopes the talks can be rekindled.
Traders had already been nervous in recent days after the US president warned he could pull out of the June 12 meeting with the North Korean leader, while also voicing his displeasure at a deal to avert a trade war with China and threaten tariffs on car imports.
The news Thursday took many by surprise — including North and South Korean officials — and fueled concerns about the future of a rapprochement that has had many hoping for peace on the divided peninsula.
In a letter released by the White House, Trump told Kim he was canceling the summit because of North Korea’s “anger” and “hostility.” The message came after a key aide to Kim hit out at comments from Vice President Mike Pence, saying they were “ignorant and stupid” and warning the talks could be canceled.
However, Trump’s letter added that the talks could still go ahead “at a later date.”
For its part, Pyongyang said the decision “unexpected” and “regrettable” but added: “We again state to the US our willingness to sit face-to-face at any time in any form to resolve the problem.”
“It looks like we are back to fire and fury as the modus operandi for the White House again after President Trump (threatened) a new 25 percent car import tariff and canceled the summit with North Korea,” said Greg McKenna, chief market strategist at AxiTrader.
“Not only was the summit canceled but it was back to threatening the DPRK with a military response.”Wall Street ended lower, while Asian trading was muted. Tokyo ended the morning slightly higher, while Hong Kong slipped 0.3 percent and Shanghai was barely moved. Sydney and Singapore each fell 0.1 percent while Seoul was 0.2 percent lower.
Manila and Kuala Lumpur also fell but Wellington, Taipei and Jakarta were in positive territory.
While warning the issue remained fragile, analysts said there was still hope the meeting will go ahead.
“As we’ve seen countless times before, the president tends to walk back some of his more boisterous rhetoric time and time again,” said Stephen Innes, head of Asia-Pacific trading at OANDA.
“While the US and their allies have offered a way to prosperity for North Korea, it was never going to come without some significant concession on the nuclear non-proliferation front.”
And Eli Lee, Bank of Singapore’s head of investment strategy, added: “Given the US’ surprising acceptance of the meeting only in March, the cancelation... may simply be due to the fact that both sides need simply more time for preparation and to find a middle ground in terms of their demands.”
On oil markets, both main contracts extended Thursday’s more than one percent losses after Russia said an agreement with OPEC to cap production — which has provided support to prices in recent years — could be up for revision at a meeting next month .
The comments from Energy Minister Alexander Novak dented a rally in the commodity, which has hit three-and-a-half-year highs on the back of improving demand and supply worries from Venezuela and Iran.
Tokyo — Nikkei 225: UP 0.1 percent at 22,457.20 (break)
Hong Kong — Hang Seng: DOWN 0.3 percent at 30,666.38
Shanghai — Composite: FLAT at 3,154.04
Euro/dollar: DOWN at $1.1705 from $1.1725 at 2100 GMT
Pound/dollar: DOWN at $1.3364 from $1.3385
Dollar/yen: UP at 109.53 from 109.30 yen
Oil — West Texas Intermediate: DOWN nine cents at $70.62
Oil — Brent North Sea: DOWN 12 cents at $78.67
New York — Dow: DOWN 0.3 percent at 24,811.76 (close)
London — FTSE 100: DOWN 0.9 percent at 7,716.74 (close)