Well, Well, Well

I have no idea whether the report pubished by the UK Daily Mirror that George W Bush discussed with Tony Blair the idea of bombing the Doha headquarters of the Arabic satellite TV channel al-Jazeera is well founded or not. How could I, I have no way of checking one way or the other. I do however agree with William Wallis and Roula Khalaf of the Financial Times that the fact that the British government has threatened newspapers with the Official Secrets Act if they reveal contents of the document does constitutes at least prima-facie evidence that the document exists, and contains information which the UK government is anxious not to make public.

I would also note that here in Spain this is only going to fuel more feelings about the José Couso case. José Couso was a journalist who worked for the Spanish TV channel Tele Cinco, and he was killed when a US tank opened fire on the Hotel Palestine in Baghdad during the 2003 invasion of Iraq. The case is scheduled to go before a judge here in the not too distant future.

As ye sow, so shall ye reap.

The System of the World

Sorry, this is not a post proclaiming a political theory of everything. It’s a note saying “‘Tis done!” I picked up Neal Stephenson’s The System of the World sooner than I thought and finished it up right quick.

Previous posts on the Baroque Cycle are here, here, here and here. The argument of the trilogy and further thoughts below the fold. Spoilers abound. Doug Muir, I’m finished, we can discuss.
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Schyzophrenia Outbreak At The FT?

I know you should never take what a central banker says at face value, but still. Today Christopher Swann in Washington tells us (in an article entitled: End in sight to the Fed’s rate-tightening cycle – and with no question mark):

For much of the past year and a half the Fed has been running almost on autopilot, with rates being raised from their historic low of 1 per cent in June last year to 4 per cent now in a lockstep of quarter-point moves. None of the economic vicissitudes over the past 18 months – from Hurricane Katrina to surging energy prices – has diverted the Fed from its gradual task of bringing rates to a more neutral level.

But this week’s minutes suggested in the clearest language yet that this task is almost done. In 2006 any further rate rises will have to be justified by surprising economic data, the Fed’s internal discussion appeared to indicate.

For the first time since the rate-tightening began, some of the members of policy-making committee also warned about the dangers of going too far

Meanwhile, back home in the UK, Steve Johnson has this:

“In contrast to the ECB’s caution, comments from the US Federal Reserve hinted at several more rate hikes to come.

Michael Moskow, president of the Chicago Fed, suggested that the Fed funds rate would rise above the “neutral” level expected by the market. “With inflation at the upper end of my comfort zone, an unexpected increase in inflation would be a serious concern.””

So come on lads, get your act together, which is it, almost done, or plenty of juice left in the lemon yet awhile?

Scrambled, Or Sunny-Side Up?

How would you like your eggs done here sir, scrambled or sunny- side up? Of course my hilarity here may be due to the fact that Huevos in Spanish has a rather different connotation:

A South Korean scientist whose cloning of a dog Time magazine called this year’s most amazing invention resigned on Thursday as head of a global hub for stem-cell work because two members on his team donated egg cells for study.

Crying Wolf At The ECB?

The always interesting Paul de Grauwe has a piece in the FT today (subscription only unfortunately, but he does collect all his FT pieces on his website here, so it will doubtless appear eventually). Basically he is arguing a view which I agree with: in its enthusiasm for raising interest rates the ECB is overdoing the inflation problem, and not by a little:

Strange things are happening in Frankfurt these days. Barely two weeks ago the European Central Bank issued its monthly bulletin containing an analysis of the perspectives for inflation in the euro area. In a nutshell the story was the following.

Yes, yearly inflation has increased to 2.5 per cent (October 2005) and this is a source of concern for a central bank that has promised to keep inflation below 2 per cent. But, as we all know, a central bank that targets the rate of inflation should be forward-looking and base its interest rate decisions on the expected future rate of inflation. The remarkable thing about the analysis is that, after voicing its concern about current inflation exceeding 2 per cent, it came to the conclusion that the perspectives for future inflation were favourable.

Paul de Grauwe’s work is generally highly commendable, and this presentation of his on the pluses and minuses of the euro is a really good background primer.

Destination Unknown

While China seems to be badly in need of entering the ‘information society’, Russia seems to be going flat-out in the opposite direction:

Russia moved closer to an effective ban on many foreign non-governmental organisations as its parliament on Wednesday considered a bill that human rights groups have criticised as another step towards a “totally closed society”.

Informational Asymmetries in Harbin

Whatever the underlying reality behind all the news headlines about ‘panic in Harbin’ one thing is sure, there are plenty of asymmetries pending resolution between the ultra-modern and sophistocated new-technology China and the ‘informationally closed’ political system which breeds a lack of trust and the kinds of over-reaction we are now seeing. China obviously badly needs to ‘modernise’ in the ‘welcome to modernity’ sociological sense. If it doesn’t there will always be the danger of this kind of ‘chain reaction’, and clearly, in the conext of modern integrated financial markets, the consequences could turn out to be particularly unpleasant for everyone involved.

Thousands of residents of Harbin on Wednesday night jammed its railway station and booked out all available flights as a deadly 80km toxic slick made its way down the Songhua river, threatening to poison the north-eastern Chinese city’s water supplies. he slick of benzene and other toxins was leaked into the river, the city’s main source of water, after a series of explosions 10 days ago at a chemicals factory 200km upriver. A mood of distrust and paranoia was spreading through the industrial city of 9m people, sharpened by the local government’s decision to turn off water supplies for four days for fear of an environmental catastrophe.

Sobering News

First off, Dave at MacroBlog has a good summary of the core of the economic policy programme adopted by the new German government. He also has some to-the-point comments about ECB credibility issues

But the big news today must surely be the surprising state of the European consumer . Perhaps the most indicative reading on the situation comes from a report from business consultants Deloitte which states that spending on xmas gifts is expected to fall this year by an average 3 per cent (year-on-year) across nine European countries. Revealingly they find that 49 per cent of Europeans believe their economies are currently in recession.

Now that German domestic consumption is declining comes as no surprise. Economic theory offers us sound explanations as to why this might be the case, nonetheless the pace at which this decline is progressing is pretty striking:

Third quarter growth figures for Europe’s largest economy released yesterday showed that after five years of stagnation, Germany’s economy is locked in a schizophrenic phase. On the one hand the country’s robust exports, which rose 4.7 per cent from the second quarter, are finally translating into stronger investments, up 2.2 per cent.

But consumption, an essential ingredient of a healthy recovery, fell for the third consecutive quarter, pressed by high unemployment, stagnating disposable income and a broader crisis of confidence.

Hanging as a twin threat over this one-legged recovery are the prospect of an imminent rise in eurozone interest rates and Ms Merkel’s pledge to cut spending and raise taxes to restore the country’s public finances by 2007.

However, the recent news from France does come as a surprise. Economic data from France had been rather more encouraging lately, and thus the fact that French consumer spending on manufactured goods declined for a second successive month in October – down by 0.6 percent from September, when it fell a revised 0.3 percent – does come as something of a surprise, and is probably like a bucket of icy water over in Brussels and Paris, and, possibly more importantly, over at the ECB in Frankfurt.

It was only last Monday that Morgan Stanley economist Eric Chaney was taking IMF chief Rodigo Rato to taskfor the latter’s argument that “it would be good to see more internally driven recovery” before starting to normalise interest rates. Chaney took the opportunity to make a full-frontal-assault on what he calls “the legend that only exports explain euro area growth”.

Since 2003, the contribution to growth of external trade has been constantly negative or null for the euro area, while almost constantly positive for Germany. The French GDP data out on November 18 are confirming this once again: French final domestic demand was up 0.9% in Q3 (3.5% SAAR), driven by strong consumption (0.7%Q despite a sharp drop in food consumption) and even stronger corporate capital spending (1.1%Q).

Now normally I would be agreeing with him, since as he says the ‘legend’ is derived from the fact that many analysts take Germany as a proxy for the euro area, and this can be deeply misleading. But this latest round of data counsel caution (and maybe some of that caution could have been reflected in Jean-Claude Trichet’s performance last Friday, at least if the Central banker’s job is to stay ahead of the curve it could have been). Lesson: don’t make yourself a hostage to fortune if you don’t want to end up being hoisted on your own pettard. (And Btw: Touché Señor Rato).

Thanks, Gerd

Wasn’t Gerhard Schroeder fun? Didn’t Germany, maybe more than any other big country in Europe, need a leader who enjoyed things? Hasn’t public life gotten just a little grayer this late November Tuesday?

The election in ’98 showed that Germany could actually change governments at the ballot box, and not just through parliamentary maneuvers. One more doubt about German democracy laid to rest. The red-green government changed the terms of public debate about immigration, for which I am personally grateful. And I saw the difference in treatment at the local foreigners’ office in downtown Munich. For this honesty, Germany is better off. The SPD and the Greens sent German armed forces into combat in Europe, and on to missions in Afghanistan and elsewhere. Germany is shouldering its responsibilities as a major nation. For that, all of Europe is better off.

Sure, there were missed opportunities and many things still need to be done in Germany for it to really be ready for the 21st century. But the achievements of the last seven years are not small, and they will not be short-lived.

UPDATE: Another thing. By calling the election a year early, Schröder ensured that her opponents in the CDU would not have time to push Angela Merkel out of the top position. Thus we will not have the insufferable Roland Koch as Chancellor. For the historic first of having a woman as German Chancellor, thanks Gerd.

To Raise Or Not To Raise?

European Central Bank (ECB) president Jean-Claude Trichet’s indication last Friday that eurozone interest rates are about to rise continues to make waves.

Yesterday the EU Observer had a piece indicating the Eurozone finance ministers were not amused, and today we have a retaliatory piece were Trichet explains theat the ECB is the ‘listening’ people bank, which is simply responding to citizen concern about ongoing price rises.

The FT made clear yesterday that the decision to raise just now was not going down well in Berlin, where the incoming government now faces the prospects of introducing a strict fiscal policy at a time of monetary tightening, and when the impact of the recent oil price rise is likely to be pinching the already pinched pocket of the German consumer.

Meantime, as the FT today explains, Trichet is feeling the heat, since he has come out and stated that the ” European Central Bank has no plans to implement a series of interest rates rises” (ie no US-style measured pace).

Plenty of material here for an Afoe post if I find the time later today.