Inflation up everywhere
US inflation is now up at 5%, the highest rate of increase in the last 17 years. The price increases during July were 1.1% alone. Frankfurter Allgemeine also has the latest inflation data for euro area member states. The lowest inflation, at 2.3% was recorded in the Netherlands, the highest was Slovenia with 6.8%. Outside the euro area, inflation is much higher. Latvia has 17.5%. The article quotes a German analysts as saying that inflation expectations were already elevated, and that second-round effects are already visible, as a result of which the ECB would have to raise interest rates again.
Il Sole 24 ore reports that Italian variable mortgage rates went up from an average of 5.75% in May to 5.85% in June, the highest level since 2002.
Martin Wolf on the future
Martin Wolf takes an unusually sceptical view about the future outlook for the US, saying that the current situation might easily lead to a broader US debt crisis, and a run out of dollars. He says the outcome of the current conflagration is almost certainly a slowdown in world economic growth. The only good news is that the world economy has so far held up. The bad news is that the risks are firmly on the downside.
Brad Delong on Martin Wolf
Brad Delong disagress with Martin Wolf, and cheers what he calls Greenspanism. He said the long-term effects of the technology bubble were hugely positive, even if some people lost money subsequently. While he acknowledges that the fallout from the current crisis is harder than he had thought, one should not forget the benefits the housing boom in terms of house construction, consumption, and investment. While we are not out of the wood yet, he remains cautiously optimistic about the outlook.
FT on the Fed
The FT writes in an editorial that the Fed’s policy choices are becoming increasingly tough and that the Fed is walking on an increasingly thinner tightrope. The editorial says that the Fed may not be able to keep the balance for much longer, and if it has to choose between conflicting objectives, it must err on the side of controlling inflation, not sustaining growth.
Are sovereign wealth funds beginning to shift out of dollars?
The FT has a very interesting insight piece arguing that several of the world’s largest sovereign wealth funds are contemplated to reduce their dollar exposures, and to shift into euros. It said one big Gulf fund has cuts its US exposure from 80% to 60%, while China’s State Administration of Foreign Exchange has struck deals with European private equity groups to reduce dependency on the dollar. The article also said that sovereign wealth fund managers increasingly question the strategy of the Federal Reserve and the US Treasury. The article also said that the largest sovereign wealth fund, the Abu Dhabi Investment Authority remains committed to the dollar. That might change if the United Arab Emirates were to depeg from the dollar.
Europe’s growth prospects are falling
There are more signs of an economic slowdown in Europe, as car sales in June were down 7.9% from the same month in 2007, while the UK yesterday reported a sharp rise in unemployment. In France, real wages are becoming negative, just as in Germany (which suggests that there may be no second round effects after all). The FT has also produced a European “weather map”, which shows relative economic performance.
Vote on Sarkozy’s constitutional reform uncomfortably tight
The constitutional reform, once a flag ship of Sarkozy’s cross-partisan ambitions, is likely to end as a classical political battle between left and right : Despite last minute intervention of Nicolas Sarkozy, who promised further concessions in an interview with Le Monde, Socialists confirmed that they will vote against the constitutional reform on Monday partly in reaction to Sarkozy’s methods, and because their 120 amendments have not been included, reports Le Figaro. Meanwhile, the constitutional reform was adopted in the Senate yesterday night, paving the way for final adoption through the parliament on Monday. To pass, the reform will need a 3/5 majority, which makes it a tight vote for Sarkoy’s phare project. If passed, the constitutional reform would change half of the paragraphs in the constitution, increasing the power of the parliament and limiting the number of presidential terms.
Homage to the family run company
Frankfurter Allgemeine, a newspaper deeply anchored in Germany’s post-war economic tradition, has an article in praise of the family-run company, and its apparent superiority over stock market quoted corporation. It cites the example of Schaeffler, which currently tries to take over Continental, as well as Porsche and Haniel, both of which influence much large groups. The argument is that these well-run family companies do not need to publish their accounts each quarter and that re-invest a large portion of their profits. (We quote it here not because we like the article. On the contrary, there is no shred of evidence that stock market listed companies invest less than privately-owned companies. But this is a good example of German small business folklore that still dominates the debate in that country.)
Lisbon ratification count
Spain has become member state no. 23 to ratify the Lisbon, leaving only 4 countries including Ireland, to do so. Jean Quatremer writes that that the strategy is to isolate Ireland, but this itself is no guarantee of a yes vote in a second referendum. He says that a no in a second referendum would bury the treaty for good, leaving the EU in a long drawn out crisis.
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