Not a Threat…Yet

Not a threat…yet

Two Federal Reserve governors said the U.S. economy faces no serious threat from inflation and that it isn’t time to tighten monetary policy. Janet Yellen, the central bank’s vice chairwoman, said surging commodity prices are temporary and won’t have a prolonged effect. William Dudley, president of the Federal Reserve Bank of New York, said he isn’t enthusiastic about tightening because the labor market is expected to have “excess slack” through the end of 2012.

Different avenues

Adam Jacobs of the International Swaps and Derivatives Association said one of the key issues facing derivatives markets is the split between regulatory approaches in Europe and the U.S. “Whereas Europe’s new category has been introduced in the form of organized trading facility, U.S. policymakers are grappling with the concept of swap-execution facilities,” Jacobs said. “In both cases, there are questions of scope and design, as well as the matter of what the requirements mean for existing trading models.”

The politic of economy

Europe has been struggling with its sovereign-debt crisis for a while, and it’s becoming an election issue across the Continent. Public anger at rescues, austerity plans and economic concerns have brought down leaders in Ireland, Portugal and, arguably, Spain. That anger is starting to spread to places such as Finland and Europe’s core.

Duhhh moment

An analysis by the International Monetary Fund makes a case that income inequality suppresses economic growth and that closing such inequality would help economies to expand, according to The Economist. The difficult part is figuring out what to do about it. “If inequality slows growth because financial oligarchs repeatedly generate crises or because the rural poor lack access to schooling, then simple redistribution won’t be as effective as targeted reforms,” the magazine noted.

Still tingkering

The European Banking Federation is urging EU policymakers to exclude from legislation ratios for liquidity coverage and net stable funding as outlined by the Basel Committee on Banking Supervision. “The liquidity proposals set out by the Basel Committee are extremely conservative, and their impact on European banks and the wider economy has not been fully tested,” said Wilfried Wilms, the EBF’s senior adviser on banking supervision. “We are not challenging the need for liquidity buffers — we have been pushing for more effort to be made in this area for a number of years. We just want to see it done properly.”

Optimistic

The global economy is expected to expand 4.4% this year 4.5% in 2012, the International Monetary Fund said in its World Economic Outlook. Growth in the U.S. will lag behind the world average, holding at 2.8% this year and accelerating to 2.9% in 2012. The crisis in Japan and surging commodity prices won’t hurt recovery, the IMF said.

Turf wars

Conflict over jurisdiction is building between the U.S. government’s main antitrust regulators, the Justice Department and the Federal Trade Commission, government officials said. As industries converge, particularly in the high-tech sector, it is becoming more difficult to draw clear distinctions between the responsibilities of the two agencies, they said. Both agencies want to review antitrust implications of a key provision of the health care law.

Rights to prosecute

New York state Attorney General Eric Schneiderman is pushing to ensure that the foreclosure settlement between that state and federal authorities and mortgage servicers would not prevent states from investigating the industry further. “Any settlement agreement should preserve the ability of attorneys general to follow the facts where they lead and not be precluded from conducting comprehensive investigations,” said Lauren Passalacqua, a spokeswoman for Schneiderman.

As bad as Chernobyl

Japan raised the alert level from 5 to 7, the highest rating, at the earthquake-damaged Fukushima Daiichi nuclear-power plant. That makes the disaster equal to an explosion at Ukraine’s Chernobyl power plant in 1986. Hidehiko Nishiyama, deputy director general of Japan’s nuclear regulator, said the amount of nuclear material released from the Japanese facility is about 10% of the total that escaped from Chernobyl.

Slower GDP growth

The International Monetary Fund reduced its estimates for 2011 gross domestic product growth for Australia and New Zealand because of economic disruptions from earthquakes and floods. The IMF cut its GDP growth forecast for Australia from 3.5% to 3% and from 1% to 0.9% for New Zealand. Reconstruction will help both countries rebound next year, the IMF said.

Sensible proposals

Interim recommendations of the Independent Commission on Banking to ensure the survival of British banks are less radical than many bankers expected and would probably cost less to implement, according to The Economist. They include requiring more capital to carry banks through rough spots and safeguarding banks’ retail arms so they could not be brought down by the collapse of their investment-banking operations. “Because of its reasonableness, the commission’s recommendations will be difficult to dismiss,” the magazine notes.

Ain’t gonna work

Goldman Sachs, Silver Point Capital and other derivatives creditors of Lehman Brothers Holdings said the collapsed financial institution’s $61 billion payment plan likely won’t be approved. The group of creditors said the plan includes “gifts” to bondholders that have not been approved by other creditors. Lehman is struggling with mounting opposition to its payment plan.

Stupid gimmicky schiet

Many of the $38 billion in spending cuts agreed upon by Republicans and Democrats are nothing more than accounting tricks that have no impact on spending, officials said. The budget compromise that headed off a U.S. government shutdown includes cutting $4.9 billion from the Justice Department Crime Victims Fund, which won’t be spent this year anyway. For many programs, money cut could be restored by Congress next year with no impact on spending.

Second auction

The Federal Reserve Bank of New York is circulating two lists of bonds acquired from American International Group as it prepares a second auction of the securities. The auction is similar to one held last week, when the Fed sold $1.3 billion in bonds. “It’s probably going to look like this each week,” said Jesse Litvak, a managing director and head of non-agency trading at Jefferies. “They probably feel like since the first list traded fine, they can continue with this level of bonds.”

Meeting the bosses

NYSE Euronext CEO Duncan Niederauer started discussing the merger agreement with Deutsche Boerse with shareholders to convince them that the deal is better than a counteroffer from Nasdaq OMX Group and IntercontinentalExchange. The NYSE Euronext board recently rejected the Nasdaq-ICE bid in favor of the Deutsche Boerse tie-up. Meanwhile, Nasdaq OMX CEO Robert Greifeld and ICE CEO Jeffrey Sprecher also are discussing their bid with NYSE Euronext investors.

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