World Bank Cuts Global Outlook as China Slows

• It lowered its prediction for developing economies and sees the euro region’s gross domestic product shrinking 0.6 percent. In contrast, forecasts were raised for the U.S. and Japan, which was helped by fiscal and monetary stimulus.
• Efforts by European policy makers to stem the region’s debt crisis have alleviated the main risk to global growth and financial-market stability, according to the lender. The bank now sees smaller threats, including lower commodity prices and the impact of unwinding unprecedented monetary stimulus in advanced economies including the U.S., the talk of which has sent currencies from India to Thailand lower and Mexican bond yields higher in recent weeks. » The full Bloomberg article – By Sandrine Rastello – June 13, 2013

Bernanke Says Pessimists are Wrong

• “Pessimists may be paying too little attention to the strength of the underlying economic and social forces that generate innovation in the modern world,” Federal Reserve Chairman Ben S. Bernanke said today in a speech at Great Barrington, Massachusetts. “Both humanity’s capacity to innovate and the incentives to innovate are greater today than at any other time in history.”
• Commercial applications of personal computers and biotechnology have “arguably thus far only scratched the surface,” and they could contribute to a surge in productivity in health care, Bernanke said.
• “A strong case can be made that the modernization of health-care IT systems would lead to better-coordinated, more effective, and less costly patient care than we have today,” he said. “Such advances could lead to another jump in life expectancy and improved health at older ages.” » The full Bloomberg article – By Steve Matthews & Jeanna Smialek – May 18, 2013.

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Deflation not Inflation is the Danger

• Bernanke and other Fed officials have shown intolerance for very low inflation in the past.
• The central banks’ stance vindicates those who insisted inflation isn’t the pre-eminent threat to the world economy, said David Blanchflower, a former Bank of England policy maker.
• “All those loonies saying the big fear is inflation are out of their minds,” said Blanchflower, who now teaches at Dartmouth College in New Hampshire. “The downside risks to inflation are marked.”
• Declining prices for everything from gasoline to coffee are good news for consumers. The danger comes when disinflation turns into deflation, which leads households to hold off purchases in anticipation of even lower prices, and companies to postpone investment and hiring as demand for their products dries up and profits drop. » The full Bloomberg article – By Rich Miller & Simon Kennedy – Apr 29, 2013

(Jupiter images)

Europe austerity strategy is hurting growth, IMF says

• Britain and the Eurozone are steadfastly sticking to austerity measures despite increasing evidence that such action alone isn’t working to revive their economies and is dragging down global growth.
• Obama administration officials have repeatedly urged their European counterparts to ease up on austerity and focus more on growth, but the U.S. is struggling with its own fallout from a series of fiscal policy changes, most recently spending cuts under the so-called sequester.
• The budget cuts and higher taxes recently implemented are expected to slice U.S. economic output by about 1.5 percentage points this year, leaving growth for the year at a sluggish 2% rate. » The full LA Times article – By Don Lee – April 19, 2013.

Slower Global economy reflected in China’s economy

• China’s longest streak of expansion below 8 percent in at least 20 years is sending a message to suppliers and investors around the world to get used to slower growth in the second-biggest economy.
• A sustained shift to a lower-growth gear would affect everything from iron-ore demand in Australia to the fortunes of companies including carmaker General Motors Co. (GM), who are counting on China to drive profits. It increases challenges for global policy makers contending with Europe’s debt turmoil and Japan’s record monetary easing, with BHP Billiton Ltd. (BHP) saying GDP gains will moderate toward 6 percent later this decade.
• “While this is a shock in the short term, it is part of the growing-up of China’s economy,” said Louis Kuijs, Hong Kong-based chief China economist at Royal Bank of Scotland Group Plc, who cut his forecast for 2013 expansion to 7.8 percent from 8.4 percent after yesterday’s data.
• Investment in productive capacity lacks the knock-on effects on GDP it once had because of reduced overseas demand for the products of the nation’s factories, he said. » The full Bloomberg article – April 16, 2013.

“Only a strong economy can deliver persistently high real returns to savers and investors.”

• Federal Reserve Chairman Ben S. Bernanke signaled he will keep the Fed’s target interest rate low to support the economy, even as some colleagues warn the policy risks triggering financial market instability.
• “Premature rate increases would carry a high risk of short-circuiting the recovery, possibly leading — ironically enough — to an even longer period of low long-term rates,” Bernanke said. » The full Bloomberg article – By Joshua Zumbrun & Aki Ito – March 2, 2013.

Federal Reserve Chairman Ben S. Bernanke said the U.S. economy is far from operating at full strength and reiterated his commitment to record easing

• “With unemployment at almost 8 percent, we are still far from the fully healthy and vibrant conditions that we would like to see,” Bernanke said today at a meeting in Moscow of his counterparts from the Group of 20. “The United States is using domestic policy tools to advance domestic objectives.”
• “We believe that by strengthening the U.S. economy we are helping to strengthen the global economy as well,” Bernanke said.
• “Because we live in a globalized financial system where transactions can take place in any jurisdiction and money flows easily across borders, it is critical that we have consistent financial regimes across all members of G-20,” Bernanke said. “We will work with our partners to establish consistent policies on matters such as derivatives reform and the resolution of systemically important financial institutions.” » The full Bloomberg article – By Aki Ito – Feb 16, 2013

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Looking Back:

• Mexico. Brazil. Argentina. Mexico, again. Thailand. Indonesia. Argentina, again. And now, the United States.
  The story has played itself out time and time again over the past 30 years. Global investors, disappointed with the returns they’re getting, search for alternatives. They think they’ve found what they’re looking for in some country or other, and money rushes in.
  But eventually it becomes clear that the investment opportunity wasn’t all it seemed to be, and the money rushes out again, with nasty consequences for the former financial favorite. That’s the story of multiple financial crises in Latin America and Asia. And it’s also the story of the U.S. combined housing and credit bubble. These days, we’re playing the role usually assigned to third-world economies. Read the Column » By – Paul Krugman, New York Times – January, 2008

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• The New York Times – Learning Network – Examining Key World Economies and Comparing Their Current Volatility -
  Overview: Students review key economic terms and ideas necessary for understanding world economies. They then research the economies of countries in the Group of 8 (20) and present how their economies have changed over the past five years and how the relationships among these countries affect each other in light of world events. » Go to this Economy and Society Lesson.
• The New York Times – Learning Network – Nowhere to Go but Up? Analyzing Economic Measures in a Downturn -
  Overview | How do we know when the economy is in a recession? How do key economic indicators perform in a downturn? In this lesson, students create graphs of various economic measurements, using quantitative and qualitative reasoning skills to compare, contrast and correlate the performance of measures like gross domestic product, unemployment and personal income. » Go to this Economy and Society Lesson.

• “There is an information fog” that “is very much associated with the loss of confidence in the credit-rating agencies,” Federal Reserve Chairman Ben S. Bernanke said at a meeting on Aug. 7, 2007.
• The U.S. is seeking as much as $5 billion in penalties in punishment for inflated credit ratings that Attorney General Eric Holder said were central to the worst financial crisis since the Great Depression. » The full Bloomberg article – By Joshua Zumbrun & Jeff Kearns – February 6, 2013

“Laws, like sausages, cease to inspire respect in proportion as we know how they are made.”
John Godfrey Saxe, American poet and lawyer, 1869
• Add bond ratings to that list. » More in this New York Times article – By Floyd Norris November 8, 2012.

S&P found guilty of misleading investors

Bank Investors Dismiss Moody’s Cuts as Years Too Late

• Moody’s Investors Service suffered a downgrade of its own as markets responded to the company’s rating cuts of 15 of the world’s largest banks by bidding up the value of their stocks and bonds.
• “We view the Moody’s downgrade as another overhyped story of 2012,” David Trone, analyst at JMP Securities LLC, wrote to his clients. “The corporate market thinks for itself and credit rating agencies are often lagging indicators.” » The full Bloomberg article – By Dakin Campbell and Michael J. Moore on June 22, 2012.

• Looking back
• A report by the Senate’s Permanent Subcommittee on Investigations said that S&P, Moody’s and Fitch Ratings helped trigger the financial crisis when they cut thousands of mortgage securities they rated AAA to junk status. The raters had engaged in a “race to the bottom” to win business, lawmakers said.
• Even after Congress included rules in the Dodd-Frank Act last year designed to cut reliance on ratings, S&P and its competitors remain a key part of the financial markets. Pension and mutual funds often require minimum ratings to buy debt securities. Banks are generally required to hold less capital to back higher rated bonds as regulators including the Federal Reserve have yet to find an alternative. » The full Bloomberg background article – By Zeke Faux and Jody Shenn – Sep 1, 2011

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• The New York Times – Learning Network – Examining Key World Economies and Comparing Their Current Volatility -
  Overview: Students review key economic terms and ideas necessary for understanding world economies. They then research the economies of countries in the Group of 10 and present how their economies have changed over the past five years and how the relationships among these countries affect each other in light of world events.  Go to this Economy and Society Lesson.
• The New York Times – Learning Network – Understanding Credit Cards and Credit Card Debt -
  Overview: Students examine and learn the basics about credit cards and credit card debt, then create an informational brochure for young students. Go to this Economy and ESL Lesson.