continentaleconomics.com Blog

Quote: “Globalization has been a “potent disinflationary force,'’ former Fed Chairman Alan Greenspan says in his book “The Age of Turbulence: Adventures in a New World.'’ He also predicts that the increase in the price of imports from China may be a first sign that the disinflationary force is receding.

To be sure, it isn’t a view that everyone supports. Fed Governor Frederic Mishkin is in the camp that doesn’t believe globalization has played a big role in keeping prices low. He would like the credit to go to central bankers.

“Tighter monetary policy and a commitment to price stability by central banks throughout the world have led to lower inflation and an anchoring of inflation expectations,'’ Mishkin said in a speech in Washington last week.

We’ll see how successful the Fed is in managing inflation when China withdraws its helping hand.

The real concern is that if China stops supplying disinflation to the U.S. and Bernanke ends up needing a replacement, he may not find too many suitable candidates.”

http://www.bloomberg.com/apps/news?pid=20601039&sid=ag5ULYQECfWk&refer=home

“Sept. 30 (Bloomberg) — European Central Bank President Jean-Claude Trichet said the global economy may suffer if sovereign-wealth funds don’t act transparently.

Sovereign, or state-owned, investment funds have surged in size as Asian countries and oil-exporting nations such as China and Russia seek higher returns from their currency reserves. The funds hold about $2.5 trillion worldwide, according to estimates by Morgan Stanley.”

Their rise has prompted concern among the Group of Seven nations that they might undermine financial markets and spark protectionism if they behave opaquely or target foreign companies involved in national security. Finance ministers from the G-7 countries and central bankers will discuss how to deal with the funds when they meet in Washington in mid-October.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=aa9OGG3K9klk&refer=home

“People are crazy and times are strange
I’m locked in tight, I’m out of range
I used to care, but things have changed.

… All the truth in the world adds up to one big lie

… You can’t win with a losing hand”.

http://www.youtube.com/watch?v=WQDeYzUkXOU

Commodities have biggest monthly gain in 32 years.

“The Fed has signaled pretty clearly that they will answer the problem of a slowing economy with greater liquidity,'’ said Chip Hanlon, who manages $1 billion at Delta Global Advisors Inc. in Huntington Beach, California. “We’re in a bullish phase for commodities.'’

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahz4k9Whhrys&refer=home

“Sept. 29 (Bloomberg) — China Investment Corp., the nation’s $200 billion sovereign wealth fund, starts operations today as the government seeks to boost returns on the world’s biggest foreign-exchange reserves.

The investment agency will come under the direct supervision of the nation’s cabinet, the State Council. Lou Jiwei, former vice finance minister, will act as director and Gao Xiqing, former deputy chairman at the National Council for Social Security Fund, will be general manager, according to information disclosed at an opening ceremony in Beijing.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPeGXnGYN9g4&refer=home

Comment: Reminds a little bit of the Sputnik shock. This time it’s a financial Sputnik. How about less shopping and more savings for the Americans?

http://www.bloomberg.com/apps/news?pid=20601090&sid=aif4iPhpD37A&refer=france

Stagflation is brewing in Europe, too. Slithering into a global crisis?

euro:    $  1.4241

gold:    $  751.10

oil:       $  82.60

“Sept. 28 (Bloomberg) — Consumer spending in the U.S. rose more than forecast in August, suggesting Americans are as yet undeterred by a softening labor market and higher borrowing costs.

The 0.6 percent rise in spending was the biggest in four months and followed a 0.4 percent increase in July, the Commerce Department said today in Washington.”

News story: http://www.bloomberg.com/apps/news?pid=20601087&sid=a8sOisNibjmk&refer=home

Comment: The American consumer is doped. 

EUR-USD    1.4200

News story: http://www.bloomberg.com/apps/news?pid=20601103&sid=adR0vrKzvmZw&refer=news