TOP NEWS: Economy: August 3, 2012
- Central Banks Can’t Save the World
- Errant Trades Reveal a Risk Few Expected
- Bernanke Calendar Shows Central Bank Communications
- Doctroff: Market Alternative to Libor
- America’s jobless recovery: The big picture
Excerpts and more top stories
BANKING: Central Banks Can’t Save the World
Mohamed El-Erian, Opinion, Bloomberg – The three central bank meetings this week — the Bank of England, the European Central Bank and the Federal Reserve — made very good cases for additional stimulus measures, though they failed to specify what these would be. The unfortunate reality is that central banks can’t be the saviors this time around for a struggling global economy.
BANKING/FED: The Mañana Bankers
NY Times, Editorial – Despite ample evidence that the economy is weakening, the Fed chairman, Ben Bernanke, and the Fed policy committee decided on Wednesday not to undertake any additional monetary stimulus. Then, on Thursday, the E.C.B. also punted. Its president, Mario Draghi, failed to deliver on the bold action he signaled last week. That means trouble for everyone.
BANKING: J.P. Morgan ‘Whale’ Was Prodded
Gregory Zuckerman and Dan Fitzpatrck, WSJ – After reviewing emails and voice-mail messages, the bank has concluded that Bruno Iksil, the J.P. Morgan trader nicknamed for the large positions he took in the credit markets, was urged by his boss to put higher values on some positions than they might have fetched in the open market at the time, people familiar with the probe said.
TRADING GLITCH: Errant Trades Reveal a Risk Few Expected
Nathaniel Popper and Peter Eavis, NY Times -The trading firm Knight Capital recently rushed to develop a computer program so it could take advantage of a new Wall Street venue for trading stocks, but the firm ran up against its deadline and failed to fully work out the kinks in its system. The fiasco revived calls for bolder changes to a computer-driven market that has been hobbled by its own complexity and speed.
TRADING GLITCH: Knight Losses Ignite Call for Stronger SEC Trading Oversight
Robert Schmidt and Michael J. Moore, Bloomberg via Washington Post – The trading losses at Knight Capital Group Inc. renewed pressure on Washington regulators to prove they are equipped to protect investors in markets that are increasingly computerized and fragmented.
TRADING GLITCH: Wall Street’s Robot Uprising Quickly Quelled
David Futrelle, TIME – An as-yet-unspecified “technology issue” at Knight Capital sent shares in 148 companies careening up and down wildly shortly after the opening of US markets yesterday. The stocks affected ranged from well-known names to small stocks, which shot up 300% (and quickly fell back down again).
Kristina Peterson and Jon Hilsenrath, WSJ – On back-to-back days this week, U.S. Federal Reserve officials, followed by the head of the European Central Bank, signaled they were edging closer to taking new actions to support their slices of the global economy. So it is a fair time to ask: how much do global central banks work together?
Bruce Barlett, The Fiscal Times – Today, economic policy is paralyzed by the expectation of inflation that never arrives and never will unless policy changes. Unfortunately, that means that growth will not arrive, either.
Daniel L. Doctoroff, WSJ, Opinion -By now, it should be clear that the current mechanisms designed to inform markets what banks charge each other to borrow, are broken. Benchmarks that rely on subjective assessments made by interested parties simply cannot accurately reflect market realities.What might a better system look like?
R.A., Economist – All eyes focused on the homepage of the Bureau of Labour Statistics this morning, in anticipation of the latest release of America’s most watched piece of economic data: themonthly jobs report. The hope, as always, was for clarity, some obvious sign of the economy’s direction. Unsurprisingly, clarity was not on the menu. Instead, the July report held a bit of something for everyone.
Catherine Rampell, NY Times – Continuing a long slog upward from the depths of the recession, the American economy added 163,000 nonfarm payroll jobs in July, the Labor Department said on Friday. That compares to a revised 64,000 jobs in June.
J.D. Harrison, Washington Post – On the heels of several discouraging economic reports, the latest small business employment figures further suggest the recovery is losing momentum. The nation’s smallest firms trimmed their staffs ever so slightly over the past few months, losing an average of 0.04 workers per company, according the National Federation of Independent Business.
Shobhana Chandra, Bloomberg – Payrolls in the U.S. climbed more than forecast in July as automakers and health-care providers boosted employment, even as the jobless rate unexpectedly increased to a five-month high.
JOBS/HOUSING: U.S. Housing Policy and Its Impact On Unemployment
John Tamny, Real Clear Markets – Looked at in light of high unemployment at present, it’s important to point out that where an individual is located greatly impacts the amount and quality of job opportunities. Location surely matters, but at present underwater mortgages and soft housing markets can’t be helping when it comes to Americans leaving depressed areas in favor of more vibrant locales.
ECONOMIC RECOVERY/RETAIL: In Retail, Pockets of Strength
Karen Talley, WSJ – Same-store sales for July were mixed for U.S. retailers, with Target Corp. and Macy’s Inc. showing strength, while teen retailers like Wet Seal Inc. and Buckle Inc. had a soft start to the back-to-school season.
ECONOMIC RECOVERY/HOUSING: Investors help turn the housing market into a source of growth
The Economist – Investors are an important part of why America’s long-suffering housing market may at last have turned the corner. Their purchases have helped shrink the glut of vacant, foreclosed homes. Meanwhile, the stock of new homes for sale is the lowest on record, which has revived construction.
ECONOMIC RECOVERY/RECESSION: Shilling: New recession has begun
Howard Gold, Marketwatch – After a rocky spring, we’ve had two consecutive months of gains in the Standard & Poor’s 500 index. But just when you thought it was safe to get back into the market, here comes Gary Shilling to throw ice water on your hopes and dreams, saying that when economists sift through all the data, they will say the next U.S. recession began in the second quarter of 2012.
Brendan Greeley, Bloomberg – Politicians worry about the “fiscal cliff” — the economic turmoil waiting at year’s end when deep federal spending cuts go into effect and the tax cuts lapse — as though no one could have seen it coming after the Bush-era tax cuts. There is nothing we know now that we didn’t already know a decade ago.
Stephen Castle, NY Times – Buoyed by positive jobs news from the United States, financial markets steadied Friday, the day after the European Central Bank put pressure back on Europe’s politicians to take more steps before it begins a big operation to cut the cripplingly high borrowing costs for Spain and Italy.
MARKETS/COMMODITIES: Bull Market In Crops Extends With Drought
Nicholas Larkin and Whitney McFerron – Corn and soybean traders are bullish for a 15th consecutive week on speculation that the drought spreading across fields in the U.S. will spur the government to make more cuts to its production forecasts.
MARKETS/TRADING: Stocks open sharply higher on Wall Street following strongest hiring trends in 5 months
Associated Press through Washington Post – Stocks are rising sharply on Wall Street after the government reported that employers stepped up hiring in July at the fastest pace in five months. The Dow Jones industrial average shot up 205 points to 13,084 in the first half-hour of trading Friday.
MARKETS/CURRENCIES: Dollar falls after non-farm payrolls
Alice Ross, Financial Times – The dollar weakened following crucial employment data on Friday that showed a stubbornly high overall jobless rate in the US even as its economy created a larger-than-expected number of jobs in July.
EARNINGS/EUROZONE: European financial crisis has ripple effect on U.S. businesses
Ariana Eunjung Cha, Washington Post – In the latest series of earnings announcements from U.S. corporations, top American brands such as Whirlpool, Ford, General Motors, Starbucks and Apple have reported disappointing revenue because of Europe’s troubles. These results, over the past two weeks, have heightened concerns on Wall Street about the health of U.S. business.
Edward Conard, WSJ, Opinion – With the prospects for a postrecession economic rebound fading, it has grown increasingly obvious that the United States must eventually raise taxes or cut spending. President Obama claims we can raise taxes on those earning over $250,000, to avoid spending cuts with little, if any, effect on growth. The evidence doesn’t support Mr. Obama’s conclusion.
TAXES/ENVIRONMENT: Amid a Political Calm, a Tax Break for the Wind Industry Advances
Diane Cardwell, NY Times – On Thursday, the wind industry convinced a key Senate committee that green can be good politics in red states as well as blue ones. The Senate Finance Committee voted to renew a tax credit for wind power that is set to expire at the end of this year, with several Republicans joining Democrats to support extending the credit for one more year at a cost of $3.3 billion.
ECONOMIC POLICY: Debt, Depression, DeMarco
Paul Krugman, NY Times – There has been plenty to criticize about President Obama’s handling of the economy. Yet the overriding story of the past few years is not Mr. Obama’s mistakes but the scorched-earth opposition of Republicans, who have done everything they can to get in his way — and who now, having blocked the president’s policies, hope to win the White House by claiming that his policies have failed.
Anthony B. Sanders, Opinion, Bloomberg – The Obama administration was shocked this week when a federal regulator did his job. While the administration may not agree with DeMarco’s decision this week, it should recognize that he took his charge as regulator seriously, rather than acting as a mere facilitator.
William Pesek, Bloomberg via Washington Post – Rising food prices limit how much central bankers can cut interest rates to safeguard growth. More troubling would be the potential setback to poverty-reduction programs for decades to come.
The Common Good publishes an U.S. economy news digest every weekday, available here.