Beijing, not Washington, increasingly takes the decisions that affect workers, companies, financial markets and economies everywhere

For many decades, global monetary policy has been set in Washington. When the Fed raised interest rates, global monetary conditions would tighten. Today, however, thanks in part to China's purchases of T-bonds, low long-term bond yields have offset the rise in American short-term interest rates over the past year. The yield on ten-year bonds is currently lower than before the Fed started to lift interest rates in June 2004. America's sovereignty over its monetary policy has therefore been eroded, with a given rise in short-term rates producing much less monetary tightening than in the past. To that extent, global monetary policy is increasingly being set in Beijing as well as in Washington.

By helping to hold down interest rates in rich economies, China may have indirectly created a global liquidity bubble. Total global liquidity last year rose at its fastest pace in three decades after adjusting for inflation. This excess liquidity has not pushed up conventional inflation (thanks to cheap Chinese clothes and computers), but instead it has inflated a series of asset-price bubbles around the world. Thus, pushing this argument to its limit, it could be said that the global housing boom is indirectly “made in China”. Not only has China played a role in holding down short-term interest rates, but the People's Bank of China has also supported America's mortgage market by buying vast amounts of mortgage-backed securities.

If abandoning its dollar peg causes China to reduce its purchases of T-bonds, then yields will rise. But this depends on several uncertainties. For instance, will last week's revaluation reduce inflows of speculative capital into China, and hence its need to intervene in the foreign-exchange market by buying dollars? A large chunk of China's foreign-exchange intervention over the past year has been to offset not its current-account surplus but inflows of hot money. Some economists believe that, in the short term, the small revaluation will intensify speculation of further revaluations and so attract even more capital inflows, forcing the People's Bank of China to buy more Treasury bonds to stabilise its currency. If so, bond yields will remain low.

On the other hand, the switch from a dollar peg to a currency basket may cause China to diversify its reserves away from dollars. It is unlikely to dump its dollars, but it could well reduce its new purchases of Treasury bonds in favour of other currencies. And, if China really has broken the yuan's link with the dollar, then this could be the trigger for another general slide in the greenback against the euro, the yen and other currencies, prompting investors to demand higher yields. The fate of American house prices could thus be determined by unelected bureaucrats in Beijing rather than the unelected central bankers of the West.

China creates immense opportunities, but it also brings new risks. If it stumbles, or if it decides to buy fewer American T-bonds, pushing up yields, then America might really have something to complain about: the first global downturn made in China.

VOCABULARY:

bond yields – доходность облигаций

 

liquidity bubble – (=excess liquidity) – избыток ликвидности, свободных денежных средств

 

asset-price bubble – необоснованный рост цен на финансовые активы

 

mortgage - ипотека, закладная; ипотечный кредит, при котором в качестве обеспечения ссуды заемщик передает кредитору права на недвижимость

mortgage market - ипотечный рынок, рынок закладных (рынок ипотечных ссудных капиталов, на котором происходит купля-продажа ипотечных облигаций, выпускаемых торгово-промышленными корпорациями и используемых для предоставления кредита под залог недвижимости)

mortgage-backed securities - ценные бумаги, обеспеченные закладными

dollar peg – фиксация государством курса национальной валюты относительно доллара (привязка к доллару)

revaluation - ревальвация; повышение курса валюты

 

foreign-exchange intervention - валютная интервенция: купля-продажа центральным банком валюты для воздействия на курс национальной денежной единицы

 

hot money - "горячие деньги"; спекулятивный (денежный) иностранный капитал

currency basket – валютная корзина

 

diversify – расширять круг используемых валют и финансовых инструментов (с целью повышения безопасности валютных резервов государства)

 

TRANSLATION NOTES:

monetary policy is increasingly being set in Beijing as well as in Washington – денежно-кредитная политика во все большей степени определяется не только Вашингтоном, но и Пекином

При переводе фраз с as well as важно сохранить расстановку акцентов. Смысловая структура фразы такая же, как у русского словосочетания не только, но и. Однако в переводе на русский язык порядок следования компонентов меняется.

 

 

38. G7 Cautions on Inflationary Pressures

Finance ministers and cen­tral bank governors from the world's leading economies have warned of increasing inflationary pressures, add­ing to concerns over rising protectionist sentiment and global trade imbalances.

The Group of Seven, in a statement issued on Satur­day, said although high oil prices would dampen eco­nomic activity, world growth would remain "solid". In September, it had singled out oil as a risk to growth while saying underlying inflation was contained.

The warning on inflation came as the US Federal Reserve continues to tighten monetary policy and follows the European Central Bank's quarter point rate increase last week - the first in five years. The Bank of Japan has also started to prepare the ground for an eventual curtailing of its exception­ally loose monetary policy.

The G7 again committed itself to actions to raise national savings in the US and promote domestic-led growth in Europe and Japan. It also called for greater exchange rate flexibility in Asian emerging markets.

Repeating its standard lan­guage that exchange rates should reflect economic fundamentals, the G7 singled out China. "We expect that further flexible implementa­tion of China's currency sys­tem would improve the func­tioning and the stability of the global economy and the international monetary sys­tem," it said.

Since China revalued its currency by 2 per cent against the dollar in July there has been little movement in the renminbi, which is now pegged to a basket of currencies, in spite of a band that was supposed to allow it to rise or fall against the dol­lar by 0.3 per cent daily.

John Snow, Treasury secretary, has managed to con­tain protectionist pressures in the Congress. The spon­sors of a Senate bill impos­ing large tariffs on Chinese imports have agreed to delay a vote on the legislation - to provide time for China to demonstrate that its new currency regime will lead to real reform.

Mr Snow said: "China's new exchange rate system has operated with too much rigidity... this poses risks to China's economy and the global economy."

Participants said Jin Renqing, China's finance minis­ter - who was attending a special session of the meet­ing together with Brazil, India and South Africa - said China would, over time, allow market forces to play a greater role in determining the value of the renminbi.

Gordon Brown, UK chan­cellor of the exchequer, gave a warm welcome to trade concessions offered by Brazil and India if Europe and the US agreed to deeper cuts in agricultural trade barriers. France's opposition to reform of European Union farm policies is one of the main obstacles to progress in the trade talks.

VOCABULARY:

inflationary pressure - инфляционное давление

economic fundamentals – основные макроэкономические показатели

domestic-led growth – увеличение темпов роста экономики, вызваное внутренними факторами

Сравните: export-led industries – отрасли экономики, получившие развитие за счет экспорта.

 

 

39. Bank of Japan Pressed to Ease Monetary Policy

The Bank of Japan is under pressure from the Ministry of Finance and politicians to take action at a policy board meeting to help check the surge of the yen to a three-year high against the US dollar.

Some politicians and government officials indicated at the weekend that a deal with the bank may have been struck, and the bank would make a token concession to loosen monetary policy. However, it remains unclear whether a majority of the board members will endorse this deal at the meeting, fearing this would undermine the central bank’s independence.

The Ministry of Finance has been putting pressure on the bank to make a symbolic gesture of concession to have the way for concerted action with the US to weaken the yen. Japan’s drive to gain support for joint moves on the yen is to be an issue at next weekend’s meeting of Group of Seven finance ministers.

Officials are concerned that the strengthening of the yen against the dollar last week could hamper Japan’s recovery from its worst postwar recession.

The Bank of Japan maintains that loosening monetary policy in unlikely to have much economic impact as interest rates are close to zero, and there is little demand to borrow funds by Japanese corporations.

But politicians argue that even a symbolic change in monetary policy may have a beneficial impact on market psychology, particularly because the bank and ministry appear to have been at odds in recent days. This has also complicated efforts by Japanese politicians to convince the US of the merits of joint intervention.

The Nikkei newspaper, the business daily which is often used to express official policy views, said at the weekend that the bank was planning to ease monetary policy. Bank officials are said to be mulling three options: increasing the supply of funds to the interbank money market, buying more short-term government bonds from financial institutions, and engaging in “repo” operations where it borrows bonds from the market.

VOCABULARY:

make a token concession; make a symbolic gesture of concession – лишь частично пойти на уступки; чисто символически пойти на компромисс

“repo” operations - repurchase agreement: договор (соглашение) об обратной покупке, репо - соглашение, по которому продавец обязуется в установленный срок выкупить у покупателя проданные ему ценные бумаги по установленной цене

 

 

40. FED Report Shows Economy Remains Robust

The US economy continues to exhibit overall strength, with few signs of rising wage pressures but growing evidence of increases in wholesale prices, the Federal Reserve said yesterday.

In its six-weekly Beige Book report on economic conditions in the various regions of the US, the FED said growth rates were “moderate to brisk” across most of the country in August and the first half of this month.

The Beige Book is prepared by the FED’s 12 districts across the US and is a valuable guide for policymakers as they assess whether or not to raise interest rates to cool the economy.

The FED’s districts reported widespread evidence of increases in wholesale prices, as raw materials costs surged. These increases followed a pickup in global commodity prices and a decline in the value of the US dollar this year.

The FED said steelmakers in the Cleveland district, for example, reported price increase of 5-7 per cent, while construction costs in Dallas were up by 5-8 per cent in the first eight months of the year.

There was also evidence of sharp increase in the cost of companies’ health insurance benefits for employees.

These two emerging trends may cause some concern at the FED. For the last three weeks commodity prices, a strong dollar and falling healthcare costs have been critical elements in the benign performance of overall inflation in the US.

The FED also reported that consumer spending remained strong and industrial activity rose in many parts of the country, helped in part by resurgent Asian demand. But construction spending, which has been extremely brisk for most of the year, is starting to slow.

The banking sector remained in generally sound condition, with credit quality overall still good.

VOCABULARY:

wage pressure - требования увеличения заработной платы

 

Beige Book - "Бежевая книга" - разговорное название Доклада об экономической ситуации в США, который выпускается Правлением Федеральной резервной системы и выходит 8 раз в год. Готовится банками ФРС и содержит информацию по округам ФРС и отраслям экономики. Официальное название "Сводка комментариев о современном экономическом положении в округах Федеральной резервной системы" (Summary of Commentary on Current Economic Conditions by Federal Reserve District)

 

policymakers - лица, ответственные за разработку экономической политики (например, денежно-кредитной); (часто имеется в виду правительство и ЦБ)

 

 

VOCABULARY CHECK

1) Налогово-бюджетная политика - это политика правительства в области налогообложения и государственных расходов.

2) При помощи денежно-кредитной политики ЦБ воздействует на стоимость и предложение кредита.

3) ФРС состоит из 12 банков, расположенных в различных штатах США и управляемых Советом директоров.

4) ЦБ США имеет три основных рычага воздействия на количество денег в обращении – операции на открытом рынке, учетная ставка и резервные требования.

5) Резервные требования – это средства коммерческих банков, которые они должны держать на беспроцентном счете в Центральном банке.

6) Срок погашения долгосрочных казначейских облигаций США – более 10 лет.

 

 

CASE STUDY:

The Asian Crash

The Japanese have an uncanny ability to enhance what they adopt from the Americans (market economy). Sadly, the Japanese have picked up on crashes as well and made theirs a lot bigger than any one historical American crash.

The Japanese economy gained extreme strength after its long recovery from the war and the atomic bombs. By coupling with the other emerging southeast Asian economies to form an unstoppable economic force, Japan seemed to create a flawless realization of Keiretsu. The phrase Japan Inc. was coined to describe how Japanese economy, business, and government were intertwined. Businesses from all over the world were sending representatives to try and find out how Japan was gaining its success. Soon, the Asian economy became an alternative for investors who were recently bruised by 1987.

Between 1955 and 1990, land prices in Japan appreciated by 70 times and stocks increased 100 times over. Trading became the national sport, and the Japanese jumped into the market with more blind confidence than that of the Americans of the 1920s. During the eighties, large Tokyo firms were worth more individually than all their American counterparts combined, and Japanese golf courses were worth more than the value of all the stocks on the Australian exchange.

Investors may have realized Japan was becoming a bubble, but it was believed that the high level of collusion between the government and business could sustain the growth forever. But an inverted growth cycle perpetuated itself when landowning firms started using the book value of their land to buy stocks that they in turn used to finance the purchase of American assets (Rockefeller Center is 80% owned by Mitsubishi Estate Company). Like the prosperity of the Roman Empire, the prosperity of Japan proved to be its undoing as corruption began to spread throughout the political and business realms.

The government sought to excise the tumor and put a halt to the inflammatory growth of stocks and real estate by raising interest rates. Regrettably, this didn't have the slow soothing effect on the market that the government hoped. Instead, it plunged the Nikkei index down more than 30000 points.

VOCABULARY:

appreciate - повышаться (о курсе вылюты, ценах)

appreciation of the euro – повышение курса евро

depreciation of the dollar – обесценение доллара

book value – номинал, номинальная стоимость, балансовая стоимость

Синонимы – par value, face value

 

TRANSLATION NOTES:

keiretsu – организация бизнеса в Японии, при которой банки и компании тесно связаны друг с другом; структура основана на перекрестном владении акциями нескольких компаний