Währungskörbe sind in Mode

Or at least so it seems. China deutet Kehrtwende in Währungspolitik an meldet das Handelsblatt. Textauszug:

Chinas Notenbank stellt wenige Tage vor dem Antrittsbesuch von US-Präsident Barack Obama einen Kurswechsel in ihrer Währungspolitik in Aussicht. Die Zentralbank signalisierte, den Kurs des Yuan künftig an einem Devisenkorb zu
messen, und deutete damit eine Abkehr von der De-facto-Anbindung an den Dollar an, die seit Mitte 2008 in Kraft ist.

Draft of President Obama's Financial Regulation Proposal

The New York Times reports about President Obama's plan to reshape financial regulation. There is also a link to the original text of Obama's proposal. Also in the NYT there is a background article on how the plan was drafted: Obama Sought a Wide Range of Views on Finance Rules.

With his regulation plan, President Obama wants to meet five key objectives. Reforms should ...

1. Promote robust supervision and regulation of financial firms
2. Establish comprehensive regulation of financial markets
3. Protect consumers and investors from financial abuse
4. Provide the government with the tools it needs to manage financial crises
5. Raise international regulatory standards and improve international cooperation

More on this here.

Buy American, or: The stimulus bill and US trade obligations

Renowned US trade economists Clyde Hufbauer and Jeffrey Schott warn against US protectionism under President Obama's huge stimulus package: US Free Trade Promises Must Be Honored. Excerpt:

In the stimulus bill, Congress insisted that federal funds could be applied only to projects that used US-made goods, unless that condition violated US trade obligations. But funds for many of the projects funded by the stimulus are funneled to state officials, many of whom ignore or don't know the details of US trade agreements and insist on US content for fear of losing federal windfalls. The federal government designed the stimulus program and provided the funds to pay for it. In our view, simply because a state official tenders the contract doesn't void the international obligation. The WTO and NAFTA judges would surely agree. more...

Joseph E. Stiglitz: The Seven Deadly Deficits

Mit der Fragestellung "What the Bush years really cost us, and how President Obama can get the economy back on track." hat der Nobelpreisträger Joseph E. Stiglitz den Artikel "The Seven Deadly Dificits" verfasst. In diesem Artikel hat er die Wirtschaftspolitik der Bush-Regieung kritisiert und die Fehlentscheidungen der Bush-Regierung in sieben Defizite zusammengefasst, dazu sind: the values deficit, the climate deficit, the equality deficit, the accountability deficit, the trade deficit, the budget deficit, the investment deficit.

Die Ursache, warum das Publikum zu weing Wert auf das Wachstum der Difizite gelegt hat, liegt nach der Meinung Stiglitz in zwei Hypothesen:
"The first is that they simply trusted in supply-side economics—believing that, somehow, the economy would grow so much better with lower taxes that deficits would be ephemeral.The second theory is that by letting the budget deficit balloon, Bush and his allies hoped to force a reduction in the size of government."

Anschließend hat er der Obama-Regierung zwei Maßnahmen vorgeschlagen: Steuererhöhung und Senkung der staatlichen Ausgaben.

The US Deficit in Global Perspective

The Big Picture, a well-known economics blog, provides an interesting glimpse of the US budget deficit in global perspective. Question: What do the GDP of Spain, of Brazil, of India, Australia, Switzerland etc. have in common? Answer: Each of them is smaller than the US deficit.

Conclusion (from the blog):

If the government fails in securing funding, a very high probability of systemic collapse.

New Capital Assistance Program for US Banks

The latest version of the US government's rescue plan for commercial banks - the Capital Assistance Program (CAP) - was published yesterday by the US Treasury Department: Joint Statement by the Treasury, FDIC, OCC, OTS and the Federal Reserve. The program will begin on February 25. Here is the key passage of the joint statement:

Under this program ... the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. <...> Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares. more...

The new program could result in the nationalization of major US banks, with Citigroup being the first. Cf. the reports in the Washington Post and the New York Times. Paul Krugman argues that nationalization is unavoidable: Isn’t nationalization un-American? No, it’s as American as apple pie. Treasury Sectretary Timothy Geithner disagrees: Nationalization is the wrong strategy.

American Sonderweg?

While the European Union is working on tighter regulation of hedge funds (see previous post), the Federal Reserve will effectively start acting as a prime broker for them, as the Financial Times reports: Hedge funds gain access to $200bn Fed aid. For a critical discussion, see also the corresponding entry in the investment banker blog naked capitalism with further links.

Hedge funds' access to Federal Reserve credit will take place in the context of TALF, the Term Asset-Backed Securities Loan Facility. (Fed's Press Release on the new rules for TALF.) In opening TALF for hedge funds, the Fed will help them get the leverage they need for their business model. In effect, the Fed will help hedge funds to stay alive in an environment that has become increasingly hostile for them. More on hedge funds' problems in times of the credit crunch can be found in FAZ: Kampf um die Zukunft.

This brings me to my question: Why keep hedge funds alive with public funds? I say: Don't do it! Let them wither away and die a natural death. Let them become the dinosaurs of economic evolution. One less problem to worry about.