October 18, 2017

Hurdles Still High for a New Front-Runner

The first would be to win confirmation from the Senate — an obstacle that doomed the previous front-runner for the job, Lawrence H. Summers.

While Ms. Yellen faces much less potential opposition than Mr. Summers did, the White House is not taking Senate approval for granted. Even as the administration informed legislators on Capitol Hill on Thursday that Ms. Yellen probably would be President Obama’s nominee, one official said the point of the calls was not so much to gauge support but to tell Democratic senators they should defend Ms. Yellen if she comes under attack before a formal nomination.

The second, even bigger, challenge would be to manage the central bank’s retreat from its unprecedented efforts to stimulate the economy, even as the nation’s job market remains frustratingly weak more than four years after the Great Recession.

With the collapse of Mr. Summers’s candidacy, White House officials began calling Senate Democrats about the Fed choice; a senior Congressional aide said the only name they mentioned was Ms. Yellen’s. Since she has become the focus of public discussion, the president’s staff is worried that she could become a target for criticism, just as Mr. Summers was, before the White House actually nominates her and can defend her.

Jeff Merkley, an Oregon Democrat who serves on the Senate Banking Committee, said in an interview Thursday that the White House had accelerated the vetting process for Ms. Yellen.

“Certainly my impression is the White House is taking a very serious and fast-track examination of her as a potential nominee,” Mr. Merkley said.

While Ms. Yellen enjoys strong support from Senate Democrats — a third of the caucus took the unusual step of signing a letter urging the president to nominate her, even before the White House indicated it was leaning toward Mr. Summers — Senate Republicans will be more difficult to persuade.

Some, like Senator Richard C. Shelby of Alabama, an influential member of the Banking Committee, have expressed reservations about her leadership in the past. Mr. Shelby voted against confirming her as vice chairwoman of the Fed in 2010.

Despite the opposition, Ms. Yellen, if nominated, is expected to win Senate confirmation and assume the leadership of the Fed early next year.

Mr. Bernanke handed his successor a gift this week when the central bank surprised Wall Street and many economists by not easing the stimulus effort.

On Wednesday, Mr. Bernanke walked back his earlier suggestion that the Fed’s huge bond-buying effort would cease when the unemployment rate fell to 7 percent, instead leaving the door open for that form of stimulus to continue well into 2014 and perhaps beyond, even if that jobless threshold is breached.

That flexibility is something that Ms. Yellen might well take advantage of. As the most prominent member of the Fed’s dovish flank, other than Mr. Bernanke himself, Ms. Yellen has focused more on the dismal state of the labor market and the pressures facing poor and middle-class families than on the potential threat of financial instability and inflation down the road.

In a major speech in February, Ms. Yellen highlighted not only the elevated unemployment rate, but also long-term joblessness, the high poverty rate, sluggish wage growth, labor force dropouts and homelessness as major reasons for the Fed to continue the stimulus. “The effects of the recession and the subsequent slow recovery have been harshest on some of the most vulnerable Americans,” Ms. Yellen said.

While the unemployment rate has fallen steadily, hitting a five-year low of 7.3 percent in August, much of that improvement has come from workers dropping out of the labor force rather than vigorous job creation. The monthly pace of new jobs has slowed, falling from well over 200,000 new jobs being added each month at the end of 2012 to 169,000 in August 2013.

A more telling indicator of the continuing weakness of the economy, analysts say, is the proportion of Americans who are part of the labor force, which in August hit 63.2 percent, a 35-year low. While some of that decline is because of structural factors like the retirement of baby boomers and the continuing shift from industrial jobs, the trend has accelerated significantly since 2007, prompting many economists to conclude it is primarily a cyclical phenomenon that can be cured only by faster economic growth.

Mr. Bernanke, in fact, highlighted the falling participation rate in a news conference after the Fed’s decision on Wednesday.

Jeremy Peters and Peter Baker contributed reporting.

Article source: http://www.nytimes.com/2013/09/20/business/economy/hurdles-still-high-for-a-new-front-runner.html?partner=rss&emc=rss

Luxury Brands Face Hazards When Testing Lower Costs

Apple on Tuesday will introduce two iPhones, including a new lower-cost model targeted at overseas countries where expensive smartphones are out of reach for many consumers.

The addition of a cheaper iPhone could help Apple sell tens of millions more phones. But it could also diminish its reputation as a premium brand.

Many luxury companies have faced this challenge before, with wildly different results. Luxury carmakers have introduced less expensive models, but many efforts have tripped up. Tiffany Company found so much success with its cheaper “Return to Tiffany” jewelry, that it attracted too many teenagers. And Target has paired up with a variety of high-end fashion designers, often with considerable success.

For Apple, the devil will be in the details: just how much lower the price of the cheaper iPhone is, and just how much cheaper it looks and feels. If the iPhone is deemed cheap, it could get into the hands of so many people worldwide that it loses power as a status symbol and turns Apple into a maker of commodity products like Dell, Hewlett-Packard or Asus.

“It’s hard. It’s an art and a science,” said Milton Pedraza, chief executive of the Luxury Institute, a research firm. “It’s hard to know you’ve gone over the line until you do it.”

Makers of luxury cars have long struggled with how to increase their market share with less expensive models, while still retaining the brand’s cachet and exclusivity.

The marriage of Daimler-Benz and Chrysler failed partly because German engineers developing Mercedes sedans were opposed to sharing parts with mainstream Chrysler models made in the United States. While that preserved the integrity of the Mercedes brand, the company missed a golden opportunity to cut overall costs. Still, Mercedes is taking another stab at lower-cost models, introducing the CLA sedan later this year.

Toyota’s Lexus brand stumbled some when it introduced lower-priced IS sedans that lacked the high-end features and overall glitz of its signature models. Lexus has since addressed the issue by making its entry-level cars more powerful and sporty.

The fashion industry has also experimented with going more mainstream. Ralph Lauren offers lower-priced lines while also having a high-end product. But a partnership with Neiman Marcus and Target was a major failure.

Even the travel industry has tried extending luxury brands, like Starwood’s Aloft line of hotels, which is promoted as “a vision of W Hotels,” a top Starwood brand, and “style at a steal.”

Of course, many retailers try to drive up sales by lowering prices, and that effort has become only more prominent in the Internet era, when consumers have technology tools to browse an entire industry and compare prices in nanoseconds.

“This cheaper iPhone is just one part of a whole trend that is going on that is epically changing the face of this industry,” said Robin Lewis, chief executive of The Robin Report, a retail strategy newsletter. “It’s devaluing the definition of the word ‘value.’ And it’s going to affect every premium brand.”

Still, many analysts believe that if Apple can get consumers — particularly those in China and India — to buy a cheaper version of the phone, those people would be more likely to buy Apple’s premium products in the future.

“It’s going to be the TV, it’ll be the wrist watch, it’ll be the integration in your BMW — all these things later down the road that still carries the premium brand,” said Laurence Isaac Balter, chief market strategist at Oracle Investment Research, which has clients that own Apple shares.

Apple has crossed over into pushing nonpremium products before, and failed. In the 1990s, after Steven P. Jobs had been ousted from the company, Apple started a program offering its software to makers of generic personal computers, and some of those manufacturers were able to build computers faster and cheaper than Apple could. The company, having lost its value to consumers as a premium brand offering an exclusive product, almost went bankrupt.

Stephanie Clifford and Bill Vlasic contributed reporting.

Article source: http://www.nytimes.com/2013/09/10/technology/guarding-a-luxury-aura.html?partner=rss&emc=rss

No Clarity From Fed on Stimulus, Upsetting Wall St.

The confusion over exactly when the Federal Reserve will begin scaling back its huge economic stimulus efforts only deepened Wednesday, with the release of a summary of the deliberations at the central bank’s last meeting in late July.

There were hints that some members of the divided committee are comfortable with beginning to ease the Fed’s program of buying $85 billion a month in government bonds and mortgage securities as soon as their next meeting in mid-September. But there were also indications that another camp within the policy-setting group favors waiting until December, or even later.

The only thing that was clear is that the Fed intends to keep Wall Street — and the rest of the world — guessing.

For one thing, a number of participants at the Federal Open Market Committee raised concerns that economic growth in the second half of the year would prove disappointing, which would tend to encourage them to delay any changes in their current policy,

In June, the Fed’s chairman, Ben S. Bernanke, indicated the stimulus program could be scaled back this year if economic data continued to be relatively positive. But he avoided setting any target dates to begin what many investors refer to as the Fed’s coming “taper.”

The minutes of the meeting did little to clarify the issue. While “a few members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases,” a few others “suggested that it might soon be time to slow somewhat the pace of purchases,” the summary of the July 30-31 meeting said.

As a result, longtime Fed watchers came up with analyses so different from one another that it seemed as if they might be reading different documents.

In a report issued shortly before the stock market closed, IHS Global Insight concluded that “the Fed is unlikely to taper at the mid-September meeting,” and predicted a move in December instead.

One minute later, experts at Barclays offered their view that the minutes of the July meeting “do not alter our outlook for a tapering of purchases in September.”

Other institutions, like Goldman Sachs, hedged their bets. “Over all, we think this information is consistent with September tapering, but this is by no means certain,” the firm said.

With Mr. Bernanke all but certain to step down as Fed chairman early next year, most analysts expect the Fed to initiate the tapering process before he leaves office, and to do so at one of the meetings remaining this year — either September or December — where Mr. Bernanke is scheduled to conduct a news conference after the session. The committee will also meet in October, but Mr. Bernanke is not scheduled to address the media then.

On Wall Street, investors were just as uncertain as economists. After selling off immediately after the minutes were released at 2 p.m., stocks briefly rallied, only to fall back more deeply into negative territory by the end of the trading day. The most widely followed measure of the stock market among professionals, the Standard Poor’s 500-stock index, fell 9.55 points, or 0.58 percent, to 1,642.80. The Dow Jones industrial average lost 105.44 points, or 0.7 percent, to 14,897.55. The Nasdaq composite index declined 13.80 points, or 0.38 percent, to 3,599.79.

Bond prices also dropped after the release of the Fed’s minutes, sending interest rates higher. The price of the Treasury’s 10-year note fell 20/32, to 96 20/32, while its yield rose to 2.89 percent, its highest level since July 2011. It was at 2.82 percent late Tuesday. While the difference between a start to the tapering on bond purchases in September vs. December might not seem very significant to most people, the Fed’s decision-making is already affecting such things as the value of 401(k) retirement accounts, mortgage rates for home buyers and currency values in many emerging markets of the world.

By pumping $85 billion a month into the economy through the bond purchases, the Fed has helped push up prices for many kinds of assets, especially stocks. The indications that the infusions might soon come to an end has generated increased volatility both on Wall Street and in stock exchanges around the world.

Article source: http://www.nytimes.com/2013/08/22/business/economy/fed-closer-to-easing-back-stimulus-but-still-no-consensus-on-timing.html?partner=rss&emc=rss

Inflation Shows Signs of Stability After Downward Drift

While inflation remains benign, the increase last month should help ease worries among some Fed officials that price pressures in the economy were too low.

“Inflation is carving out a bottom. We are likely to see inflation tick up slightly in the second half of this year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The modest acceleration is welcome news for the Fed.”

The Labor Department said on Tuesday its Consumer Price Index increased 0.5 percent, the largest gain since February, after nudging up 0.1 percent in May.

A 6.3 percent surge in gasoline prices accounted for about two thirds of the increase.

In the 12 months through June, the CPI advanced 1.8 percent, an acceleration from the 1.4 percent logged in the period through May and the largest increase since February.

Stripping out energy and food, consumer prices increased 0.2 percent for a second straight month.

That took the increase over the past 12 months to 1.6 percent, the smallest rise since June 2011. The core CPI had gained 1.7 percent in May.

Although both inflation measures remain below the Federal Reserve’s 2 percent target, the report showed signs of fading disinflation pressures, with medical care costs increasing after being subdued for the past two months.

Prices for new motor vehicles, apparel and household furnishings also rose.

The signs of stabilization offered by the monthly core measure fit in with Fed Chairman Ben Bernanke’s assessment that a downward drift in the inflation rate was temporary.

Bernanke said last month the central bank would likely later this year start cutting back the $85 billion in bonds it is purchasing each month to keep borrowing costs low. Economists expect the Fed to begin reducing the amount in September.

“The lack of further slowing in core inflation on a monthly basis in the last two months helps keep Fed tapering on track,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

BETTER GROWTH PROSPECTS

While the year-on-year core CPI rate could slip further in coming months, it should reverse course as economic growth accelerates over the last half of the year, economists said.

They expect a drop in unemployment to boost wage growth.

That optimism about the economy’s prospects was bolstered by a separate report from the Fed showing output at the nation’s factories, mines and utilities rose 0.3 percent in June after a flat reading in May.

The increase reflected a 0.3 percent rise in manufacturing output. Economists said it suggested some pickup in economic activity at the end of the second quarter. Growth in the April-June period is forecast at an annual pace of between 0.5 percent and 1.0 percent, far below the first-quarter’s 1.8 percent rate.

“If manufacturing growth is on the verge of accelerating into the second half of the year, this, along with solid gains in housing, should support growth in the second half of 2013,” said John Ryding, chief economist at RDQ Economics in New York.

Another report on Tuesday showed confidence among single-family home builders soared to a 7-1/2 year high in July, amid expectations of stronger sales and buyer traffic.

U.S. financial markets were little moved by the data as investors awaited testimony Bernanke is set to deliver to Congress on the economy on Wednesday.

Tepid growth has kept a lid on inflation pressures, but some pockets of pricing power are starting to emerge.

Last month, owners’ equivalent rent, which accounts for about a third of the core CPI, increased 0.2 percent after a similar gain in May. Apparel prices recorded their largest increase in nearly two years, while new motor vehicle prices rose after being flat in May.

Medical care services rose 0.4 percent, the largest increase in a year. Medical care, which makes up about 10 percent of the core CPI, had been subdued in April and May. The cost of medical care commodities rebounded 0.5 percent, reversing the prior month’s decline, as the price of prescription drugs increased.

Tame medical care costs have been one of the key contributors to the low inflation rate over the past months.

Economists cite a host of reasons for the lack of pressure on health care costs, ranging from the expiration of patents on several popular prescription drugs to government spending cuts that have cut payments to doctors and hospitals for Medicare.

“We think the impact of these transitions has started to fade away and we expect that drug price inflation may start to pick up over the months ahead,” said Ryan Wang, a U.S. economist at HSBC in New York.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

Article source: http://www.nytimes.com/reuters/2013/07/16/business/16reuters-usa-economy.html?partner=rss&emc=rss

Common Sense: Fair Play Measured in Slivers of a Second

Two seconds may not seem like much, but for high-speed traders with supercomputers, it’s plenty.

The difference was arresting. On Friday, just 500 shares of a leading Standard Poor’s 500 exchange-traded fund traded during the first 10 milliseconds of the two-second window before the release of the University of Michigan data to Thomson Reuters’ regular clients, according to the market research firm Nanex. A year ago, on July 13, 2012, 200,000 shares traded during that 10-millisecond period, Nanex said.

Friday’s trading was all but “nonexistent,” said Eric Hunsader, founder of Nanex. “It was all about gaming the news, not the news itself.”

As an attempt to level the playing field for all investors, Mr. Schneiderman’s action clearly had an immediate effect. And he has said the settlement with Thomson Reuters is only a first step. While Thomson Reuters agreed to suspend the two-second advantage while his investigation continues, its regular clients get a five-minute jump on the general public, which gets the data at 10 a.m. Thomson Reuters pays the University of Michigan close to $1 million a year for the right to distribute the data.

The five-minute edge may well be the next target, since either everyone gets the information at the same time, or they don’t, whether the gap is seconds, minutes or hours. And Mr. Schneiderman has made it clear that Thomson Reuters isn’t the only target of a wide-ranging investigation.

The University of Michigan index falls into a broad category of private data that can move markets, or stocks in individual companies. About a dozen indexes compiled by private sources regularly affect markets; some of those are also released early. Other data is more industry-specific, but can also move sectors and individual stocks. Media companies have been trying to generate revenue and increase profits by charging fees for early access to all kinds of information.

All of this raises the question: Should everyone have access to market moving information at the same time? It turns out the answer is hardly self-evident.

For some market experts, the attorney general’s move is long overdue. Mr. Schneiderman is “a mile ahead of the Securities and Exchange Commission, which has to be dragged slowly and grudgingly toward raising the standard of behavior,” said John Coffee, a professor and expert on securities law at Columbia Law School.

The Securities and Exchange Commission is also collecting data on Thomson Reuters’ practices, although officials at the agency have said their jurisdiction is limited. An S.E.C. spokesman declined to comment.

Mr. Schneiderman’s investigation is the latest in a long series of efforts to reduce both the reality and the perception that the nation’s securities markets are rigged to favor those who already have money, power and special access. A vast network of laws and regulations is aimed at creating a more level playing field for investors, like criminal laws that ban securities fraud and the S.E.C.’s Regulation Fair Disclosure, which requires companies to widely disseminate market-moving information about themselves. Consider also the simultaneous public release of government information like employment data and the Federal Reserve minutes.

The goal is not just fairness, but to make capital markets more robust by encouraging the public — not just professional speculators — to invest.

“The reason America’s markets are the best and strongest markets in the world is that individuals always believed they could get a fair trade,” Mr. Schneiderman told me this week. “If you did your research well, you weren’t at a disadvantage because of information you couldn’t possibly access. It wasn’t a rigged casino.”

This article has been revised to reflect the following correction:

Correction: July 12, 2013

An earlier version of this column erroneously included an index from the Institute for Supply Management among those that are released early to some users. The I.S.M.’s manufacturing data is released at 10 a.m. eastern time to all users, including clients of Thomson Reuters.

Article source: http://www.nytimes.com/2013/07/13/business/the-ethics-of-a-split-second-advantage-for-traders.html?partner=rss&emc=rss

Ireland in Recession as Bailout Exit Approaches

Gross domestic product shrank 0.6 percent in the first quarter of this year from the previous three months, confounding analysts’ expectations of 0.3 percent growth – a shock reading that shows the euro zone member is recovering from financial crisis much more slowly than previously thought.

Revised data also showed a quarterly contraction of 0.2 percent in the fourth quarter of 2012, meaning Ireland’s economy has shrunk for three successive quarters and is in its first recession since 2009.

The Irish government is targeting growth of 1.3 percent this year and while Finance Minister Michael Noonan said he would not tie himself to any particular number when asked if that forecast would have to be revised, he said that other parts of the public finances were holding up better.

“They’re certainly disappointing but it’s one set of statistics,” he said.

“We built the budget on 1.3 (percent growth) and the tax flows for the first half of the year are consistent with our budgetary targeting. We’ll be slightly ahead of target, we think, for June.”

Ireland has been one of the few euro zone countries to have eked out mild growth as the currency bloc’s debt crisis has unfolded, despite harsh spending cuts and tax hikes imposed to help bring down one of Europe’s highest budget deficits.

Though Irish people have not protested against austerity as angrily as those in other indebted states such as Greece and Spain, many have endured salary cuts of up to a fifth and big tax rises. Unemployment has more than tripled, to 14 percent.

The second euro zone country to be rescued, in November 2010, it is due to complete its bailout later this year and has made a limited return to bond markets, although yields on its debt have recently started to rise again.

Analysts say the country has enough cash to cover most of its funding needs through next year, however, and should exit the aid deal on schedule, providing the European Union with a badly-needed success story for austerity.

BAD WEEK FOR IRELAND

The poor economic data rounds off a bad week for Ireland, where public anger is growing over leaked tapes of bankers laughing about a government rescue of the financial system that led to the bailout and years of austerity.

Three years on, a split in society is becoming clearer – property is selling fast in upmarket areas of Dublin, while shells of unfinished houses litter ghost estates and suburbs around the country. Overall, house prices have fallen by half.

“Dublin is booming, but I go to my home town and most of the shops are closed down,” said human resources worker Lynn, who did not want to give her second name. “It’s heartbreaking. Here it’s completely different. I can’t find properties to rent for people who are relocating.”

Thursday’s data showed the economy grew by just 0.2 percent last year, rather than the 0.9 percent initially thought, and an export-led recovery stalled in the second half of 2012, largely because of the slowdown in the rest of the euro zone.

Economic growth for 2011 was, however, revised up to 2.2 percent from 1.4 percent previously.

But returning to that level of growth this year now looks unrealistic after personal consumption fell 3.0 percent in the first quarter, its sharpest drop in four years. Exports of goods and services had an even steeper decline of 3.2 percent, the most since Ireland’s economic crisis began.

The prospect of easing up a little on austerity, which the government has been considering given leeway offered by a deal which eased the terms of debt repayment, now looks trickier.

Noonan, who has said he would rather use the slack to invest in capital projects, said on Thursday that it was still too soon to say how the leeway would be used and that he would make a call in September, a month before he presents his next budget.

“It’s very fragile and it probably means we have to be very careful about the scale of adjustment in budget 2014,” said KBC Ireland economist Austin Hughes, who revised down his growth for GDP this year to 0.7 percent from 1 percent previously.

(Additional reporting by Padraic Halpin and Sam Cage; Editing by Pravin Char)

Article source: http://www.nytimes.com/reuters/2013/06/27/business/27reuters-ireland-gdp.html?partner=rss&emc=rss

Economic Scene: Making the Case for a Rise in Inflation

So I understand Paul Volcker’s impatience with those tempted to let inflation rip — at least a little bit — to spur economic growth.

“The implicit assumption behind that siren call must be that the inflation rate can be manipulated to reach economic objectives — up today, maybe a little more tomorrow, and then pulled back on command,” Mr. Volcker said in a speech at the Economic Club of New York a few weeks ago. “All experience amply demonstrates that inflation, when fairly and deliberately started, is hard to control and reverse.”

And yet despite Mr. Volcker’s enormous skepticism about the merits of inflation, a heretical thought that first surfaced as the economic crisis gripped the world five years ago is again gaining traction among experts: economic policy should be aiming for significantly higher inflation than the 1 to 2 percent annual rate that the United States economy is currently experiencing.

When Mr. Volcker took the helm of the Federal Reserve in 1979, inflation neared 12 percent — a catastrophe by American standards. He spent much of his eight-year tenure strangling the economy with high interest rates. By 1983 the unemployment rate surpassed 10 percent — a feat not replicated even in the latest recession. He was reviled by home builders and auto dealers, whose businesses depend on credit. Prominent members of Congress asked him to resign.

Mr. Volcker ultimately won his battle. In 1986 he brought inflation below 2 percent. That’s the pace that has since become the de facto definition of “price stability,” a target for central banks around the world. Among economic policy types, he is considered a hero.

But now mainstream economists like Kenneth Rogoff at Harvard are pressing the case that “a sustained burst of moderate inflation is not something to worry about.”

“On the contrary,” he wrote, “in most regions, it should be embraced.”

The prescription fits the worldview of some “monetarist” economists, who argue that the Fed should set a higher target for the nominal gross domestic product, to be met through real economic growth and inflation. Conservative pundits like Josh Barro of Business Insider have welcomed inflation as the right’s answer to fiscal stimulus — a way to juice the economy without increasing government spending.

But it is hardly a conservative idea. Paul Krugman, a Nobel laureate and liberal columnist for The New York Times, has been writing about the benefits of higher inflation, arguing that policy makers should be using any available tool — fiscal or monetary — to try to reduce an unemployment rate stubbornly stuck at more than 7.5 percent for over four years.

To be sure, economists agree that inflation is no panacea. Higher inflation does not produce more growth or lower unemployment over the long term. There is a fairly solid consensus that unstable, volatile prices depress growth by short-circuiting decisions to spend and invest. That is why central bankers work so hard to “anchor” inflation expectations to a number.

But economists have also come to understand that an economy can suffer from too little inflation as well. Janet Yellen, the Fed’s current vice chairwoman, convinced Alan Greenspan more than 15 years ago, when she was serving an earlier term on the Fed, that setting zero inflation as a target was a bad idea that would complicate the necessary adjustment of relative prices in the economy.

The experience of the Great Recession over the last five years has persuaded many economists, among them Olivier Blanchard, the chief economist at the International Monetary Fund, that a higher inflation target in good times would allow central banks to do more to fix things when the economy went bad.

With inflation anchored at 2 percent, real interest rates could fall no further than a negative 2 percent, hitting a floor when the nominal interest rate reached zero. If it had been anchored at 4 percent, real rates would have had further to go, providing a more robust boost to investment and spending.

These arguments apply to steady-state inflation in normal times. But with the economy still mired in the mud, and the odds of more fiscal stimulus near zero, economists like Mr. Rogoff and Gregory Mankiw of Harvard want to give the monetary screw another turn and have called on the Fed to engineer higher inflation now, aiming for maybe 4 percent or even 6 percent.

One main feature of inflation is that it reduces the real value of debt. Think of the $13 trillion in outstanding mortgages or the $12 trillion in government debt held by the public. Inflation would eat away at those obligations, without any need for bankruptcy lawyers. And it would leave more disposable income for Americans to spend.

Higher inflation in the United States would also weaken the dollar, helping exports. It would encourage people to spend now rather than sit on their cash.

And if the government engineered “monetary repression” to keep long-term interest rates below the economy’s nominal growth rate, effectively forcing banks to buy lots of government bonds, a few years’ worth of higher inflation could do wonders to reduce the public debt.

Mr. Rogoff points out that the case for higher inflation was stronger in 2008, when mortgage debt reached $14.5 trillion and debt service swallowed almost a fifth of households’ disposable income. Still, he notes, a solid case remains for faster-rising prices around the world.

Higher inflation in Germany, Europe’s juggernaut, would make it easier for the damaged economies that share the euro — like Greece, Portugal and Spain — to reduce their relative labor costs and increase their relative competitiveness.

Japan is finally giving higher prices a shot. In April, the new central bank governor, Haruhiko Kuroda, announced that he would pump huge amounts of yen into the economy to try to shake nearly two decades of stagnant, even falling, prices and raise inflation to 2 percent. While this would count as price stability by American standards, in Japan it amounts almost to runaway inflation. 

Yet for all the merits of the argument, the chances of the policy’s being more widely adopted are close to nil.

There is resistance from more than Mr. Volcker. Jeremy Stein, on the board of the Fed, has taken to worrying that the central bank’s loose monetary policy is already imperiling the financial system, stoking future bubbles as banks load up on risky assets to achieve their profit targets. Mark Gertler at New York University worries that long-term interest rates would simply follow inflation up — negating much of its benefit.

The Fed chairman, Ben Bernanke, told Congress last month that the central bank might soon move in the opposite direction, tightening monetary policy by cutting back on its program of bond purchases, which today total $85 billion a month.

And here’s the best reason to be skeptical: even if the Fed wanted to engineer higher prices, it is far from obvious how it would do that.

The Fed is not just buying bonds. It is also keeping short-term interest rates at zero. And it promised to keep pushing the economy at least until the unemployment rate fell below 6.5 percent or inflation surpassed 2.5 percent.

And yet, inflation is going the other way. The economy is even flirting with deflation. The bigger risk in the United States is not that our money will buy fewer oranges tomorrow. It’s that it will buy more.

Article source: http://www.nytimes.com/2013/06/19/business/making-the-case-for-a-little-more-inflation.html?partner=rss&emc=rss

Special Report: Aviation: Russia Returns to Form at Paris Air Show

Paris — Russia has had a long but not always happy relationship with the Paris Air Show. Soviet, and then Russian, aircraft have participated in every show since 1957, but at Le Bourget in 1973, the Tupolev Tu-144, Moscow’s supersonic challenger to Concorde, crashed in public, with the loss of all its crew and the death of several people on the ground.

In 2009 and again in 2011, Russia chose Le Bourget to showcase the Sukhoi Superjet 100, the first new airliner to be produced in Russia since the end of the Soviet Union, and the spearhead of an effort to re-establish a foothold in the commercial aviation market, at least at the regional level. But the reception was lukewarm and sales fell disappointingly short of target.

This year, however, looks likely to go better. A total of 46 Russian companies will be presenting their wares at the show, mostly under the banner of United Aircraft Corp., the state-controlled holding company formed in 2006 to consolidate under one roof private- and state-sector aircraft design and manufacturing.

“Our exhibition space is one and a half times larger than in previous years and we will of course be increasing our number of display aircraft,” Maxim Syssoev, a spokesman for United Aircraft Corp, said in an interview.

Patrick Guérin, the communications director for Gifas, an umbrella group for the French aerospace industry, said Russia would present several of the main attractions at the Paris Air Show this year.

Center stage will be the latest version of Sukhoi’s SU-35 multirole fighter jet, taking part in flight displays for the first time in foreign airspace.

The revamped SU-35, described by Sukhoi as a new aircraft with an old name — one that was first used in the 1990s — is scheduled to perform every day during the show.

A second Russian international debut will be the twin-seat Kamov KA-52 Alligator attack helicopter, which went into service with the Russian military in 2010. It will be on static display and will also complete a flight demonstration to highlight its upgraded rotor system.

Also scheduled for presentation is the Yakovlev Yak-130, a new generation of trainer aircraft designed for basic and advanced military flight-school cadets. The Yak-130, first displayed at Le Bourget in mock-up form in 2005, is now in service with the Russian and Algerian air forces. United Aircraft Corp. is hoping that its relatively modest $15 million price tag will help it to attract interest in times of straitened military budgets.

Russia’s only commercial offering is the Sukhoi Superjet 100 regional jet, which had its world debut in 2009. The Irkut MS-21, a 150- to 210-seat, midrange “21st-century airliner” family, is under development as a replacement for the Tu-154 in the Russian aviation fleet, and will be presented as a model only.

The principal Russian display in the space section of Le Bourget will be an integrated inertial satellite system for launching vehicles and spacecraft, presented by the Academician Pilyugin Center, which was established in 2007 as a research and production company specializing in aerospace guidance, navigation and control systems.

“Traditionally the most spectacular displays of Russian aviation happen at the Paris Air Show,” Mr. Syssoev said. “This is a reflection of our strong business dealings in the French market, where we collaborate closely on both civil and military aviation programs with the likes of Thales, Safran and Zodiac, among others.”

Article source: http://www.nytimes.com/2013/06/17/business/global/russia-returns-to-form-at-paris-air-show.html?partner=rss&emc=rss

China to Investigate European Wine in Wake of Solar Panel Tariffs

HONG KONG — China’s nouveau riche millionaires, wealthy princelings and bribing business executives may soon find their wallets a little thinner: The price for French Champagnes and Burgundies, Italian Barolos and pinot grigios and other European wines may soon rise in mainland Chinese stores.

Less than a day after the European Union said it was imposing preliminary import tariffs on Chinese solar panels, China’s Ministry of Commerce announced Wednesday that it had begun a trade investigation of wines imported from the European Union. The investigation could lead to the imposition of steep tariffs by China.

The European Union’s trade commissioner, Karel De Gucht, announced Tuesday in Brussels that he was imposing preliminary tariffs of 11.8 percent on solar panels imported from China, saying the panels were being “dumped,” sold for less than they cost to make, in Europe.

If China was trying to send a retaliatory signal to Mr. De Gucht personally, wine might be a good target. He owns a 50 percent stake in a wine-producing estate in the Tuscany region of Italy.

The Chinese commerce ministry carefully avoided linking the solar panels to Wednesday’s announcement that it would investigate European wines for improper duties or subsidies, saying instead that it was acting in response to a complaint from Chinese wineries.

But the ministry issued a separate statement expressing “resolute opposition” to the decision on solar panels. “We hope the E.U. will further show their sincerity and show flexibility, through consultations to find mutually acceptable solutions,” the statement said.

The 27 countries of the European Union exported $980.7 million worth of wine to China last year, most of it from France, according to customs data compiled by Global Trade Information Services in Columbia, S.C. That is much smaller than Chinese exports of solar panels to Europe, which reached $27 billion in 2011 before a combination of trade frictions and cuts in European subsidies to buyers of solar panels started to discourage shipments.

Threatening to retaliate against fine wines during a trade dispute with the European Union is time-honored tactic for international trade negotiators. Wine exporters are a powerful political constituency and national figures in some European countries, particularly France. A threat to limit their overseas sales is a way to bypass European leaders and appeal to public sentiment for a reduction in trade tensions.

Mr. De Gucht was already bucking widespread opposition in Europe by taking on Beijing over solar panels, with a range of national politicians and executives from other industries eager to expand — not curtail — trade relations with China.

In November 1992, in a dispute over European farm subsidies, the United States announced that it was imposing a 200 percent tax, to take effect in 30 days, on imports of still white wines from Europe, like Chablis from France and riesling from Germany, and a few red wines. The two sides quickly reached a compromise.

Until now, China has tended to pursue retaliatory trade actions against industrial products, including imports of polycrystalline silicon, the main material for solar panels. That material is already the subject of a Chinese trade investigation after the United States imposed antidumping and antisubsidy tariffs totaling about 30 percent on Chinese solar panels.

The Chinese threat against wine imports has the potential to upset consumers in China — at least some of the most affluent ones. The move may also end up impinging on some Chinese investors because growing wine consumption in China has prompted a surge of investment in French vineyards.

In recent years, Chinese companies and business leaders have snapped up more than three dozen chateaus in Bordeaux, the wine region that has drawn the greatest interest from Chinese drinkers.

The acquisitions involved mostly lesser-known vineyards among the close to 10,000 Bordeaux estates. Many of these properties have struggled in recent years to sell their wine in the traditional markets of Europe.

James Kanter contributed reporting from Brussels, Eric Pfanner from Serraval, France, and Hilda Wang from Hong Kong.

Article source: http://www.nytimes.com/2013/06/06/business/global/china-to-investigate-eu-wine-after-subsidy-and-dumping-complaints.html?partner=rss&emc=rss

China to Investigate European Wines After Solar Panel Tariffs

HONG KONG — China’s nouveaux riches millionaires, wealthy princelings and bribing business executives may soon find their wallets a little thinner: The price for French Champagnes and Burgundies, Italian Barolos and pinot grigios and other European wines may soon rise in mainland Chinese stores.

Less than a day after the European Union said it was imposing preliminary import tariffs on Chinese solar panels, China’s Ministry of Commerce announced Wednesday that it had begun a trade investigation of wines imported from the European Union. The investigation could lead to the imposition of steep tariffs by China.

The European Union’s trade commissioner, Karel De Gucht, announced Tuesday in Brussels that he was imposing preliminary tariffs of 11.8 percent on solar panels imported from China, saying the panels were being “dumped,” sold for less than they cost to make, in Europe.

If China was trying to send a retaliatory signal to Mr. De Gucht personally, wine might be a good target. He owns a 50 percent stake in a wine-producing estate in the Tuscany region of Italy.

The Chinese commerce ministry carefully avoided linking the solar panels to Wednesday’s announcement that it would investigate European wines for improper duties or subsidies, saying instead that it was acting in response to a complaint from Chinese wineries.

But the ministry issued a separate statement expressing “resolute opposition” to the decision on solar panels. “We hope the E.U. will further show their sincerity and show flexibility, through consultations to find mutually acceptable solutions,” the statement said.

The 27 countries of the European Union exported $980.7 million worth of wine to China last year, most of it from France, according to customs data compiled by Global Trade Information Services in Columbia, S.C. That is much smaller than Chinese exports of solar panels to Europe, which reached $27 billion in 2011 before a combination of trade frictions and cuts in European subsidies to buyers of solar panels started to discourage shipments.

  President François Hollande of France called on Wednesday for officials from all 27 countries to meet and form a united position on trade policy toward China, while France’s trade ministry labeled the Chinese action as “reprehensible.”

Threatening to retaliate against fine wines during a trade dispute with the European Union is a time-honored tactic for international trade negotiators. Wine exporters are a powerful political constituency and national figures in some European countries, particularly France. A threat to limit their overseas sales is a way to bypass European leaders and appeal to public sentiment for a reduction in trade tensions.

Mr. De Gucht was already bucking widespread opposition in Europe by taking on Beijing over solar panels, with a range of national politicians and executives from other industries eager to expand — not curtail — trade relations with China.

In November 1992, in a dispute over European farm subsidies, the United States announced that it was imposing a 200 percent tax, to take effect in 30 days, on imports of still white wines from Europe, like Chablis from France and riesling from Germany, and a few red wines. The two sides quickly reached a compromise.

Until now, China has tended to pursue retaliatory trade actions against industrial products, including imports of polycrystalline silicon, the main material for solar panels. That material is already the subject of a Chinese trade investigation after the United States imposed antidumping and antisubsidy tariffs totaling about 30 percent on Chinese solar panels.

The Chinese threat against wine imports has the potential to upset consumers in China — at least some of the most affluent ones. The move may also end up impinging on some Chinese investors because growing wine consumption in China has prompted a surge of investment in French vineyards.

In recent years, Chinese companies and business leaders have snapped up more than three dozen chateaus in Bordeaux, the wine region that has drawn the greatest interest from Chinese drinkers.

James Kanter contributed reporting from Brussels, Eric Pfanner from Serraval, France, and Hilda Wang from Hong Kong.

Article source: http://www.nytimes.com/2013/06/06/business/global/china-to-investigate-eu-wine-after-subsidy-and-dumping-complaints.html?partner=rss&emc=rss