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Currencies Drop as Dollars Flee Asia

August 22, 2013 by

The most-affected large economies have been those of India and Indonesia, two countries where many domestic and foreign investors are now rushing for the exits, exchanging local currencies for dollars. After months of declines, both countries’ currencies dropped further on Thursday, with the Indonesian rupiah and the Indian rupee falling about 2 percent before recovering some of their losses.

The currencies of Malaysia, the Philippines and Thailand also declined, although by less than 1 percent. Stock markets across most of the region fell Thursday, but share prices rebounded slightly in India after days of decline there.

South and Southeast Asia are being buffeted by broad shifts in international economics that are hurting emerging markets around the world. Those problems are compounded within Asia by local issues, notably the region’s dependence on the slowing Chinese economy and on costly imported oil, as well as large government budget deficits across much of the region.

Some Asian business leaders say they still hope the region can escape largely unscathed from broader troubles that are afflicting emerging markets this summer. Sofjan Wanandi, the tycoon who is the longtime chairman of the Indonesian Employers’ Association, said in a telephone interview Thursday that he believed Indonesia’s currency troubles were the result of a temporary failure by the government to formulate a response and communicate it clearly.

“We know the economy is O.K., but the government is not taking quick action,” he said, adding that he and other business leaders were working with the government on a policy statement to be issued Friday. “After that, we hope this will all be calmed down,” he said.

Largely unaffected on Thursday and in recent weeks have been the currencies of Asia’s two largest economies, China and Japan. China’s stock market has even posted a small rally this month on signs that an economic slowdown may be less severe than expected this autumn, although worries persist about next year.

With chronic trade deficits and a dependence on foreign investment, Indonesia and particularly India have faced the biggest problems in the region. The government of India has resorted to increasingly desperate measures in the past two weeks, like steeply raising taxes on imports of silver and gold, but it has been unable to halt the decline of the rupee, which is down more than 7 percent in August and more than 20 percent since the start of May.

Daily steep declines in the rupee are making it much harder for Indian companies to repay their foreign loans, many of them denominated in dollars. The rupee’s decline has also made real estate and other projects in India less attractive for foreign investors who count their profits and losses in dollars, prompting many of them to pull out as well.

As the Federal Reserve mulls tightening monetary policy in the United States in response to early signs of economic recovery there, rising interest rates on Treasury securities and other American financial instruments are drawing money away from emerging markets around the world.

Indonesia and other countries in Southeast Asia have been hurt by their dependence on China, where growth has not only slowed but has also begun shifting gradually away from industries dependent on commodity imports from Asian neighbors, like steel production, and toward service industries.

At the same time, South Asia and most of Southeast Asia, with the exception of the oil-exporting Malaysia, depend heavily on imports of oil that have become more expensive as turmoil in Egypt has pushed the price of Brent crude oil to nearly $110 a barrel.

Article source: http://www.nytimes.com/2013/08/23/business/global/currencies-drop-as-dollars-flee-asia.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

High & Low Finance: Homeownership May Actually Cause Unemployment

May 9, 2013 by Leave a Comment

But maybe it isn’t nearly as good as had been thought.

A new study by two economists concludes that rising levels of homeownership in a state “are a precursor to eventual sharp rises in unemployment in that state.” As more homes are owned, in other words, fewer people have jobs.

The study, by David G. Blanchflower of Dartmouth and Andrew J. Oswald of the University of Warwick in England, does not argue that homeowners are more likely to lose jobs than are renters. But it does argue that areas with high and rising levels of homeownership are more likely to be inhospitable to innovation and job creation and to have less labor mobility and longer commutes to work.

“We find that a high rate of homeownership slowly decimates the labor market,” Professor Oswald said.

At the simplest level, the authors of the study, released by the Peterson Institute of International Economics, point to the fact that the five states with the largest increase in homeownership from 1950 to 2010 — Alabama, Georgia, Mississippi, South Carolina and West Virginia — had a 2010 unemployment rate that was 6.3 percentage points higher than in 1950. The unemployment rates in the five states where homeownership went up the least — California, North Dakota, Oregon, Washington and Wisconsin — rose 3.5 percentage points during the period.

Such statistics are not persuasive by themselves, and the professors know it. Many factors obviously influence unemployment rates in any given state. North Dakota’s current boom stems from energy deposits, which would have been there no matter who owned the land.

But they say that the statistics show those patterns no matter how much they control for other variables and that the same picture emerges if they look at employment growth rather than unemployment rates. They say the pattern existed before the crash of the housing market that began in 2007 and that the statistics are not dependent on including the more recent period.

If that is true, why have few noticed it before? “The time lags are long,” they write, up to five years before a rise in homeownership hurts an area’s unemployment rate. “That gradualness may explain why these important patterns are so little known.”

Nonetheless, the idea is not new. Professor Oswald pointed to some of the data as far back as 1996, saying that in Europe as well as the United States a higher proportion of homeownership seemed to be associated with a higher level of unemployment. But other researchers soon concluded that the evidence did not support the thesis that homeowners were more likely to be unemployed than renters, and the correlation was largely ignored.

If the correlation is real, what could be the cause? The professors say they believe that high homeownership in an area leads to people staying put and commuting farther and farther to jobs, creating cost and congestion for companies and other workers. They speculate that the role of zoning may be important, as communities dominated by homeowners resort to “not in my backyard” efforts that block new businesses that could create jobs. Perhaps the energy sector would be less freewheeling in North Dakota if there were more homeowners.

Homeownership, in economists’ jargon, creates “negative externalities” for the labor market.

In Finland, there was something of a test of the thesis, the professors say. Finland changed its housing laws in the 1990s in ways that discouraged homeownership, putting the changes into effect at different times in different regions. “While homeowners are less likely to experience unemployment,” concluded Jani-Petri Laamanen, an economist at the University of Tampere who analyzed the Finnish housing market, “an increase in the rate of homeownership causes regional unemployment to rise.”

Until the credit crisis, homeownership was generally viewed in the United States as an unquestionably good thing. President George W. Bush, like his predecessors, boasted of a rising homeownership rate in his administration. He summarized the consensus in 2005 when he proclaimed June to be “National Homeownership Month.”

“The spread of ownership and opportunity helps give our citizens a vital stake in the future of America and the chance to realize the great promise of our country,” he wrote. “A home provides children with a safe environment in which to grow and learn. A home is also a tangible asset that provides owners with borrowing power and allows our citizens to build wealth that they can pass on to their children and grandchildren.”

Homeownership, the president concluded, is “a bedrock of the American economy, helping to increase jobs, boost demand for goods and services, and build prosperity.”

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/05/10/business/homeownership-may-actually-cause-unemployment.html?partner=rss&emc=rss

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Obama Plans to Name Jacob J. Lew as Treasury Secretary, Officials Say

January 9, 2013 by Leave a Comment

If confirmed by the Senate, Mr. Lew, 57, would be Mr. Obama’s second Treasury secretary, replacing Timothy F. Geithner, the last remaining principal on Mr. Obama’s original economic team, at the head of that team.

While Mr. Lew has much less experience than Mr. Geithner in international economics and financial markets, he would come to the job with far more expertise in fiscal policy and in dealing with Congress than Mr. Geithner did when he became secretary at the start of Mr. Obama’s term. That shift in skills reflects the changed demands of the times, as emphasis has shifted from the global recession and financial crisis of the president’s first years to the continuing budget fights with Republicans in Congress to stabilize the growth of federal debt.

The partisan tension over the budget between Mr. Obama and Republicans suggests that Mr. Lew will face a grilling by Senate Republicans in confirmation hearings. But despite weeks of speculation that Mr. Lew would be named Treasury secretary, Republicans have not signaled that they plan to mount the kind of opposition they raised to Mr. Obama’s potential nomination of Susan E. Rice, the ambassador to the United Nations, for secretary of state, and Chuck Hagel as secretary of defense; the president named Mr. Hagel on Monday, and eventually settled on Senator John F. Kerry, Democrat of Massachusetts, for secretary of state.

Mr. Lew’s departure would create an important vacancy for what would be Mr. Obama’s fifth White House chief of staff, a turnover rate that is in contrast with the stability at Mr. Geithner’s Treasury. The leading candidate is said to be Denis McDonough, currently the deputy national security adviser in the White House.

Mr. Lew had a brief turn in the financial industry before joining the Obama administration four years ago, working at the financial giant Citicorp, first as managing director of Citi Global Wealth Management and then as chief operating officer of Citigroup Alternative Investments.

His first job with Mr. Obama was at the State Department, where Mr. Lew was the deputy secretary responsible for managing day-to-day operations of the department and its international economic policy. Secretary of State Hillary Rodham Clinton protested to Mr. Obama when the president in 2010 tapped Mr. Lew to replace Peter R. Orszag as budget director.

It was Mr. Lew’s second stint heading the Office of Management and Budget. He previously served in President Bill Clinton’s second term, helping to negotiate a bipartisan budget deal with Congressional Republicans that led to four years of budget surpluses. In the 1980s, Mr. Lew was a senior aide to House Speaker Thomas P. O’Neill, a Democrat, also advising in budget negotiations with President Ronald Reagan.

He has been deeply involved in the deficit negotiations over the last two years. And, if he were quickly confirmed, as Treasury secretary his first test could come as soon as next month, when analysts expect a fight over raising the debt ceiling, which is the legal limit on the amount that the government can borrow.

Republican leaders have said they would refuse to raise the ceiling unless Mr. Obama agrees to equal spending cuts, particularly in entitlement programs like Medicare and Social Security. Mr. Obama has said that he will not negotiate over the ceiling, with the country’s full faith and credit at stake.

With battle lines already drawn, the country is expected to run out of room under the ceiling sometime between mid-February and March. At that point, Congress would need to raise the borrowing limit, or the country would start defaulting on obligated payments, like those promised to seniors, doctors, contractors and bondholders.

Mr. Lew’s role as an Obama negotiator in 2011 did not endear him to Republicans, in particular House Speaker John A. Boehner, and he took a lower-profile role in the most recent negotiations at year-end. The White House was eager to avoid controversy given the likelihood of Mr. Lew’s nomination to Treasury. Instead Mr. Geithner and Rob Nabors, the director of legislative affairs, were lead negotiators.

Mr. Lew, a native of New York, is known for his low-key, professorial style and organizational skills. While he was a favorite of Mr. Obama and other staff members as chief of staff, Mr. Lew made it known that he did not want to continue in that post for a second term.

Article source: http://www.nytimes.com/2013/01/10/us/politics/obama-to-name-jacob-j-lew-as-treasury-secretary.html?partner=rss&emc=rss

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