Talk Back

These are the personal views of Thomas Lam, group chief economist at OSK Group/DMG & Partners:

With the U.S. economy recovering, the outlook for the initial Federal Reserve rate hike would be crucially dependent on the state of market conditions and the stability of underlying inflation. The weight of the former tends to be more significant partly because of its timeliness and interconnectedness.

The pullback in the Barometer of Market Stress, or BoMS, to just a hairline above zero in May from more than +0.6 over the past 12 months on average suggests that market conditions have deteriorated. But the May data is still far from the fall 2008 low of around -2. (A subzero BoMS suggests that market conditions are strained or tight.)

Historically, the Fed has never initiated a rate hike when market conditions turned less favorable. Hence, if the BoMS slips further, then the odds for the Fed to normalize policy in fourth-quarter 2010, still our prevailing forecast at this time, will dwindle.

April inflation data have drifted lower. While we expect modest disinflation in the near term, the stability in longer-term inflation indicators should mitigate some of the downward pressure.

Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Greece is insolvent. No austerity or new taxes will pay its debts.

Like a homeowner owing four times income, belt tightening and a longer repayment period are not enough. Either, the house is sold to clear the debt or the bank takes back the house.

Greek bondholders don’t have that choice–they can’t repossess the Parthenon.

Greece is a sovereign country, and either it will be the recipient of endless German largess–an unlikely scenario–or European creditors, banks among them, will take a loss.

Now, the International Monetary Fund bluntly warns Spain, to avoid becoming the next Greece, that it must radically overhaul labor laws, pensions and consolidate banks–that’s tough for a sovereign that doesn’t print money in the midst of a market panic.

Germany and European banks can’t take that hit.

Continue reading…

These are the personal views of Axel Merk, president and chief investment officer of Merk Investments, a currency-focused firm based in Palo Alto, Calif.:

Forget about the flight to the dollar at the peak of the financial crisis: the yen was the ultimate beneficiary. The endlessly quoted unwinding of the carry trade was a factor, but there may have been a more important force at play. As that force may now be under increased pressure, the yen may be in trouble. The force we are talking about is the free market.

How can market forces drive up the yen when Japan has been a leader in quantitative easing, the “art” of printing money? Japan epitomizes the battle between market and government forces. Left to its own powers, Japan’s economy would have imploded after its asset bubble burst in 1990. While painful, the good news about a deflationary collapse is that you can rebuild; a collapse is also a brutal way of weeding out those with too much debt. Instead, the government has, to varying degrees, been fighting market forces ever since. However, as of late, the Japanese have relaxed their attack on free market dynamics, in large part as a result of weak leadership.

Fighting market forces can be extremely expensive. If market forces ultimately win–i.e. the collapse ultimately happens–it’s possible for a country to destroy its currency along the way. Left to market forces, those with debt likely go broke. Left to policy makers, everyone may eventually go broke.

Continue reading…

By Kejal Vyas

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–The government of Bangladesh aims to boost foreign direct investment into the country to $7 billion by 2015, Prime Minister Sheikh Hasina said Thursday.

The country has also set aside $350 million for three public-private partnership programs in an effort to draw foreign money, Hasina said at an address in front of a small group of investors in New York.

It’s an ambitious target for a country which is one of the world’s poorest and whose name often invokes images of severe natural disasters, military coups and political corruption.

Continue reading…