NY Times: Britain may seek aid from the IMF. Speculation that Britain may once again seek monetary fund assistance — and become the first major western European country to do so in this financial crisis — rests upon a crucial, uncertain assumption: that the combination of its steep debt and wounded banking sector will put too much pressure on the already wobbly pound. The numbers are worrisome. Britain’s budget deficit is 11 percent of its gross domestic product, compared with 13 percent forecast for the United States this year. Analysts say that without severe spending cuts and tax increases, government debt will jump to 80 percent of the overall economy in the coming years, from today’s level of about 40 percent, a ratio that approaches that of troubled economies like Greece and Italy.
RGE Monitor: Nouriel Roubini: Degrees of Bearishness. As I have argued over and over again I am not a perma-bear and will be the first to call for a sustained economic recovery and recovery of the financial markets when I see one. And while now the real economy is not any more in the L-shaped free fall in which it was in Q4 of 2008 and Q1 of 2009 (second derivatives are turning positive) we are still in the middle of a severe U-shaped recession that will last much longer than what expected by the current consensus that sees positive growth by Q3 of this year and growth close to potential (2% plus) next year. We at RGE (our 200 page Global Economic Outlook will be out in two weeks) instead see the US recession lasting until at least Q4 of this year (still -1.5% growth by Q4) and the positive growth next year being so low (0.5%) and the unemployment rate rising to 10% by the summer of this year and peaking well above 11% next year that it will feel like a recession even in 2010 even if we are technically out of it some time next year.
FT: Martin Wolf: Is the US Russia? Cutting back financial capitalism is America’s big test. Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point. “In its depth and suddenness,” argues Prof Johnson, “the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets.” The similarity is evident: large inflows of foreign capital; torrid credit growth; excessive leverage; bubbles in asset prices, particularly property; and, finally, asset-price collapses and financial catastrophe.
FT: Martin Wolf: Is the US Russia? Cutting back financial capitalism is America’s big test. Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point. “In its depth and suddenness,” argues Prof Johnson, “the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets.” The similarity is evident: large inflows of foreign capital; torrid credit growth; excessive leverage; bubbles in asset prices, particularly property; and, finally, asset-price collapses and financial catastrophe.
- Economic data did little to move investors this session. March industrial production fell a more-than-expected 1.5%, while capacity utilization came in at 69.3%.
- U.S. industrial output fell a sharp 1.5% in March, plummeting at an annual rate of -20% in the first quarter.
- Consumer prices for March slipped 0.1%, but core prices increased 0.2%. Economists expected a respective increase of 0.1% and an increase of 0.1%.
- The Fed released its Beige Book, which didn't contain any real surprises. Though five of 12 districts reported contraction slowed last month, the bigger message is that activity still contracted. Essentially, the report fit Fed Chairman Bernanke's recent pronouncement that there are tentative signs the decline in economic activity may be slowing.
- Hope that the economic slump was showing signs of abating rose after a report said manufacturing activity in New York State contracted less severely in April, while the Federal Reserve's Beige Book indicated the economy continued to weaken, but the contraction's speed was fading.
- Helping bolster views the economy's deep downturn was easing, the NAHB said its index of U.S. home builder sentiment rose five points to 14 in April, the highest since last October and the largest monthly increase since May 2003.
