March 24, 2011 – Views on the Global Economy: Your Daily Briefing

Headlines

Book Ruling Cuts Options for Google (NYT)
Orders for U.S. Durable Goods Probably Rose in February (Bloomberg)
Ten Economists Call Deficit a ‘Severe Threat’ to US (CNBC)

The Fed

Should We Celebrate the Fed’s Record $82 Billion Profit?
Daniel Indiviglio, The Atlantic, March 23, 2011 
This week the Federal Reserve announced that it made a profit of $82 billion in 2010. That’s a new record, breaking last year’s previous record high of $53 billion. On pretty much any level, $82 billion is a lot of money. Where did it come from, and who should celebrate these profits?

Crises Scramble Fed’s Inflation Calculus
David Wessel, Wall Street Journal, March 24, 2011 
The word on inflation according to the Federal Reserve before the Middle East blew up and Japan was shaken up: Relax. Then came Tunisia, Egypt and Libya. The Brent benchmark price of oil went from $90 a barrel in December to $115. And then Japan’s earthquake hit. That is severing supply chains-25% of the world capacity to make silicon chips is down-and depressing demand from Japan’s consumers and businesses. So what’s the word on inflation now? Does all this bring it closer-or not?

Fed’s Clash With Bank of America Raises Questions
Ben Protess and Eric Dash, New York Times, March 23, 2011 
This month, Bank of America gathered hundreds of investors and analysts in an ornate ballroom at the Plaza Hotel for the Wall Street equivalent of a coming-out party – with executives talking up a dividend increase and declaring that a “new era” for the company had begun.There was just one problem: the Federal Reserve was not on board.. 

Britain

Why Britain’s financial pain is just beginning
Jim Boulden, CNN Business, March 22, 2011
The government says it plans to cut the budget deficit from 10% of gross domestic product to just 1% by 2015. It notes the interest on the structural deficit is about the same as the country’s entire transport budget, so think what could be afforded if the deficit and debt are slashed.But unlike many other parties on the right, the Conservatives are also increasing taxes. The biggest hike – raising Value Added Tax (national sales tax) to 20% – started back in early January. Soon the tax on income that goes to pensions will jump, and the top tax rate will likely stay high at 50%.

UK To Deepen And Speed Cuts In Corporate Taxes
Steve McGrath, Wall Street Journal, March 23, 2011  
In a move to make the U.K. more competitive for businesses and to entice back British companies that have recently moved overseas, the British government Wednesday said it would deepen and accelerate a planned cut in corporate tax and would push ahead with plans to change the taxation of profits earned overseas by British businesses.

Focus Falls on Prospects for Growth
Norma Cohen, Financial Times, March 23, 2011  
As Britain moves towards the most stringent fiscal consolidation in its history, debate is intensifying over the likely effects on the wider economy. Economists are gauging what effect cuts in government spending – equal to 6.5 per cent of gross domestic product over the next three years and about 2.4 per cent of GDP in the coming fiscal year alone – will have on the nation’s output, both in the next few months and in years to come.

Europe

Austerity Debate Fells Portugal’s Premier
Raphael Minder, New York Times, March 23, 2011
Another European government fell victim to the politics of austerity on Wednesday when the prime minister of Portugal resigned after opposition parties rejected his last-ditch attempt to push through a package of spending cuts and tax increases.  

Moody’s Downgrades 30 Spanish Banks
CNBC, March 24, 2011 
Ratings agency Moody’s downgraded its debt ratings of 30 Spanish banks on Thursday by one or more notches, and said the outlook remained weak with no major improvement seen in the foreseeable future.

Borrowing costs rise for Ireland, Greece and Portugal
Arthur Beesley, Irish Times, March 23, 2011
Markets delivered a cold response to an agreement by EU finance ministers to set up a permanent bailout fund as Irish, Greek and Portuguese borrowing costs rose and investors fretted about a threatened rate rise.