Pinpoints: The Real Special Relationship


…it's not the dollar/yen

--That currency pair breached another key level this morning as the yen punched through 89 to the U.S. dollar, a two-and-a-half year high, on news of fresh stimulus and Japan's second-largest current-account deficit on record in November; the Nikkei responded by jumping to 22-month highs as Japanese exporters rallied. In fact, per Dow Jones, the Nikkei has now rallied for nine consecutive weeks, its longest bull run since the fourth quarter of 1988 (in other words, since before its spectacular collapse the following year which ushered in the economic malaise Japan has yet to entirely fend off).

…Nor between Britain and France

--One-time French presidential hopeful Corinne Lepage took to the French version of the Huffington Post Thursday pleading for an end to "French bashing"around the world. It follows a series of incidents, most recently Gerard Depardieu's moving to Belgium and his acceptance of a Russian passport, which have underscored the concern and in some cases scorn heaped on France by the investing community for its weak economy, high taxes and uncompetitive labor market.

--Mrs Lepage, a member of European Parliament, points out that despite overtures from Prime Minister David Cameron, more British and Belgian people have taken French nationality since 2010 than the reverse. Her comments also echo the French economy minister Pierre Moscovici, who fought back at London's Economist magazine in November for describing his country as "the time bomb at the heart of Europe," saying "all this French bashing is terrible."

…Central bankers cozying up to the government, perhaps?

--"Independence from government may not always be a good thing," proclaims Gillian Tett in today's Financial Times. She cites the work of Zoltan Pozsar, a former New York Fed economist whose shadow-banking work helped policy makers understand the role of financial intermediation in banking and economic crises, and ex-Pimco man Paul McCulley. These two note that in certain situations – specifically, when both the public and private sectors are deleveraging, as is the case across much of the West today – monetary policy must work together with fiscal policy to have the desired effect of averting a debt-deflation trap.

--Pinpoints can testify that most of the water-cooler (or rather, coffee-line) chat at last week's Allied Social Sciences Association meeting in San Diego – the annual economics confab – was on precisely this issue. While there are still staunch holdouts, like Allen Sinai of Decision Economics, hearts and minds are gradually being won over on this issue.

--We would, however, like to echo a point made by Jean-Claude Trichet, past president of the European Central Bank: if central banks are not pursuing joint policies that could help achieve their desired outcomes, then they are already in fact not acting independently. There is a difference between acting independently and acting alone. To say that central banks should sacrifice their independence is the wrong point; central banks in fact ought to exercise their independence by asserting their need to coordinate with fiscal policy, when appropriate, to reach desired outcomes. The real obstacle here, in other words, is not central bank independence but rather central bankers' incompetence. And ironically, it is that which most threatens independence going forward. The fault, dear Brutus, lies not within our stars….

It's actually the luck o' the Irish:

--Back in November, Britain's Sir Christopher Meyer – a former ambassador to the U.S. – told CNBC in an evening panel discussion that today, the only "special relationship" America has is with Israel, or perhaps Ireland.

--Ireland? He pointed to the strong Irish cultural presence in America, and the fact that the Irish embassy parties were always the best-attended. He was only being a tad facetious. Which is why the following tidbit from Goldman Sachs Asset Management chair Jim O'Neill's latest client note caught our attention:

--"…apparently the Notre Dame football match that was hosted in Dublin in the autumn attracted some 32,000 U.S. tourists, more than the total number that visited the U.K. during the Olympics," he writes; "amusing though of worry for the U.K."

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