Jackson Hole speech won’t get US out of any other hole
Last year, Bernanke used his Jackson Hole speech to suggest he would launch a second round of quantitative easing (QE), in which the Federal Reserve prints electronic money and uses it to buy back short-term Treasury bills, thereby depressing yields. This (according to Professor Bernanke) forces investors to buy other, riskier assets such as corporate bonds, while forcing down borrowing costs for business. Hey presto: the economy grows.
Only it didn’t. Having spent $2.3 trillion on two rounds of QE, Bernanke faces a US economy heading towards double dip recession. While it staved off a Thirties-style deflation, monetary expansion has not persuaded consumers to spend. Neither has it had a wealth effect on investors, except to promote commodities speculation. Adding to these woes, this week the Fed had to provide the European Central Bank with $500m in currency swaps to pump liquidity into Europe’s rocky banks.
No wonder desperate US investors hoped Bernanke would use his Jackson Hole speech yesterday to announce QE3, or some other magic bullet. Share prices jumped accordingly in the early part of the week. Disappointment was inevitable. This year’s Jackson Hole homily offered nothing but platitudes – erudite platitudes, but platitudes nevertheless.
There will be no QE3, at least this side of the 2012 presidential election. The best Bernanke had to offer is that the Fed will meet for two days (instead of the usual one) next month to read the autumn economic runes. He believes the near-term weakening of the US economy is due to the dysfunctional housing market. By keeping interest rates frozen for the next two years, Bernanke hopes to change that. Fingers crossed.
In truth, the gridlocked state of US politics makes a QE3 virtually impossible. Republican presidential front runner Rick Perry has already called Bernanke “treasonous” for “printing money”. Another hopeful, Congressman Ron Paul, wants to abolish the Federal Reserve altogether. So it is no surprise Bernanke used his Jackson Hole speech to get even.
Rightly, he castigated the failure of US politicians – read Republicans – to confront the deficit: “Without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.”
This year’s Jackson Hole meeting might still enter the history books. If a Republican wins next year, Ben Bernanke has just delivered his own resignation speech.
Beware, Bilfinger’s boss is no easy target legally
EDINBURGH’S politicians are apt to blame the capital’s trams debacle on Bilfinger Berger, the Germany construction giant contracted to provide the main infrastructure works. Bilfinger’s corporate history goes back to the 1880s. It helped build Hitler’s autobahns and a chunk of the Siegfried Line – not that you’d know it from the company’s website. Bilfinger also built the famous Remagen Bridge, the capture of which in March 1945 let the Americans cross the Rhine.
The onset of the recession and a dearth of public sector contracts have made Bilfinger financially ultra cautious, and more focused managerially on business in Germany. But I suspect the root of the trams disaster lies more in the Gadarene rush by Edinburgh Council to sign contracts before the 2007 local elections.
Earlier this month Bilfinger posted its half-year results. It reported a €264m profit, up from €118m in 2010. But this was only achieved through the sale for €161m of its Australia subsidiary, so market reaction was negative. For most of this year, Bilfinger’s share price was around €70. This month it has hovered just above €50, though this also reflects the bear market in equities. Analysts still rate Bilfinger a “buy”.
The firm’s new boss is Roland Koch who took over as chairman and chief executive in July. Koch is not only a lawyer by trade but was First Minister of the German state of Hesse from 1999 to 2010. Just in case anyone in Edinburgh is contemplating more litigation.