Accelerating Inflation, Rising Treasury Yields, G20 Conflicts, Financial Regulation and Risk Financial Assets
Carlos M. Pelaez
© Carlos M. Pelaez, 2010, 2011
The purpose of this comment is relating accelerating inflation, rising Treasury yields and the conflicts facing the G20; separate sections consider financial regulation, risk financial assets, economic indicators and interest rates. The contents are as follows:
I Accelerating Inflation
II Rising Treasury Yields
III G20 Conflicts
IV Financial Regulation
V Risk Financial Assets
VI Economic Indicators
VII Interest Rates
VIII Conclusion
References
I Accelerating Inflation. There is significant concern with inflation everywhere in the world economy. Table 1, updated with every comment of this blog, shows in the second and third columns inflation measured by consumer price indexes (CPI) of a diverse group of countries in 2006 and 2010. Inflation has returned to prior levels or increased in most countries. Flash estimates for the euro area find inflation of 2.2 percent year-on-year (YY) in Jan (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-31012011-AP/EN/2-31012011-AP-EN.PDF). Inflation YY in Jan was 7.02 percent in Indonesia, 4.1 in South Korea and 1.1 in Taiwan. The deficit/GDP ratios for many countries pose tough issues of adjustment.
Table 1, CPI Inflation and Government Deficit as Percent of GDP
| CPI 2006 | CPI 2010 | Deficit 2008 % GDP | Deficit 2010 % GDP | |
| Euro Area | 2.2 | 2.2 | -2.6 | -4.6 |
| Advanced Economies | 1.9 | 1.1 | -3.8 | -6.8 |
| Germany | 1.8 | 1.9 | -1.6 | -3.1 |
| France | 1.9 | 2.0 | -3.1 | -5.0 |
| USA | 2.5 | 1.5 | -4.9 | -8.9 |
| UK | 2.3 | 3.7 | -5.6 | -7.9 |
| Japan | 0.2 | -0.4 | -3.6 | -7.6 |
| China | 2.5 | 4.6 | 7.7 | 3.5 |
| Brazil | 3.1 | 5.9 | -3.5 | -1.6 |
| Russia | 9.0 | 8.8 | 4.5 | -4.3 |
| India | 6.7 | 8.43 | -6.1 | -9.6 |
| Korea | 2.1 | 3.5 | 1.7 | 1.4 |
| Singapore | 0.8 | 4.6 | 5.2 | 2.4 |
| Taiwan | 0.7 | 1.25 | -2.4 | -3.8 |
| Indonesia | 3.1 | 6.96 | -1.6 | -1.5 |
| Thailand | 3.5 | 3.0 | 0.1 | -2.7 |
Sources: IMF PIN
http://www.imf.org/external/pubs/ft/weo/2010/02/weodata/index.aspx
http://www.imf.org/external/np/sec/pn/2011/pn1102.htm
http://www.gks.ru/bgd/free/B00_25/IssWWW.exe/Stg/d000/000710.HTM
http://www.stat.go.jp/english/data/cpi/1581.htm
http://www.stats.gov.cn/english/statisticaldata/monthlydata/t20101227_402693597.htm
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-14012011-BP/EN/2-14012011-BP-EN.PDF
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
http://www.bls.gov/news.release/pdf/cpi.pdf
http://www.bcb.gov.br/?INDICATORS
There is also worrisome inflation of producer prices. The producer price index of the euro area rose 0.8 percent in Dec 2010 relative to Nov and 5.3 percent relative to Dec 2009; excluding energy, prices for total industry rose 3.3 percent in Dec 2010 compared with Dec 2009 (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-02022011-AP/EN/4-02022011-AP-EN.PDF). The energy shock may already be affecting general prices. Output prices in the UK rose 4.8 percent YY in Jan relative to 4.1 percent in Dec (http://www.statistics.gov.uk/pdfdir/ppi0211.pdf). The increase in petroleum product prices contributed 1.57 percentage points to the 4.8 percent increase in output prices and food prices 0.8 percentage points. Excluding food, beverages, tobacco and petroleum the output price index rose 3.2 percent. Input prices rose 13.4 percent YY and 9.9 percent excluding food, beverages, tobacco and petroleum. From Dec 2010 to Jan 2011, input prices rose 1.7 percent. The corporate goods price index of Japan rose 0.5 percent in Jan relative to Dec and 1.6 percent YY (http://www.boj.or.jp/en/statistics/pi/cgpi_release/cgpi1101.pdf).
A perceptive article in the Wall Street Journal on Feb 8 by Davis and Back (2011) was highly relevant to the subject of discussion at the testimony of Chairman Bernanke before the Committee on the Budget of the US House of Representatives on Feb 9 (Bernanke 2011Feb9). The article “Inflation worries spread” raises nine critical issues in accelerating inflation: (1) CPI inflation in Brazil in Jan reached 5.99 percent YY with likelihood of further increases in the central bank policy rate already at 11.25 percent; (2) John Lipsky, Deputy Managing Director of the IMF, argues that many emerging countries are operating at high capacity utilization while monetary and fiscal policies are expansionary; (3) while inflation is still low in the US, 10-year Treasury yields hit 3.721 percent on Jan 8, the highest yield since 3.986 percent on Apr 5, 2010; (4) interest rate futures are pricing a 100 percent probability of an interest rate increase in Dec compared with 25 percent a week earlier; (5) more interest rate increases in emerging economies are widely expected because of the overvaluation of their currencies caused by uncontrollable inflows of capital from advanced economies with near zero interest rates; (6) food prices are rising rapidly with the nearby wheat futures contract increasing by 81.3 percent in 12 months; (7) inflation accelerated in the UK and Europe above the targets of the Bank of England and the European Central Bank; (8) economists of Goldman Sachs and Morgan Stanley estimate inflation above 5 percent in Jan in China; and (9) multiple countries complain of the slow revaluation of the Chinese yuan (CNY) relative to the US dollar (USD) with cumulative of 3.5 percent since Jun.
The House Budget Committee Chairman expressed concern that the Fed could find obstacles in raising interest rates during a rise in inflation and acceleration of the economy. The view of Chairman Bernanke (2011Feb9, 2-3) is that while gasoline and other commodity prices have increased, prices of personal consumption expenditures (PCE) rose by only 1.2 percent in the 12 months ending in Dec and by 0.7 percent excluding food and energy. Bernanke (2011Feb9, 2) reiterated the view of the Federal Open Market Committee (FOMC) that “we remain unwaveringly committed to price stability, and we are confident that we have the tools to be able to smoothly and effectively exit from the current highly accommodative policy stance at the appropriate time.” The tools include increases in interest rates paid on reserves of banks at the Federal Reserve Banks and various open market operations, including the redemption or sale of the Fed portfolio of securities. Chairman Bernanke attributes the increase in oil and food prices to severe weather conditions that cannot be controlled by the central bank and doubts they will be passed-through to general prices (http://professional.wsj.com/article/SB10001424052748704858404576134042213500106.html?mod=WSJPRO_hps_LEFTWhatsNews). On Feb 9, the Reserve Bank credit in the Fed balance sheet stood at $2484.2 billion, or $2.5 trillion, with portfolio of long-term securities of $2252.2 billion, or $2.3 trillion, composed of $1090.1 billion of Treasury notes and bonds, $52.4 billion of inflation-indexed notes and bonds, $144.6 billion of federal agency debt securities and $965.1 billion of mortgage-backed securities; “reserve balances with Federal Reserve Banks” stood at $1152.4 billion or $1.2 trillion (http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1).
In a separate presentation on the economic outlook, the President of the Federal Reserve Bank of Richmond, Jeffrey M. Lackers (2011Feb8, 1), finds that “the most striking feature of this recovery is that until recently it has been relatively slow compared to past recoveries, particularly those following the two other severe recessions of the past 60 years—the recessions of 1973-75 and 1981-82.” The view of Lacker (2011Feb, 3) on the FOMC decision to increase “Federal Reserve money” by purchasing an addition $600 billion of long-term Treasury securities is that:
“The Committee recognized that the provision of further monetary stimulus at this point in the business cycle is not without risks, and therefore committed to regularly review the pace and overall size of the asset-purchase program in light of incoming information and adjust the program as needed. The distinctive improvement in the economic outlook since the program was initiated suggests taking that re-evaluation quite seriously. That revaluation will be challenging, because inflation is capable of accelerating, even if the level of economic activity has not yet returned to pre-recession trend.”
Fed Board Governor Kevin Warsh resigned effective around Mar 31. Although Warsh voted for quantitative easing in Nov, he expressed subsequent criticism of the large scale purchases of long-term securities and the earlier larger program (http://professional.wsj.com/article/SB10001424052748704132204576136183227434622.html?mod=WSJPRO_hps_MIDDLEForthNews).
The credibility of monetary policy in executing the dual mandate of maximum employment and price stability may be actually compromised. The view of Bernanke (2011Feb9, 1) is that:
“With output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level. Until we see a sustained period of strong job creation, we cannot consider the recovery to be truly established.”
The Fed is trying simultaneously to attain a rate of inflation, measured by the price index of PCE excluding food and energy, in the neighborhood of 2 percent, say, in an open interval (1.9, 2.0), and at the same time a NAIRU or rate of unemployment that does not accelerate inflation somewhere between 5 and 6 percent or (5,6). There have been numerous, stimulating and profound contributions to central banking (see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), Financial Regulation after the Global Recession (2009a) but there are no foolproof theory, empirical verification, statistically meaningful forecasting and operational tools to implement a set of PCE core inflation and NAIRU such as [Inflation in (1.9, 2.0), NAIRU in (5,6)]. In practice, there will be problems of temporal consistency (Kydland and Prescott 1977; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 112-6). In particular, the issue considered during testimony by Chairman Bernanke (2011Feb9) is that if inflation is moving toward (3.00 to 4.00), the Fed may be forced to abandon improving NAIRU in (8.0, 9.0). If the Fed continues monetary stimulus to lower NAIRU to (7.0, 8.0), inflation may jump from (5.0 to 6.0) eventually having adverse effects on growth and employment. Economists have postulated and attempted to measure lags in effects of monetary policy impulses. Romer and Romer (2004) use an innovative sample of intended and actual indicators of monetary policy. Policy begins to influence industrial production after five months but a one percentage point of tightening interest rates does not affect inflation for 22 months when it begins to decline steadily (see Pelaez and Pelaez, Regulation of Banks and Finance (2009), 102). The combination of inflation and unemployment intentions may cause changes in the lags of policies on PCE core inflation and NAIRU. The claims that the recovery of the economy together with insinuations of quantitative easing since Aug 27 by various FOMC members and then the decision on Nov 3 are dubious unless such policy has immediate effects, that is, impacting growth without any lag. It is possible that the Fed view of deflation in the US in a world of accelerating inflation elsewhere may result in a situation of increasing inflation with higher unemployment than in previous recoveries from sharp contractions, which was coined with the term stagflation.
An article by the Wall Street Journal finds that after reporting of fourth-quarter results of companies accounting for 73 percent of market valuation of the S&P 500, earnings have increased by 28 percent relative to a year earlier and sales rose 7.7 percent but job growth is not recovering (Shipman, Light and Vigna 2011). In the initial phase of the recovery companies reduced costs and were less inclined to add labor. The new problem currently is that many industries, such as airlines, appliance makers, auto manufacturers and food sellers, are facing significantly higher costs originating in soaring commodity prices.
II Rising Yields. An issue related to inflation everywhere is its possible upward push of long-term Treasury yields. Bond prices may be reflecting higher required yields because inflation may cause higher future yields that are equivalent to loss of principal in bond positions. Yields are not observed accurately because of the downward pressure of the withdrawal of supply by the new purchases of the Fed. The repression of bond yields by quantitative easing may result in higher future yields than those that would occur in the absence of quantitative easing. Higher long-term bond yields can increase borrowing costs for purchases and homes and nearly all durable goods, restricting demand and thus growth and employment creation. Bank balance sheets are not sufficiently large to accommodate all demands for home and consumer durable credit during a full-employment economy such that banks may group loans in securities and sell them to investors who in turn finance them in sale and repurchase agreements. The economy may not recover fully if securitization is restrained by regulation or policy. In a bearish bond market with dumping of duration in fear of inflation and not of deflation any hint of abandonment of long-term Treasury purchases by the Fed can exert substantial upward pressure on bond yields. This environment was partly captured on Feb 10 (http://professional.wsj.com/article/SB10001424052748704132204576135952747852740.html
). The Fed announced purchases of $97 billion securities weekly, consisting of $80 billion in the quantitative easing program of acquiring $600 billion together with $17 billion from the maturing mortgage-backed securities of the Dec 2008-Mar 2009 $1.7 trillion program. Market participants found the amount insufficient because the expectation was $100 billion or more. The 10-year yield rose to 3.700 percent and that of the 30-year bond to 4.768 percent.
The effects of rising yields on costs of home buying were quite strong. Mortgage rates measured by Freddie Mac rose to 5.05 percent in the week ending on Feb 10 from 4.81 percent a week earlier and another measurement found 5.17 percent (http://professional.wsj.com/article/SB10001424052748704132204576136314237786984.html
). The yield of the 10-year Treasury note is closely correlated with mortgage rate and closed at 3.712 percent on Feb 10. Higher mortgage rates can make it unfeasible to finance the purchase of a house. The WSJ finds that a home buyer would require $84,000 of yearly income to obtain a 30-year fixed-rate mortgage of $400,000 but would need $92,000 at a rate of 5.5 percent. While it is true that the Fed has the tools to raise interest rates, actually in seconds by digital sell orders of traders after declaring its intention, raising interest rates after a long period of fixing fed funds at near zero may have devastating effects on the economy.
Table 2, updated with every blog, provides in the second column the yield at the close of market of the 10-year Treasury on the date in the first column. The price in the third column is calculated with the coupon of 2.625 percent of the current 10-year note and the final column “∆% 11/04/10” calculates the percentage change of the price on the date relative to that of 101.2573 at the close of market one day after the decision on quantitative easing by the Fed on Nov 4, 2010. Prices with the new coupon of 3.63 percent in the most recent auction (http://www.treasurydirect.gov/instit/annceresult/press/preanre/2011/2011.htm) are not comparable to prices in Table 2. The highest yield in the decade was 5.510 percent on May 1, 2001 that would result in a loss of principal of 22.9 percent relative to the price on Nov 4. The Fed has created a “duration trap” of bond prices. Duration is the percentage change in bond price resulting from a percentage change in yield or what economists call the yield elasticity of bond price. Duration is higher the lower the bond coupon and yield, all other things constant. This means that the price loss in a yield rise from low coupons and yields is much higher than with high coupons and yields. Intuitively, the higher coupon payments offset part of the price loss. Brunnermeier (2009) finds an amplifying mechanism of how losses of several hundred billion dollars resulting from subprime mortgages caused a fall in equity markets of $8 trillion in Oct 2007-2008. The amplifying mechanism requires the distinction between market liquidity and funding liquidity (Ibid, 92; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 223-4). Amplification is processed by the interaction of market and funding liquidity (Brunnermeier and Pedersen 2009). Consider fire sales of mortgage-backed securities that traders finance with short-term debt in sale and repurchase agreements (SRP). Price declines resulting from the fire sales cause haircuts, reductions in prices of mortgage-backed securities financed in SRPs, or margin deposits that reduce traders’ funding liquidity, lowering available capital for positioning. Market liquidity is crushed by price declines originating in fire sales with financed prices diverging even more from fundamental prices, leading to new rounds of haircuts and margins that result in new fire sales as traders reduce positions relative to capital. Brunnermeier and Pedersen (2009) explain how fire sales in one market segment, such as mortgage-backed securities, can reduce trading capital that causes fire sales in other segments, such as the entire spectrum of asset-backed securities. The rise in yields of Treasury securities because of inflation, accentuated further by changes in the policy stance of the Fed, could cause another financial crisis. In his celebrated analysis of liquidity preference as behavior toward risk, Tobin (1958, 85-6) analyzes the expectation of capital losses at low interest rates that results in a position of no “consols,” or bonds, and all cash. Deflationist fears have created precisely the environment in which there is a duration trap that will cause a backup of yields much higher than normal during economic expansions with the insistence over a decade of lowering interest rates toward zero and suspending 30-year Treasury bond auctions or in the current phase building up a portfolio of Treasury securities that approximates 30 percent of Treasury debt held by the public.
Table 2, Yield, Price and Percentage Change to November 4, 2010 of Ten-Year Treasury Note
| Date | Yield | Price | ∆% 11/04/10 |
| 05/01/01 | 5.510 | 78.0582 | -22.9 |
| 06/10/03 | 3.112 | 95.8452 | -5.3 |
| 06/12/07 | 5.297 | 79.4747 | -21.5 |
| 12/19/08 | 2.213 | 104.4981 | 3.2 |
| 12/31/08 | 2.240 | 103.4295 | 2.1 |
| 03/19/09 | 2.605 | 100.1748 | -1.1 |
| 06/09/09 | 3.862 | 89.8257 | -11.3 |
| 10/07/09 | 3.182 | 95.2643 | -5.9 |
| 11/27/09 | 3.197 | 95.1403 | -6.0 |
| 12/31/09 | 3.835 | 90.0347 | -11.1 |
| 02/09/10 | 3.646 | 91.5239 | -9.6 |
| 03/04/10 | 3.605 | 91.8384 | -9.3 |
| 04/05/10 | 3.986 | 88.8726 | -12.2 |
| 08/31/10 | 2.473 | 101.3338 | 0.08 |
| 10/07/10 | 2.385 | 102.1224 | 0.8 |
| 10/28/10 | 2.658 | 99.7119 | -1.5 |
| 11/04/10 | 2.481 | 101.2573 | - |
| 11/15/10 | 2.964 | 97.0867 | -4.1 |
| 11/26/10 | 2.869 | 97.8932 | -3.3 |
| 12/03/10 | 3.007 | 96.7241 | -4.5 |
| 12/10/10 | 3.324 | 94.0982 | -7.1 |
| 12/15/10 | 3.517 | 92.5427 | -8.6 |
| 12/17/10 | 3.338 | 93.9842 | -7.2 |
| 12/23/10 | 3.397 | 93.5051 | -7.7 |
| 12/31/10 | 3.228 | 94.3923 | -6.7 |
| 01/07/11 | 3.322 | 94.1146 | -7.1 |
| 01/14/11 | 3.323 | 94.1064 | -7.1 |
| 01/21/11 | 3.414 | 93.4687 | -7.7 |
| 01/28/11 | 3.323 | 94.1064 | -7.1 |
| 02/04/11 | 3.640 | 91.750 | -9.4 |
| 02/11/11 | 3.643 | 91.5319 | -9.6 |
Note: price is calculated for an artificial 10-year note paying semi-annual coupon and maturing in ten years using the actual yields traded on the dates and the coupon of 2.625% on 11/04/10
Source:
http://online.wsj.com/mdc/public/page/mdc_bonds.html?mod=mdc_topnav_2_3020
III G20 Conflicts. The agenda of the G20 meeting of ministers of finance and heads of central banks on Feb 18-19 includes the definition and approval of rules of capital controls (http://professional.wsj.com/article/SB10001424052748704629004576136080912756002.html?mod=WSJPRO_hps_LEFTWhatsNews). Effective capital controls can be quite difficult to implement. Recent experience includes (1) the doubling of taxes on fixed income investments by foreigners in Brazil; (2) ceilings on exchange-rate derivatives and increases in foreign purchases of bonds by South Korea; and (3) a tax of 15 percent on interest income and capital gains by foreign investors in Thailand. The sophisticated international financial system and modern technology conspire against the effectiveness of capital controls. It makes sense to avoid the need for the controls by collective action within the G20. A problem of collective action with diverse groups is the existence of “free riders” not taking a fair share of burdens in the hope of having others pay their burdens (Olson 1965). The G20 is plagued with conflicts of interest among the various members. International cooperation is desirable but runs against these conflicts.
What the advanced countries seek from China is:
1.Revaluation of the yuan to open the internal market of China to exports from other countries
2.Revaluation of the yuan so that China competes less effectively in the internal markets of other countries
3.Stronger enforcement of intellectual property rights by China and of technology of the advanced countries
4.Fair opening of products and services of advanced countries to procurement by the Chinese government
5.Softening of the Chinese model of acquisition of foreign raw material extraction and processing
The aspirations of China consist of:
1.Continuing gradual revaluation of the yuan with interruptions during crises when it is fixed to the dollar in order to:
i. Maintain production for the internal market and exports to continue absorbing new entrants in the labor force and reducing labor in the subsistence sector
ii. Continuing exchange rate fixing and capital controls to prevent sharp oscillation of the yuan exchange rate
iii. Increasing use of the yuan as the currency in international transactions
2.Guaranteeing a sufficiently large internal market for domestic producers to attain optimum scale
3.Develop technology to continue modernization of its economy
4.Use of its stock of $3 trillion of international reserves to acquire production of raw materials and energy that can ensure continuing growth
5.Maintain an adequate rate of growth to provide for improveing opportunities for its large population and maintain a stable political environment
The less homogeneous group of other emerging countries desires to:
1.Maintain a degree of overvaluation of the exchange rate, but not to the point of excessive overvaluation, in the effort to control inflation and increasing international reserves to avoid the experience of the currency crashes in emerging market crises
2.Maintain export competitiveness to advanced countries
3.Preserve national independence in economic decisions
4.Maintain capital inflows but at reasonable levels in order to avoid inflation and overvaluation of the exchange rate
5.Engage in trade treaties with advanced countries
The IMF has its own objectives:
1.Provide for stability of the international financial system without crises involving multiple member countries
2.Foster international cooperation in the effort to reconcile the multiple conflicts of interest
The issue of capital controls is actually an issue of exchange rate policy. Table 3, which is updated with every post, shows in the last three rows the Chinese yuan (CNY) to US dollar (USD) exchange rate or number of CNY required to buy one USD. China fixed the rate at around 8.2765 CNY/USD for a long period until Aug 2005. That rate afforded a competitive edge to Chinese products in world markets and in competition of internally-produced goods with foreign-produced imports. China then strengthened the yuan by 17.6 percent until Jul 2008 when it fixed it to the dollar in an effort to prevent the erosion of its competitiveness in world markets and at home to protect the economy from the global recession. China resumed the revaluation of the yuan in 2010, with revaluation by 3.4 percent by Feb 11 2011. Table 3 shows the sharp appreciation relative to the dollar of most currencies in the world, which is far higher than the Fed’s objective of attaining by quantitative easing “a moderate change in the foreign exchange value of the dollar that provides support to net exports,” as revealed for the first time by Yellen (2011AS, 6).
Table 3, Exchange Rates
| Peak | Trough | ∆% P/T | Feb 11 2011 | ∆% T Feb 11 | ∆% P Feb 11 | |
| EUR USD | 7/15 2008 | 6/7 2010 | 2/11/ 2011 | |||
| Rate | 1.59 | 1.192 | 1.355 | |||
| ∆% | -33.4 | 12.0 | -17.3 | |||
| JPY USD | 8/18 2008 | 9/15 2010 | 2/11 2011 | |||
| Rate | 110.19 | 83.07 | 83.41 | |||
| ∆% | 24.6 | -0.4 | 24.3 | |||
| CHF USD | 11/21 2008 | 12/8 2009 | 2/11 2011 | |||
| Rate | 1.225 | 1.025 | 0.972 | |||
| ∆% | 16.3 | 5.2 | 20.7 | |||
| USD GBP | 7/15 2008 | 1/2/ 2009 | 2/11 2011 | |||
| Rate | 2.006 | 1.388 | 1.601 | |||
| ∆% | -44.5 | 13.3 | -25.3 | |||
| USD AUD | 7/15 2008 | 10/27 2008 | 2/11 2011 | |||
| Rate | 1.0215 | 1.6639 | 1.002 | |||
| ∆% | -62.9 | 40.0 | 2.3 | |||
| ZAR USD | 10/22 2008 | 8/15 2010 | 2/11 2011 | |||
| Rate | 11.578 | 7.238 | 7.27 | |||
| ∆% | 37.5 | 0.4 | 37.2 | |||
| SGD USD | 3/3 2009 | 8/9 2010 | 2/4 2011 | |||
| Rate | 1.553 | 1.348 | 1.282 | |||
| ∆% | 13.2 | 4.9 | 17.5 | |||
| HKD USD | 8/15 2008 | 12/14 2009 | 2/11 2011 | |||
| Rate | 7.813 | 7.752 | 7.795 | |||
| ∆% | 0.8 | -0.6 | 0.2 | |||
| BRL USD | 12/5 2008 | 4/30 2010 | 2/11 2011 | |||
| Rate | 2.43 | 1.737 | 1.666 | |||
| ∆% | 28.5 | 4.1 | 31.4 | |||
| CZK USD | 2/13 2009 | 8/6 2010 | 2/4 2011 | |||
| Rate | 22.19 | 18.693 | 17.844 | |||
| ∆% | 15.7 | 4.5 | 19.6 | |||
| SEK USD | 3/4 2009 | 8/9 2010 | 2/4 2011 | |||
| Rate | 9.313 | 7.108 | 6.476 | |||
| ∆% | 23.7 | 8.9 | 30.5 | |||
| CNY USD | 7/20 2005 | 7/15 2008 | 2/11 2011 | |||
| Rate | 8.2765 | 6.8211 | 6.5917 | |||
| ∆% | 17.6 | 3.4 | 20.4 |
Symbols: USD: US dollar; EUR: euro; JPY: Japanese yen; CHF: Swiss franc; GBP: UK pound; AUD: Australian dollar; ZAR: South African rand; SGD: Singapore dollar; HKD: Hong Kong dollar; BRL: Brazil real; CZK: Czech koruna; SEK: Swedish krona; CNY: Chinese yuan; P: peak; T: trough
Note: percentages calculated with currencies expressed in units of domestic currency per dollar; negative sign means devaluation and no sign appreciation
Source: http://online.wsj.com/mdc/public/page/mdc_currencies.html?mod=mdc_topnav_2_3000
http://federalreserve.gov/releases/h10/Hist/dat00_ch.htm
http://markets.ft.com/ft/markets/currencies.asp
An alternative common form of viewing the capital controls or exchange rate policy issue is by the external imbalances of the world economy shown in Table 4 using data of the IMF’s World Economic Outlook (WEO) database. The US has a current account deficit as percent of GDP of around 3.2 percent in 2010 that is projected to reach 3.4 percent in 2015 while China has a current account surplus of 4.5 percent of GDP in 2010 that is projected to grow to 7.8 percent in 2015. The G20 with the support of the IMF and other international financial institutions could be a forum of coordinating policies to adjust global imbalances to avoid a disorderly correction that could have adverse effects on output and investment (see Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State, Vol. II (2008b), 180-209, Government Intervention in Globalization (2008c), 167-81 and on the international financial institutions Pelaez and Pelaez, International Financial Architecture (2005)). There could be a convincing argument that dealing collectively with global imbalances and conflicts through an enhanced IMF collaboration could soften the vulnerabilities of the international financial system.
Table 4, GDP, Debt/GDP and Current Account/GDP for Selected Countries
| GDP $ Billions | Debt/ GDP 2010 % | Debt/ GDP 2015 % | Current Account % GDP 2010 | Current Account % GDP 2015 | |
| Euro Area | 12,067 | 53.4 | 67.4 | 0.2 | 0.2 |
| Germany | 3,652 | 58.7 | 61.8 | 6.1 | 3.9 |
| France | 2,865 | 74.5 | 78.7 | -1.8 | -1.8 |
| Portugal | 224 | 79.9 | 93.6 | -9.9 | -8.4 |
| Ireland | 204 | 55.2 | 71.4 | -2.7 | -1.2 |
| Italy | 2,037 | 98.9 | 99.5 | -2.9 | -2.4 |
| Greece | 305 | 109.5 | 112.6 | -10.8 | -4.0 |
| Spain | 1,275 | 54.1 | 72.6 | -5.2 | -4.3 |
| Belgium | 461 | 91.4 | 100.1 | 0.5 | 4.1 |
| USA | 14,870 | 65.8 | 84.7 | -3.2 | -3.4 |
| UK | 2,259 | 68.8 | 76.0 | -2.2 | -1.1 |
| Japan | 6,517 | 120.7 | 153.4 | 3.1 | 1.9 |
| China | 5,745 | 19.1 | 13.9 | 4.7 | 7.8 |
| Brazil | 2,023 | 36.7 | 30.8 | -2.6 | -3.3 |
| Russia | 1,477 | 11.1 | 14.6 | 4.7 | 1.3 |
| India | 1,430 | 71.8 | 67.2 | -3.1 | -2.2 |
Source: http://www.imf.org/external/pubs/ft/weo/2010/02/weodata/index.aspx
IV Financial Regulation. The Boston Consulting Group (BCG) provides a thorough analysis of the global payments system and its adjustment to the credit/dollar crisis, global recession and financial regulatory shock (BCG 2011WS). There are two contrasting approaches to the adjustment of payments. The US global payment system is the largest in the world with annual payments of $87 trillion in 2010, which are equivalent to 26 percent of the total for the world and 75 percent of the total for the Americas. Brazil has the second largest payment system in the Americas with annual payments of $11 trillion in 2010 (Ibid, 15). The US is falling behind the dynamism of Brazil.
BCG (2011WS) finds that the rate of decline of payments revenues in the US in 2008-2010 was 4 percent per year even with unchanged payment values and an increase of volumes at 3 percent per year originating in transactions in automated clearing house and debit cards. BCG (2011WS) estimated than even with growth in 2011 total revenues will be lower by 6 percent relative to $162 billion in 2007 that is not likely to be surpassed in a few years. Revenues are not likely to exceed until 2016 the level of 54 basis points attained in 2008. The adverse impact on total revenue and market structure of the US payments industry originates in what the BCG (2011WS) denominates as the “Great Regulations:” (1) the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 designed to “protect American credit card holders” (http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders); (2) Regulation E, which has been changed to have holders of demand deposit accounts (DDA) opt for point of sale and ATM overdraft protection; and (3) the Durbin Amendment of the Dodd-Frank Act of 2010 (http://docs.house.gov/rules/finserv/111_hr4173_finsrvcr.pdf), which is generating rules by the Federal Reserve to limit fees on debit-card transactions and eliminate exclusive networks while also creating an independent Bureau of Consumer Financial Protection. BCG (2011WS, 15-6) finds:
“According to our estimates, as much as $25 billion in annual retail-transaction revenues—about 29 percent of total retail-transaction revenues—will be ‘regulated away’ from US financial institutions as new guidelines take effect. The Durbin Amendment establishes a regulatory precedent and the threat of a material reduction in credit-card interchange revenues as well—which would further erode profits and trigger significant industry restructuring. The likely consequences could include reduced investment in product innovation, lower reward values on card purchases, higher annual fees and the inability to serve certain customer segments.”
The “Great Regulations” result in higher interest rates, lower volume of credit and reduced service to customers who need credit the most, harming consumers of financial services instead of protecting them as intended by the regulations. The combined effect of the “Great Regulations” is a more unstable financial system and partnership of the government with large financial institutions. Professor David Skeel, of the University of Pennsylvania Law School, analyzes with legal scholarship the Dodd-Frank Act and its “unintended consequences” in a must-read new book (Skeel 2011DF, 8):
“The two themes that emerge, repeatedly and unmistakably, from the 2,000 pages of [Dodd-Frank Act] legislation are (1) government partnership with the largest financial institutions and (2) ad hoc intervention by regulators rather than a more predictable, rules-based response to crises. Each could dangerously distort American finance, making it more politically charged, less vibrant, and further removed from basic rule-of-law principles than ever before in modern American financial history.”
Total noncash payments in Brazil in 2010 were $11 trillion, equivalent to 52 percent of total payments in Latin America, with payment revenues of $43 billion, with $19 billion originating in transaction revenues (BCG 2011WS, 20). BCG (2011WS, 20) finds an entirely different approach in Brazil relative to the US:
“Developments in Brazil demonstrate how established players and new entrants can respond to market disruption with innovations aimed at securing share in a rapidly growing region. Payment providers in other transitioning markets in which the government is a key player (such as India and China) should monitor Brazil’s evolution over the next five years.”
In a remarkable anticipation of a key driver of the credit crisis in 2005, Professor Raghuram G. Rajan (2005JH) warned of the risks of illiquidity in financial transactions with an incentive for such illiquidity in the search for yields in an environment of low interest rates after a period of high rates (cited in Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 219). In a revealing article in the Financial Times on Jun 3, 2010, Professor Rajan (2010FTJ) analyzes the actual causes of the credit crisis and global recession, with important lessons in his successful must-read book on Fault Lines (Rajan 2010FL http://www.amazon.com/Raghuram-Rajan/e/B0039XA4X8/ref=sr_tc_2_0?qid=1275829501&sr=1-2-ent). Financial transactions play an important social role in allocating resources. Short-selling by traders of the equity of a company may deprive it from resources. If short-selling traders value correctly, resources would not be wasted in projects with negative present value of future cash flows; if short-selling traders value incorrectly, compensatory long positions by other traders will punish their error with losses and channel the resources to projects with positive net present value. A key function of financial markets is pricing risk. The search for the causes of the credit crisis is on why there were excessive rewards to unsound decisions with excessive risk, or how risk was mispriced. The interpretation of Professor Rajan is that a “tsunami” of money allocated by Congressional action to promote low-income housing together with an inflow of foreign capital into the US eroded the discipline in home loans or adequate calculus of risk and liquidity. The decision by the Fed to maintain low interest rates in fear of deflation and the jobless recovery camouflaged the costs of an illiquid balance sheet. Another equivalent form of viewing this interpretation is that the Fed and the housing subsidy were equivalent to the government writing a put option or floor on housing prices (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4) or what the market calls the “Bernanke put” or “B-put” supporting the rates of return (interest income plus capital gains) of risk financial assets (Chisholm 2011BP). The government created the illusion that house prices would increase forever above the floor of abnormally-high prices at which mortgages had been contracted. Millions of homeowners with underwater mortgages, or home prices in a nearly impossible imagined sale that are below mortgage principal and interest, were doomed by government housing and interest rate policies. The regulators and legislators who created the crisis are reshaping financial regulation that resembling the Banking Act of 1933 will export the financial industry of the US to other jurisdictions and also this time raise interest rates by increasing the cost and reducing the volume of financial intermediation required for growth and job creation. Dodd-Frank would have learned significantly from the technical approach of French et al. (2010). There are important functions performed by a financial system analyzed in the approach of functional structural finance (FSF) of Merton and Bodie (1995, 2005) that is free of proclivities and personal and political interests (see Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 31-61).
V Risk Financial Assets. This section updates several tables that are essential in analyzing the effects of monetary policy on world risk financial assets. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html New empirical and theoretical contributions will also be analyzed in this section.
Table 5 shows the phenomenal impulse to valuations of risk financial assets originating in the initial shock of near zero interest rates in 2003-2004 with the fed funds at 1 percent, in fear of deflation that never materialized, and quantitative easing in the form of suspension of the auction of 30-year Treasury bonds to lower mortgage rates. The charts of risk financial assets show sharp rise in valuations leading to the financial crisis and them profound drops that are captured in Table 5 by percentage changes of peaks and troughs. World financial markets were dominated by Fed and housing policy in the US. Table 5 now has a row for the Chinese yuan (CNY) rate of exchange relative to the US dollar (USD). China pegged the exchange rate at a value that afforded significant competitive power in trade, at around 8.2798 CNY/USD, revalued it from 2005 to 2008 by 17.6 percent, pegged it again to the dollar to avoid loss of competitiveness during the global recession and then revalued it by 3.4 percent by Fri Jan 11, 2011. The first round of quantitative easing and near zero interest rates depreciated the dollar relative to the euro by 39.3 percent between 2003 and 2008, with revaluation of the dollar by 25.1 percent from 2008 to 2010 in the flight to dollar-denominated assets in fear of world financial risks and then devaluation of the dollar by 13.7 percent by Fri Jan 11.
Table 5, Volatility of Assets
| DJIA | 10/08/02-10/01/07 | 10/01/07-3/4/09 | 3/4/09- 4/6/10 | |
∆% | 87.8 | -51.2 | 60.3 | |
| NYSE Financial | 1/15/04- 6/13/07 | 6/13/07- 3/4/09 | 3/4/09- 4/16/07 | |
∆% | 42.3 | -75.9 | 121.1 | |
| Shanghai Composite | 6/10/05- 10/15/07 | 10/15/07- 10/30/08 | 10/30/08- 7/30/09 | |
∆% | 444.2 | -70.8 | 85.3 | |
| STOXX EUROPE 50 | 3/10/03- 7/25/07 | 7/25/07- 3/9/09 | 3/9/09- 4/21/10 | |
∆% | 93.5 | -57.9 | 64.3 | |
| UBS Com. | 1/23/02- 7/1/08 | 7/1/08- 2/23/09 | 2/23/09- 1/6/10 | |
∆% | 165.5 | -56.4 | 41.4 | |
| 10-Year Treasury | 6/10/03 | 6/12/07 | 12/31/08 | 4/5/10 |
| % | 3.112 | 5.297 | 2.247 | 3.986 |
| USD/EUR | 6/26/03 | 7/14/08 | 6/07/10 | 02/11 /11 |
| Rate | 1.1423 | 1.5914 | 1.192 | 1.355 |
| CNY/USD | 01/03 2000 | 07/21 2005 | 7/15 2008 | 02/11 2011 |
| Rate | 8.2798 | 8.2765 | 6.8211 | 6.5917 |
| New House | 1963 | 1977 | 2005 | 2009 |
| Sales 1000s | 560 | 819 | 1283 | 375 |
| New House | 2000 | 2007 | 2009 | 2010 |
| Median Price $1000 | 169 | 247 | 217 | 203 |
| 2003 | 2005 | 2007 | 2010 | |
| CPI | 1.9 | 3.4 | 4.1 | 1.5 |
Sources: http://online.wsj.com/mdc/page/marketsdata.html
http://www.census.gov/const/www/newressalesindex_excel.html
http://federalreserve.gov/releases/h10/Hist/dat00_eu.htm
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
http://federalreserve.gov/releases/h10/Hist/dat00_ch.htm
http://markets.ft.com/ft/markets/currencies.asp
The trends of valuations of global risk financial assets are dominated by the carry trade from near zero interest rates in the US to take long positions in risk financial assets. Investors and financial professionals learned from losses or how to avoid them. The carry trade is now more opportunistic in quickly realizing profits to avoid losses during periods of risk aversion resulting from events such as the European risk issues, fears of the tradeoff of growth and inflation in Asia and slow growth with high unemployment and underemployment in the US together with expectations of increases in taxes and interest rates. When risk aversion is subdued, the combination of near zero interest rates of fed funds and quantitative easing creates again the dream of traders of “the trend is my friend” without as strong a belief in the B-put as in earlier periods. Table 6 captures the decline of risk financial assets resulting from the European sovereign risk issues after Apr and the sharp recovery that was not interrupted by the second round in late Nov. The final column shows that after Jun there is repetition of the trend of high valuations of risk financial assets with the exception of the dollar that devalued by 13.7 percent.
Table 6, Stock Indexes, Commodities, Dollar and 10-Year Treasury
| Peak | Trough | ∆% to Trough | ∆% Peak to 2/ 11/11 | ∆% Week 2/ 11 /11 | ∆% Trough to 2/ 4/11 | |
| DJIA | 4/26/ 10 | 7/2/10 | -13.6 | 9.5 | 1.5 | 26.7 |
| S&P 500 | 4/23/ 10 | 7/20/ 10 | -16.0 | 9.2 | 1.4 | 29.9 |
| NYSE Finance | 4/15/ 10 | 7/2/10 | -20.3 | -0.3 | 1.9 | 25.2 |
| Dow Global | 4/15/ 10 | 7/2/10 | -18.4 | 5.3 | 0.5 | 29.2 |
| Asia Pacific | 4/15/ 10 | 7/2/10 | -12.5 | 6.2 | -2.5 | 21.4 |
| Japan Nikkei Aver. | 4/05/ 10 | 8/31/ 10 | -22.5 | -6.9 | 0.6 | 20.2 |
| China Shang. | 4/15/ 10 | 7/02 /10 | -24.7 | -10.7 | 1.1 | 18.7 |
| STOXX 50 | 4/15/10 | 7/2/10 | -15.3 | 0.4 | 0.2 | 18.5 |
| DAX | 4/26/ 10 | 5/25/ 10 | -10.5 | 16.4 | 2.1 | 29.9 |
| Dollar Euro | 11/25 2009 | 6/7 2010 | 21.2 | 10.4 | 0.2 | -13.6 |
| DJ UBS Comm. | 1/6/ 10 | 7/2/10 | -14.5 | 12.0 | -0.9 | 31.0 |
| 10-Year Tre. | 4/5/ 10 | 4/6/10 | 3.986 | 3.643 |
T: trough; Dollar: positive sign appreciation relative to euro (less dollars paid per euro), negative sign depreciation relative to euro (more dollars paid per euro)
Source: http://online.wsj.com/mdc/page/marketsdata.html.
Table 7 provides the percentage changes of the DJIA and the S&P 500 since Apr 26, around the European sovereign risk issues, from current to previous selected dates and relative to Apr 26. Chairman Bernanke (2010WP) first argued that quantitative easing was also designed to increase the valuations of stocks with the objective of creating a wealth effect that would motivate consumption.
Table 7, Percentage Changes of DJIA and S&P 500 in Selected Dates
| 2010 | ∆% DJIA from earlier date | ∆% DJIA from Apr 26 | ∆% S&P 500 from earlier date | ∆% S&P 500 from Apr 26 |
| Apr 26 | ||||
| May 6 | -6.1 | -6.1 | -6.9 | -6.9 |
| May 26 | -5.2 | -10.9 | -5.4 | -11.9 |
| Jun 8 | -1.2 | -11.3 | 2.1 | -12.4 |
| Jul 2 | -2.6 | -13.6 | -3.8 | -15.7 |
| Aug 9 | 10.5 | -4.3 | 10.3 | -7.0 |
| Aug 31 | -6.4 | -10.6 | -6.9 | -13.4 |
| Nov 5 | 14.2 | 2.1 | 16.8 | 1.0 |
| Nov 30 | -3.8 | -3.8 | -3.7 | -2.6 |
| Dec 17 | 4.4 | 2.5 | 5.3 | 2.6 |
| Dec 23 | 0.7 | 3.3 | 1.0 | 3.7 |
| Dec 31 | 0.03 | 3.3 | 0.07 | 3.8 |
| Jan 7 | 0.8 | 4.2 | 1.1 | 4.9 |
| Jan 14 | 0.9 | 5.2 | 1.7 | 6.7 |
| Jan 21 | 0.7 | 5.9 | -0.8 | 5.9 |
| Jan 28 | -0.4 | 5.5 | -0.5 | 5.3 |
| Feb 4 | 2.3 | 7.9 | 2.7 | 8.1 |
| Feb 11 | 1.5 | 9.5 | 1.4 | 9.7 |
Source: http://online.wsj.com/mdc/public/page/mdc_us_stocks.html?mod=mdc_topnav_2_3004
VI Economic Indicators. Seasonally adjusted sales of merchant wholesalers except manufacturers sales branches and offices rose 0.4 percent from Nov into Dec and 11.6 percent from Dec 2009; seasonally adjusted sales of durable goods rose 1.3 percent from Nov into Dec and 11.6 percent from a year earlier; sales of motor vehicles and parts and supplies rose 2.3 from Nov into Dec; sales of petroleum and petroleum products rose 3.0 percent from Nov into Dec; and inventories of wholesale merchants rose 1.0 percent from Nov into Dec and 10.5 percent from a year ago (http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf). The trade deficit of the US rose to $40.6 billion in Dec from $38.3 billion in Nov with exports of $163 billion and imports of $203.5 billion (http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf). Table 8 provides the trade account, exports and imports for 2010. There has been significant improvement in the trade account from a deficit of $835 billion in 2008 to a much lower deficit of 647 billion in 2010 that may still increase with faster recovery. The contraction of income in the US was a key factor in the trade account improvement with the fall of imports by 26 percent in 2009 relative to 2008 while exports declined by 18.2 percent. Exports surged 20.7 percent in 2010 in an environment of fast growth of world trade and imports rose by 22.9 percent. Seasonally adjusted initial claims for unemployment insurance fell by 36,000 in the week ending on Feb 5 to 383,000 from 419,000 in the week ending on Jan 29. Initial claims not seasonally adjusted declined by 25,928 to 438,548 in the week ending on Feb 5. Perhaps the best sign in the job market is the decline of not seasonally adjusted claims from 507,634 a year ago to 438,548 in the week of Feb 5 (http://www.dol.gov/opa/media/press/eta/ui/current.htm ). The WSJ analyzes layoffs and hiring (http://www.dol.gov/opa/media/press/eta/ui/current.htm ). There were 1.84 million layoffs by employers in Dec, declining from 2.05 million a year earlier, slightly lower than levels before the recession in the final quarter of 2007 but 4.18 million were hired in Dec, higher than 4 million a year earlier but significantly lower than 5.27 million on average per month in 2007. There were 3.1 million job openings in Dec such that with 14.5 million unemployed, there were 4.7 people seeking jobs per available jobs corresponding to three times the number in 2007.
Table 8, US Trade Balance, Exports and Imports in Billion dollars
2010 | ∆% | 2009 | ∆% | 2008 | |
Trade | -647 | -507 | -835 | ||
Exports | 1289 | 20.7 | 1068 | -18.2 | 1305 |
Imports | 1935 | 22.9 | 1575 | -26.0 | 2140 |
Source: http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf
VII Interest Rates. The 10-year Treasury traded at 3.64 percent on Fri Feb 11, equal to 3.64 percent a week before but higher than 3.36 percent a month earlier while the 30-year Treasury bond traded at 4.69 percent, which was lower than 4.73 percent a week earlier but higher than 4.50 percent a month earlier (http://markets.ft.com/markets/bonds.asp?ftauth=1297612887702). The 10-year government bond of Germany traded at 3.30 percent for a negative spread relative to the comparable Treasury of 34 basis points. The US Treasury note with coupon of 3.63 percent and maturity on 02/21 traded at a yield of 3.65 percent or equivalent price of 99.81 (http://markets.ft.com/ft/markets/reports/FTReport.asp?dockey=GOV-110211). Treasury is auctioning a 10-year note with coupon of 3.63 percent (http://www.treasurydirect.gov/instit/annceresult/press/preanre/2011/2011.htm) such that the price is not comparable with the price in Table 2 that is calculated with coupon of 2.625 percent.
VIII Conclusion. Inflation is everywhere and accelerating with the Fed in denial of its existence and its role in its creation. Monetary policy has created a duration trap of bond yields that are rising contrary to the intentions of quantitative easing. Regulation is restricting the volume of intermediation likely flattening the growth curve of the economy. Risk financial assets continue to inflate as a result of the near zero interest rate policy, creating risks of another financial crisis during a market event. Economic indicators are showing improvement but with continuing job stress of 25 to 30 million people depending on the participation rate of the population in the labor force. The G20 is plagued by conflicts of interest that require enhanced cooperation among members. (Go to http://cmpassocregulationblog.blogspot.com/ http://sites.google.com/site/economicregulation/carlos-m-pelaez)
http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10 )
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© Carlos M. Pelaez, 2010, 2011
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