Finance news. My opinion.

January 28, 2008

Paulson Says Senate Unlikely to Derail Stimulus Plan

Filed under: economics, term — Tags: , , — Professor @ 3:07 pm

Treasury Secretary Henry Paulson said the $150 billion economic stimulus package worked out by President George W. Bush and U.S. House leaders was a “rare bipartisan moment'' that's likely to be repeated in the Senate.

“I don't think the Senate is going to want to derail that deal,'' Paulson said on the “Fox News Sunday'' television program. “And I don't think the American public is going to have much patience for anything that slows down this process of getting money into our economy.''

Paulson cautioned lawmakers against making many changes to the plan worked out between the Bush administration and House leaders, which was announced on Jan. 24. He repeated that while he expects the economy to continue to grow after slowing “significantly'' late last year, “risks are to the downside.''

If the Senate approves the package “very quickly,'' Paulson said, “I think we're going to be able to move quickly and get the money out into the economy by May.'' That would make “a very big difference'' in the economy, he said.

Since the agreement between the Republican president and leaders of both parties in the Democratic-controlled House, members of the Senate, also controlled by Democrats, have suggested changes such as increasing unemployment benefits and food stamps.

“Once you start considering additions — the food stamps, unemployment insurance and so on, it's a slippery slope, and there is a real danger that we're going to bog down and screech to a stop,'' Paulson said later on CNN's “Late Edition.''

Paulson said he doesn't think the U.S. economy is in a recession. “The markets will be pleased to see us all come together in Washington and work something out,'' he said, adding that the Senate “needs to take action.''

Housing Slump

The housing slump probably worsened at the end of last year, bringing the economy to the brink of recession and prompting businesses to curb hiring and spending, economists said before government reports this week payday loans lenders.

Economic growth slowed to a 1.2 percent annual rate from October to December, a quarter of the previous three months' pace, according to the median estimate of economists surveyed by Bloomberg News. Other reports may show the unemployment rate held at a two-year high this month and consumer spending cooled in December.

While the agreement is a “good fundamental foundation to work from,'' House Speaker Nancy Pelosi of California has known all along that the Senate would make changes, Senator Charles Schumer of New York, chairman of the Joint Economic Committee, said last week in an interview on Bloomberg Television's “Political Capital with Al Hunt.''

Tax Rebates

About $100 billion from the package would pay for tax rebates to 117 million families and $50 billion would be for business tax breaks. The plan also addresses the rising number of foreclosures by allowing government-chartered mortgage companies Fannie Mae and Freddie Mac to buy home loans of as much as $729,750, up from the current limit of $417,000.

Under the package, individuals must earn at least $3,000 to receive a $300 rebate, while higher-income individuals would get up to $600 and couples could receive $1,200 plus $300 per child. Rebates would be limited to individuals earning less than $75,000 and couples earning less than $150,000.

Two business incentives were included in the package. One would allow large companies to deduct more of the price of new equipment they purchase this year. Small businesses would be allowed to deduct twice the current limit of $112,000 for new equipment purchases.


January 25, 2008

Economists Split on Likelihood China Will Raise Rates This Year

Filed under: management, money, news — Tags: , , — Professor @ 6:52 pm

Economists are split on whether China will raise interest rates this year as the government tries to curb inflation without attracting money into an economy already flooded with cash.

Seven of thirteen economists surveyed yesterday by Bloomberg News expect lending and deposit rates to rise this year. Most expect the yuan's gains versus the dollar to accelerate and banks' reserve requirements to increase.

Interest-rate cuts by the U.S. Federal Reserve may flood the Chinese economy with “hot money'' by widening the gap between the two countries' borrowing costs, Yu Yongding, a former adviser to the People's Bank of China, said this week. That may mean the government will focus more on other methods to cool the pace of inflation, which tripled in 2007.

“The central bank will rely more on reserve requirements, administrative credit controls and possibly faster yuan appreciation to control liquidity and ease inflationary pressures,'' said Denise Yam, an economist at Morgan Stanley in Hong Kong. “The sharp rate cut by the Fed has limited the room for China to hike rates.''

China yesterday reported the fourth straight quarter of economic growth of more than 11 percent.

The Fed this week lowered its benchmark interest rate by three quarters of a point, its first emergency cut since 2001, to 3.5 percent, amid signs of a U.S. recession. It cut borrowing costs three times last year.

`Neutralizing Effect'

Yu, director of the World Economics and Politics Institute in Beijing, said the Fed's interest rate cut will “have a neutralizing effect on China's tightening monetary policy.''

The People's Bank of China raised interest rates six times in 2007 The one-year lending rate increased to a nine-year high of 7.47 percent and the deposit rate to 4.14 percent.

“Lower U.S. rates could bring another wave of speculative capital inflows to China,'' said Chris Leung, senior economist at DBS Bank Ltd. in Hong Kong. “This may fuel another round of asset and consumer price inflation.''

The benchmark CSI Index of shares surged 162 percent in 2007 before it fell 6 percent this year. Property prices in 70 major Chinese cities jumped 10.5 percent in December from a year earlier, the biggest increase on record.

Consumer prices rose 6.5 percent in December from a year earlier and 4.8 percent in all of 2007 on higher food and fuel costs, the statistics bureau said yesterday. In 2006, the inflation rate was 1.5 percent.

Trade Surplus

A higher yuan would lower import costs and reduce the trade surplus by pushing up export prices.

The yuan has risen 1.1 percent this year against the U.S. dollar to the strongest since the end of a peg in July 2005. Most of the economists surveyed expect gains to accelerate to at least 10 percent this year from 7 percent last year.

China's economy, the world's fourth largest, expanded 11.4 percent in 2007 from a year earlier, the fastest pace in 13 years, and 11.2 percent in the fourth quarter.

“China will continue to fight overheating risks and inflationary pressure in the economy,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. “The policy makers have clearly gained a degree of comfort with the yuan appreciation.''


January 8, 2008

December house price jump

Filed under: finance, house, lenders, mortgage, prices, uk — Tags: , , , , — Professor @ 2:12 pm

House prices rose 1.3 per cent in December, defying predictions of a property price crash.

However, data from Halifax shows annual house price growth in the three months to December fell to 5.2 per cent from 6.2 per cent in November and the 11.4 per cent in August.

The prediction for 2008 is now flat house growth, with prices held up by a strong economy – with high levels of employment – and the Bank of England’s predicted interest rate cuts for 2008.

Martin Ellis, chief economist at Halifax, said: “This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market.

“Overall, the housing market continued to slow in the final quarter of 2007 with prices slightly lower than in the preceding quarter.

“Higher mortgage repayments in response to the series of five interest rate increases between August 2006 and July 2007 and falling real earnings have put pressure on households’ income, resulting in a slowdown in both house price growth and activity in recent months.”

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said the Halifax figures did not mark at turning point for the market.

“Our suspicion is the market environment is likely to remain challenging for at the least the first half of this year and that activity levels will remain subdued,” he said.

“However, unless inflation proves an increasing barrier to the Bank of England’s ability to lower base rates there is unlikely to be a material decline in house prices.”

Mr Rubinsohn went on to explain mortgage lenders were key to the future of the property market – along with the effects of the credit crunch, which are making securing a mortgage harder quick payday loan.

“A key issue for first-time buyers eager to take their first step onto the property market in this climate will be the willingness of lenders to provide finance on attractive terms,” he said.

“The slippage in money market rates since the start of the new year suggests that there is more chance of further interest rates cuts being passed on more fully to borrowers but just as important will be the willingness of lenders to maintain loan to value ratios.”

However, Howard Archer, chief economist at Global Insight, expects house prices to fall by three per cent over 2008.

“While the 1.3 per cent rise in house prices reported by the Halifax is undeniably a surprise, it is likely to be largely a correction after the particularly marked overall fall in prices through the previous three months,” Mr Archer said.

Despite the predicted stagnation of property values, Halifax is reminding property owners that house prices have risen 182 per cent over the last decade – making a £70,000 house in 1997 now worth £197,000.

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