Central bankers were back in the spotlight this weekend as some of the biggest names gathered in the US ski resort of Jackson Hole.
Investors were hopeful of a sign from Federal Reserve boss Janet Yellen and Mario Draghi, the head of the European Central Bank, to illuminate the future path of interest rates in their respective jurisdictions.
Yellen is under pressure to talk up the strength of the US economy and worry out loud about the threat of inflation. This would be seen as a proxy for saying that interest rate rises will resume soon.
Financial traders want Draghi to be more explicit about when he will stop pumping money into the eurozone economy. They understand that interest rates are unlikely to nudge upwards, but believe it is reasonable for him to say when the ECB expects to ease back on the current policy, which amounts to €60bn of quantitative easing a month, and allow their City clients to plan their investments.
Little was said to startle the trading community. Yellen was more concerned with rebutting Republican claims that financial regulation was holding back growth. Draghi talked obliquely and left no one any the wiser.
Most observers were already aware that the conference in Wyoming was a holding operation. That’s why the heads of many major central banks were absent, including Bank of England governor Mark Carney.
But the level of anticipation was still great, and illustrated a disturbingly high level of anxiety around the smallest changes in interest rates. Unfortunately this is an almost daily feature of the stock and bond markets, which have given up on governments of any colour doing something significant to boost investment and growth.
There was a flurry of excitement when Donald Trump was elected president on a platform of steep tax cuts and infrastructure spending commitments. Markets raced ahead as Trump talked about 3%-plus growth in perpetuity, or at least for the majority of his presidency.
That euphoria soon dissipated as Trump found himself mired in rows with Congress over Obamacare and, more recently, the prospect of a shutdown of the federal government as Congressional rules prevent Washington borrowing more money – the so-called debt ceiling.
Investors saw that the global economy would continue to rely for growth on consumer spending spurred by cheap central bank money. This is the new normal, and underpins why the majority of central banks are cutting rates at the moment, not raising them.
Indonesia is among those to have cut their main interest rate. Likewise Brazil and Hungary. Some countries have increased rates, but the balance is with the cutters.
This all goes to show that every country these days needs low rates to keep its economy moving. But as the 2008 financial crash illustrated, plentiful credit is a dangerous route to growth. In the end, banks lend to people and businesses that cannot repay – and the system falls over.
The answer must be for governments to take centre stage and shove the central bankers bank into the wings. The forum for this should be the G20, which is the most inclusive and representation international grouping that is not so unwieldy that it cannot make decisions.
G20 leaders gathered in Hamburg last month to no great effect. All the talk was of Trump’s private meetings with Russia leader Vladimir Putin, and protests on the city’s streets against globalisation.
It was one of several missed opportunities for Chinese president Xi Jingping, Indian prime minister Narendra Modi and Mexican president Enrique Peña Nieto, who sat with the other 16 national leaders and European Union representative Jean-Claude Juncker, to call for an end to beggar-thy-neighbour policymaking. It just leaves every country reluctant to take on the burden of investment by itself. Instead, they prefer the invisible hand of the central bank, and spending is funded by debt, not tax receipts.
If Trump won’t play ball, they should continue without him, as they did when he quit the COP20 climate deal. Otherwise another crash looms.
Action on betting is vital
For British bookmakers, waiting for the government’s review into the gambling industry must feel like watching a roulette wheel slowly come to a halt. Due in early summer but shelved until October, the review could be an inflection point for gambling regulation.
Focus on problem gambling is sharper than ever after last week’s report by the Gambling Commission, which concluded that the government and the industry were not doing enough to tackle it. One key finding is that the number of addicts who play fixed-odds betting terminals (FOBTs) – the controversial machines that let punters stake £100 every 20 seconds – has increased significantly.
Public anger about FOBTs has grown and, while the Treasury fears that curbing the machines could diminish its tax take, No 11’s voice may be drowned out by the prospect of an easy political win.
The review’s verdict on gambling advertising, which has ballooned in recent years, will be just as significant. As it stands, ads such as those featuring Ray Winstone’s disembodied head urging punters to “bet now!” (responsibly) can’t appear before the 9pm watershed except during a live sports event. Given the sheer volume of televised sport, it is an exception that renders the rule all but useless. Again, the government will face intense lobbying – those ads are hugely lucrative for broadcasters.
However, important as the review is, it distracts from a less visible but larger problem: the lack of resources for treating addicts. While counselling organisations such as GamCare and YGAM do great work, specialist treatment in the UK is woefully thin on the ground. There is just one gambling addiction clinic in the UK, in London and funded by the GambleAware charity. It has a six-month waiting list.
Gambling is not afforded the same priority as alcoholism or drug addiction within Public Health England. Improving treatment should now attract as much focus as clipping the gambling industry’s wings.
Workers still locked out of the boardroom
Greg Clark is going to disappoint millions of workers this week when his white paper on corporate governance is published.
Clark is one of the cabinet’s more thoughtful characters. As business secretary, he has impressed executives with his grasp of the subject and steady approach. Yet this will count for little on the shopfloor when he confirms that Theresa May’s proposal of a place for workers’ representatives on the board has bitten the dust. Bosses will get to choose between designating a non-exec to represent workers, nominating a director from the workforce, or establishing an advisory council. This will have “access” to board members, according to Whitehall leaks.
The government is also expected to abandon a proposal to “legislate to make executive pay packages subject to strict annual votes by shareholders”.
Clark will say that, in the round, his reforms make big business more accountable: but without direct access, workers remain on the sidelines.
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