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POLITICAL ECONOMY
Divided expectations for 'super committee'
by Dorothy Zhang, Medill News Service
Washington (UPI) Aug 12, 2011

China's July new loans at 492.6 billion yuan
Shanghai (AFP) Aug 12, 2011 - China said Friday the nation's lenders issued a lower-than-expected 492.6 billion yuan ($77 billion) in new loans in July, indicating Beijing's efforts to rein in liquidity are taking effect.

But the People's Bank of China, the central bank, still sounded the alarm on the politically-sensitive inflation figure, which hit a more than three-year high of 6.5 percent in July.

July loans were lower than the 633.9 billion extended in June and 25.2 billion yuan less than the same month last year, the bank said in a statement.

It was also below forecasts of 555 billion yuan by 11 economists surveyed by Dow Jones Newswires.

The broadest measure of money supply, M2, was up 14.7 percent year-on-year at the end of July compared with a 15.9 percent rise at the end of June, the central bank said, in another sign of slowing credit.

"Today's data should reassure Beijing that rate hikes and other measures are having the intended effect of tightening credit conditions and reducing upward pressure on inflation," said Royal Bank of Canada economist Brian Jackson.

Policymakers have been pulling on a variety of levers to rein in bank lending over fears of soaring property prices and inflation, which Beijing worries could trigger social unrest.

In its quarterly monetary policy report, also released on Friday, the central bank said it was "not optimistic" about the prospect of inflation and stressed stabilising prices remained a top priority.

"The foundation of stabilising prices is not sound and the situation is not optimistic," it said.

The bank also warned emerging economies like China may face significant captial inflows due to lack of growth momentum in other major global economies.

The central bank has hiked interest rates five times since October and increased the amount of money banks must keep in reserve numerous times in the past year as part of its monetary tightening.

One thing is clear: The 12-member "super committee" tasked with identifying trillions of dollars to slice from the federal deficit over the next decade has already divided observers.

"My expectation is that they will not reach an agreement," said Ron Haskins, a senior fellow at the nonpartisan Brookings Institution in Washington and a former White House adviser on welfare issues to President George W. Bush's administration. "And we'll have the across-the-board cut."

Under the deficit ceiling deal reached last week, the new debt supercommittee, formally known as the Joint Select Committee on Deficit Reduction, is charged with creating a bipartisan plan for up to at least $1.2 trillion, or to a more favorable $1.5 trillion, in deficit reduction. The savings could come from a combination of spending cuts and increased revenue.

The committee has until Nov. 23 to come up with the plan. If the panel fails to reach an agreement or if Congress rejects the plan recommended, a fallback mechanism involving automatic $1.2 trillion across-the-board cuts in federal spending will be triggered.

The 12 members of the committee, six Democrats and six Republicans, were nominated by the top four congressional leaders and equally divided between the House of Representatives and the Senate.

House Minority Leader Nancy Pelosi, D-Calif., Thursday announced her choices for the committee: House assistant Democratic leader Rep. James Clyburn of South Carolina, Rep. Chris Van Hollen of Maryland and Rep. Xavier Becerra of California.

Already named to the committee are six Republicans. House Speaker John Boehner on Wednesday appointed Rep. Jeb Hensarling of Texas, a conservative leader, as co-chairman. He also named Rep. Dave Camp, chairman of the Ways and Means Committee; and Rep. Fred Upton, chairman of the Energy and Commerce Committee. Both Camp and Upton are from Michigan. In the Senate, GOP Leader Mitch McConnell picked Sen. Jon Kyl of Arizona, the Senate's No. 2 Republican; Sen. Rob Portman of Ohio, who served as director of the Office of Management and Budget in the second Bush administration; and Sen. Patrick Toomey of Pennsylvania.

Senate Majority Leader Harry Reid appointed three Democrats to the committee on Tuesday: Sens. Patty Murray of Washington, Max Baucus of Montana and John Kerry of Massachusetts. Murray will be the co-chairwoman of the committee.

Despite the bipartisan makeup of the committee, Haskins says he sees a wide gap to close between the two parties before the committee could reach an agreement.

"Republicans are still singing very clearly that they are not going to raise taxes; it all has to be done on spending side," Haskins said. "And many Democrats are saying they're not going to compromise on Medicare."

But John Sides, a political science professor at George Washington University, says whether the committee will reach a compromise is an even bet.

"Ultimately a lot of it is going to depend on the party leadership in the House and the Senate, not just on the individual members of the committee," Sides said. "So we need to be looking at Nancy Pelosi, Harry Reid, Mitch McConnell, John Boehner to figure out whether they're going to be signaling to the members of the super committee that any particular compromises are acceptable."

The important point is that the super committee is embedded in a broader negotiation that has to be going on behind the scenes between U.S. President Barack Obama and the party leadership of the House and the Senate, Sides added.

Meantime, the majority of American people responding to a poll said they have high expectations that their elected representatives in Washington could reach a compromise on the deficit reduction.

A Gallup survey released Wednesday indicated 6-in-10 Americans asked said they want the super committee to compromise to reach an agreement, even if they personally disagree with the final product.

This pre-existing preference for political compromise among Americans may have been reinforced by Standard & Poor's downgrading of the U.S. credit rating, along with the generally downward movement of the stock market in recent weeks, the survey's author Frank Newport said in the report.

But these "scary events" prompting the desire to compromise may not be enough to get politicians to compromise, Haskins projected.

Things that could make them compromise are probably going to involve some permanent, really serious damage to the economy, Haskins added.

Meanwhile, 53 percent of Tea Party supporters take a hard-line stance, saying committee members should only hold out for a plan with which they personally agree, even if no deal is reached, the polled indicated.

Michael Franc, vice president of government studies at the conservative think tank The Heritage Foundation, however, is more optimistic that the committee can accomplish an agreement.

The committee is trying to come up with $1.2 trillion deficit reduction over a decade while the government is looking to spend more than $40 trillion during that same period of time, Franc said, so the panel is essentially looking at shaving off 2 to 4 cents out of every dollar Congress is going to appropriate to spend over the next decade.

"That's not a lot," Franc said.




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'More dangerous' times ahead: World Bank chief
Sydney (AFP) Aug 13, 2011 - World Bank chief Robert Zoellick on Saturday warned of a "new and more dangerous" time in the global economy, with little breathing space in most developed countries as a debt crisis hits Europe.

Zoellick said the eurozone's sovereign debt issues were more troubling than the "medium and long-term" problems which saw the United States downgraded by Standard and Poor's last week, sending global markets into panic.

"We are in the early moments of a new and different storm, it's not the same as 2008," said Zoellick, referring to the global financial crisis.

"In the past couple of weeks the world has moved from a troubled multi-speed recovery -- with emerging markets and a few economies like Australia having good growth and developed markets struggling -- to a new and more dangerous phase," he said in an interview with the Weekend Australian newspaper.

People were in less debt than during the credit crunch and current events did not have the same "sudden shock" factor, but Zoellick said there was less room to manoeuvre this time around.

"Most developed countries have used up their fiscal space and monetary policy is about as loose as it can be," he said.

Zoellick said the eurozone's structure "could turn out to be the most important" challenge currently facing the world economy, with some hope for Spain and Italy but debt-crippled Greece and Portugal unable to devalue.

European Union action taken to date falls short of what is needed, the World Bank chief said.

"The lesson of 2008 is that the later you act, the more you have to do," said Zoellick, questioning whether the troubled European nations could "ever get ahead of the problems that have plagued them."

He also urged British Prime Minister David Cameron not to be deterred from austerity measures by recent riots -- the country's worst in decades -- saying his spending cuts were "really necessary."

"My concern would be if the politics knocked them off course," Zoellick said.

Markets swung wildly this week on rumours of a French credit downgrade over the debt crisis, which started in Greece and is now fuelled by fears Spain or Italy might default, sparking a break up of the 17-nation currency.

Investors are questioning whether France and Germany, the eurozone's two largest economies, can continue to underwrite other states' debts without losing their top credit ratings and falling victim to the crisis themselves.

Zoellick said power, influence and weight was shifting "very fast by historical standards" to developing economies led by China, but he described the Asian superpower was a "reluctant stakeholder" in the global system.

Aside from tackling overheating Zoellick said Beijing faced a number of big domestic policy questions -- keeping its industrialisation "green", financial system reform, and the balance of state-owned firms with private enterprise.

Allowing the yuan to increase in value would help curb inflation but also make foreign goods cheaper in China, a potentially sensitive issue.

Beijing also wanted to increase social protections for its population but didn't want a European welfare state model, Zoellick said.

"They say to me ... it's too expensive."





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POLITICAL ECONOMY
China's July new loans at 492.6 billion yuan
Shanghai (AFP) Aug 12, 2011
China said Friday the nation's lenders issued a lower-than-expected 492.6 billion yuan ($77 billion) in new loans in July, indicating Beijing's efforts to rein in liquidity are taking effect. The figure was lower than 633.9 billion extended in June and 25.2 billion yuan less than the same month last year, the People's Bank of China said in a statement. It was also below forecasts of 555 ... read more


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