Tito's Blog

Economist and FT on Private Deleverage vs Public Borrowing

Martin Wolf explains why extra government borrowing will be met by increased private (mostly corporate) savings, à-la Japanese lost decade. In general it makes a lot of sense, even though it makes two strong assumptions:

1. the somewhat paradoxical net flow of capital from developing to mature countries via reserve accumulation and currency manipulation will continue indefinitely
2. dollars and pounds will still be considered a safe heaven

On private corporation deleverage, The Economist has a good article on this week print edition (“Show us the money”) on increased cash generation by US and UK companies, due to lower investments.

A Drop In The Ocean

The Economist is my favorite magazine. It never stops surprising me with the quality of its content.

However today they wrote something I dont’ agree with on their weekly Politics newsletter.

Mr Obama held his first cabinet meeting and called for his departments to find $100m in savings to “set the tone”. The cuts represent 0.003% of the $3.5 trillion federal budget.

That’s not the point. It doesn’t matter if $100 million is a drop in the ocean. Obama is right in leading by example and I hope that he will inspire politicians all over the world in managing the government machine more efficiently. That is even more important now that the finance capital of the world is moving from New York to Washington and politicians are now becoming the new “Masters of the Universe”.