Fiery Yellen fights back as Republican lawmakers lambaste Fed

Federal Reserve Chair Janet Yellen on Wednesday fended off a stream of aggressive questions from Republican lawmakers who accused the central bank of making Democratic political causes a higher priority than its stewardship of the US economy. 

PHOTO: AFP

26 Feb6:45 AM

[WASHINGTON] Federal Reserve Chair Janet Yellen on Wednesday fended off a stream of aggressive questions from Republican lawmakers who accused the central bank of making Democratic political causes a higher priority than its stewardship of the US economy.

Speaking in front of the House of Representatives Financial Services Committee, the normally reserved Ms Yellen was the most animated she's been in a public hearing since taking on the Fed's top role last February, in a sign of rising friction between the Fed and conservative lawmakers in Congress.

During the hearing, part of the Fed's semi-annual economic and monetary policy report to Congress, Ms Yellen fought back against accusations that the Fed holds a liberal bias and talked over politicians trying to interrupt her.

Ms Yellen's separate appearances in the House and Senate this week came amid growing threats to the Fed's independence.

Republicans, now in control of both legislative branches, have been leading efforts to rein in the central bank. Top lawmakers have said the Fed has too much regulatory authority and not enough accountability in its handling of US monetary policy.

The House has passed a series of bills aimed at the Fed, but none gained traction in the Senate while under Democratic control.

That political pressure is expected to increase, with congressional efforts to fully audit the Fed coinciding with the central bank's complicated task of raising interest rates and selling down its US$4.5 trillion balance sheet.

Ms Yellen's demeanor on Wednesday contrasted with that of her predecessor, Ben Bernanke. While both are reserved academics, Ms Yellen showed more tenacity when facing lawmakers' pointed questions than Bernanke in his early years as Fed chief.

Yellen did not hide her annoyance at committee members who questioned the central bank's intentions.

The most heated exchange took place when Representative Mick Mulvaney, a South Carolina Republican, told Ms Yellen the Fed was "sticking its nose" where it didn't belong by trying to address issues such as long-term unemployment and income inequality. "I've also talked about long-run deficit problems and budget problems in this country, and they're your responsibility, not mine," Ms Yellen replied.

Several Republicans on the committee pressed Ms Yellen on her meetings with the White House and Treasury Secretary Jack Lew and tried to corner the Fed chief into admitting an allegiance to Democratic Party principles. Ms Yellen was an economic adviser to President Bill Clinton and was appointed by President Barack Obama, both Democrats.

House Representative Scott Garrett of New Jersey pointed out that Ms Yellen had met with liberal-leaning groups, and that her schedule showed she had met with more Democrats than Republicans. "We meet with a wide range of groups," Ms Yellen fired back. "I think it is a complete mischaracterisation of our meeting schedules." Ms Yellen had a far less tense exchange with lawmakers when she testified on Tuesday before the Senate Banking Committee.

Several House lawmakers referred to a speech on income inequality that she gave in Boston last year, saying it was a sign of her support of Democratic and Obama administration agendas ahead of the presidential election last November. "I believe that it (income inequality) is a problem that everyone in this room should be concerned about," Ms Yellen replied. "I am not making political statements. I am discussing a significant problem that faces America ... I didn't offer any policy recommendations whatsoever in that speech." Some lawmakers took issue with the number of meetings Ms Yellen has had with Mr Lew, and asked that she make the transcripts of those conversations public. Yellen said she would not do so, just as she would not do so if she met with a lawmaker. "The Federal Reserve is independent. I do not discuss monetary policy or actions that we are going to take with the (treasury) secretary or with the executive branch. We confer about the economy and the financial system on a regular basis," Ms Yellen said.

REUTERS

Citigroup unit probed by more authorities over money laundering

PUBLISHED ON FEB 26, 2015 7:42 AM

NEW YORK (Reuters) - Citigroup Inc said additional government authorities have started probes of possible breaches of anti-money laundering laws at its Banamex USA unit.

The Financial Crimes Enforcement Network, a unit of the U.S. Treasury, and the California Department of Business Oversight have asked the company for information on its compliance with the Bank Secrecy Act and anti-money laundering rules, Citigroup disclosed in an annual filing with the U.S. Securities and Exchange Commission on Wednesday.

The disclosure comes one year after Citigroup revealed a criminal probe by a federal grand jury in Massachusetts and inquiries from the U.S. Federal Deposit Insurance Corp into the matter.

Citigroup said it is cooperating with the investigations.

Shanghai experiment is a major step towards financial liberalisation 25 February 2015

Shanghai experiment is a major step towards financial liberalisation

25 February 2015

Authors: Daqing Yao, SASS and John Whalley, UWO

Since September 2013 China has been operating a new form of free trade zone (FTZ) based in a small area of Shanghai, called the China (Shanghai) Pilot Free Trade Zone (SPFTZ). Only 28 square kilometres in area, the SPFTZ is a concrete first step to China’s new development model, the so-called ‘new normal’. China’s adjustment to growth at a relatively lower but still increasing rate will be assisted by the SPFTZ’s substantial steps towards financial liberalisation.

From the beginning, the SPFTZ has been a pilot zone not only for trade but also for broader reform. There have been four major areas of institutional reform over the past year. This includes reform of the foreign investment, financial, trade, and legal and regulatory systems. Of these, financial innovation attracts the most interest.

The People’s Bank of China and three regulatory commissions on banking, securities, and insurance have adopted 51 new regulations underpinning a new financial architecture in the SPFTZ. These include a free trade accounts system that enables eligible organisations and individuals to enjoy the same regulatory rules on their yuan as apply to foreign currencies. Cross-border payments, receipts, and exchange related to direct investment by enterprises can be processed directly by banks. Eligible individuals can now make various kinds of overseas investments, including securities investment. Financial institutions in Shanghai can also independently price the foreign currency deposits of enterprise clients. And banks can directly provide cross-border RMB settlement services in current accounts and direct investment accounts to their clients.

All these features are aimed at loosening capital controls in the SPFTZ, while maintaining them for now in most of the rest of China. Similar arrangements are in place in Tianjin, Fujian and Guangdong FTZs. But the impacts of financial market changes cannot be confined to small geographic areas. As such, they will likely affect the capital controls in China as a whole.

In fact, research by the authors shows that the impact of capital controls in China is lower since the SPFTZ. Capital flows have increased rapidly since the SPFTZ. The price spread between the CNY (the onshore exchange rate of RMB) and CNH (the offshore exchange rate of RMB in Hong Kong) has also shown a tendency to diminish. Furthermore, a formal price test — analysing the combination of onshore RMB interest rates, offshore US dollar interest rates and non-deliverable forward (NDF) exchange rates — indicates that there was a regime break in China’s capital controls when the SPFTZ started.

These spill-over effects are more as the result of intentional policy design than of a careless failure of planning. Chinese reform is generally characterised by its evolutionary strategy, where tentative policy experiments in confined areas are only replicated in other areas when they succeed. Although financial architecture usually occurs organically, in that it gradually results from a myriad of individual agreements, China can still find ways to trial reforms while avoiding an unfavourable impact on its whole economy.

That the SPFTZ is expanding to 120 square kilometres and three similar FTZs in Tianjin, Fujian and Guangdong are operational proves that loosening capital controls is in accordance with the purpose of the central government. Beijing may gradually abandon its current policy of a stable RMB and capital controls to a floating currency and liberalised capital market.

A liberalised capital market is a part of the broader objective of the new generation of Chinese leaders, whose aim is to create a more structurally balanced, domestic demand driven, environmentally friendly, and equitable form of economic development. In this sense, the SPFTZ heralds the ‘new normal’ that will characterise China in the coming decades.

Daqing Yao is an Associate Research Professor at the Institute of World Economy at the Shanghai Academy of Social Sciences.

John Whalley is Professor in the Department of Economics, Western University.

The authors are grateful to the Ontario Research Fund and the Centre for International Governance Innovation for financial support. This article refers to the materials from the authors’ recent paper: Daqing Yao and John Whalley, ‘An Evaluation of the Impact of the China (Shanghai) Pilot Free Trade Zone (SPFTZ)’, NBER Working Paper No. 20901.

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White House, Elizabeth Warren team up to protect retirement savings from Wall Street byJoan McCarter

MON FEB 23, 2015 AT 07:58 AM PST

White House, Elizabeth Warren team up to protect retirement savings from Wall Street

byJoan McCarterFollow

 
 
• 54 Comments / 54 New

There's a loophole in the law on financial advisors that's costing consumers $17 billion a year, money that is going into the accounts of said financial advisors instead of the retirement accounts of the people they're supposed to be helping. President Obama is teaming up with Sen. Elizabeth Warren (D-MA) to close that loophole.

The two are speaking at the Washington offices of the AARP Monday, announcing a new Department of Labor rule to make financial advisors to receive fees for their investment advice to individuals abide by the "fiduciary rule." That means that financial advisors would be required to act in their clients' best interests. Right now, they're covered under a much more lenient "suitability standard," that just says they have to give recommendations that they reasonably believe are suitable for that customer. What's the big deal? The big deal is that they can give that advice when they have a conflict of interest—they can get back-door payments from the providers of the investment products they recommend. So that great fund they're pushing you to invest in might not be the very best product for you, but they're essentially getting a commission when they steer you into it. The new regulations would put these investments under the fiduciary rule.

What will that mean in practice? When workers or retirees rollover their savings accounts, typically 401(k)s, into IRAs, brokers will generally not be able to recommend products that give them a kickback but diminish the clients long-term yield. The new fiduciary standard should block what honest brokers call "over-managing:" unnecessary rollovers, churning (over-active buying and selling that generates brokers' fees at the expense of returns), and the pushing of expensive and risky products like variable annuities.

Not surprisingly, Wall Street, the U.S. Chamber of Commerce and lawmakers from both parties are gearing up to fight the rule. David Dayen points to a a letter the Securities Industry and Financial Markets Association, a large trade group, got 183 members of Congress to sign, "including 118 Democrats, attacking the Labor Department rule." You can expect a Republican Congress, with the help of some Democrats, to act swiftly to try to find a way to block or blunt these rules.

The Department of Labor has created a website where you can read more backgroundabout the proposed rule and how to protect retirement savings.

ORIGINALLY POSTED TO JOAN MCCARTER ON MON FEB 23, 2015 AT 07:58 AM PST.

ALSO REPUBLISHED BY DAILY KOS.

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China dangerously close to slipping into deflation, says central bank newspaper

PUBLISHED ON FEB 25, 2015 1:56 PM

A fluttering Chinese national flag casts its shadow on the headquarters of the People's Bank of China, China's central bank, in central Beijing in this Nov 24, 2014 file photo. China is dangerously close to slipping into deflation, the central bank's newspaper warned on Wednesday, highlighting increasing nervousness in policymaking circles. -- PHOTO: REUTERS 

SHANGHAI (Reuters) - China is dangerously close to slipping into deflation, the central bank's newspaper warned on Wednesday, highlighting increasing nervousness in policymaking circles as a sputtering economy struggles to pick up speed despite a raft of stimulus steps.

The article, published in Finance News, quoted the secretary general of the China Urban Finance Society Chan Xiangyang as saying that risk of deflation is greater than many appreciate.

The Society is a national academic group not directly affiliated with the People's Bank of China (PBOC), but in many cases the publication of such pieces in the central bank's newspaper indicates tacit approval of the message.

As a slowdown in China's economy over the past year was accompanied by a chill in global demand, Beijing has stepped up measures to prevent the Asian economic powerhouse from stumbling.

In November last year, the PBOC startled markets with an unexpected interest rate cut - the first since 2012 - and then followed up with a cut to banks' required reserve ratio in early February.

Analysts have speculated that the central bank will be forced to take more aggressive easing measures in the coming months if price and credit data continues to drift lower.

Chan said the deteriorating macroeconomic environment, combined with enduring industrial overcapacity, widespread speculative and inefficient investment, and slowing foreign capital inflows are all weighing heavily on prices.

That risks setting off a debilitating deflationary cycle in the world's second-largest economy, similar to the "lost decades" experienced by Japan under similar - but not identical - circumstances that began in the 1990s, in which inexorable price declines discouraged investment.

Chinese policymakers and market participants have been trying to determine to what extent China's weak prices are driven by purely domestic factors, including demand from Chinese consumers and industrial overcapacity, as opposed to a globally weak price environment.

The falling price of oil, for example, which is down by over 50 percent since mid 2014, has aggravated a broader commodity price rout which has pushed down inflation in all the major industrial economies.

As the world's largest net petroleum and iron ore importer, China's industrial good prices closely track global commodities prices.

However, economists note that January's data is usually distorted by the Lunar New Year holiday.

Activity in China's mammoth factory sector edged up to a four-month high in February but export orders shrank at their fastest rate in 20 months, a private survey showed, painting a murky outlook that analysts said argues for more policy support.

EU unveils plans for historic single energy market

The EU unveiled plans on Wednesday for a continent-wide single energy market to reduce its uneasy reliance on Russian supplies and cut a massive annual import bill of some 400 billion euros. 

PHOTO: REUTERS

25 Feb11:18 PM

[BRUSSELS] The EU unveiled plans on Wednesday for a continent-wide single energy market to reduce its uneasy reliance on Russian supplies and cut a massive annual import bill of some 400 billion euros.

The proposals by the European Commission, the executive body of the 28-nation bloc, are timely as Russia once again threatens to cut gas deliveries to Ukraine, putting onward supply to Europe at risk.

"Today, we launch the most ambitious European energy project since the Coal and Steel Community," said Maros Sefcovic, the Commission vice president in charge of the dossier, citing the 1951 precursor of the modern-day EU.

The European Union imported 53 per cent of its energy needs last year at a cost of 400 billion euros (S$455 billion), a dangerous vulnerability in itself at a time of growing global insecurity, not least tensions with Russia.

The plans for 'energy union' include completing the single market, increasing energy security, boosting efficiency, reducing the use of fossil fuels and increased research on new energy sources.

But efforts to centralise energy policy in Brussels are potentially divisive EU member states jealously guard the right to decide their own energy mix.

AFP