June 2014: American energy

Three developments throw the world monetary scene into stark relief. This represents an apt juxtaposition marking OMFIF’s first Main Meeting in North America, at the St. Louis Federal Reserve Bank, and also the appearance of the 50th Monthly Bulletin since OMFIF was established in January 2010. First, the gradual retreat from massive US monetary easing, in the form of Federal Reserve ‘tapering’, appears to be proceeding relatively smoothly, although the important watershed of higher US policy rates next year still has to be faced. Second, shortly after significant austerity-induced setbacks for established European parties at the European parliament elections on 22- 25 May, the European Central Bank is on the cusp of a highly symbolic interest rate reduction into negative territory – a sign of how much is going wrong with the Old Continent’s vaunted recovery. Third, India, one of the brightest hopes among emerging market economies, has (like several of its peers) fallen upon disappointing times. New Prime Minister Narendra Modi, a possible statesman with a lot to prove, is taking the helm. In the June edition, we attempt to do justice to all three of these episodes. A recurring theme is, depending on your point of view, alarming or reassuring – and brings risks as well as some comfort. The world knows that the US remains the international economic, financial and monetary No. 1 – sometimes, in spite of itself. James Bullard describes how US monetary policy, up to now at least, appears to be on an even keel. Stuart Mackintosh writes on the inevitable penalties for economically weaker states brought by lack of international monetary reform. Darrell Delamaide believes US financial power has helped bring Russian President Vladimir Putin to relative quiescence over Ukraine.

The balance of energy power caused by worries over Russian supply dependence is one factor holding Europe in thrall at a time of low growth and even lower political cohesion. Vicky Pryce ponders tentative moves towards greater coordination on European energy policy. Jürgen Krönig laments Germany’s failure to forge a convincing line on energy, which he thinks will cost Europe’s industrial powerhouse dear. Gabriel Stein returns to a familiar theme – the all-too-obvious frailties of central bankers’ attempts to steer interest rate projections through so-called ‘forward guidance’. On India, Meghnad Desai sketches out a hopeful future for Modi, where ability to press forward with privatisation will be a strong condition for success. Michael Power expounds on a novel way of assessing emerging market investment prospects. Graham Hacche reviews Timothy Geithner’s memoir on how US interventionism helped (just about) overcome the last financial crisis. These are lessons well worth learning, for we know there’ll be another one.

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