90 The ghost fleet of Johor: freighters with no cargo, no crew, no destination bode chill winds in City

(1) £ & $ slide, as Carry Trade forces Euro & Yen up
(2) $ in steep drop vs. ¥; Japan's new Finance Minister rejects buying $ to keep ¥ down
(3) Net capital outflow from US$
(4) Obama tariff on Chinese tyres heralds return of Protectionism
(5) The ghost fleet of Johor: freighters with no cargo, no crew, no destination bode chill winds in City
(6) Is Stimulus Still Necessary? - Robert Skidelsky

(1) £ & $ slide, as Carry Trade forces Euro & Yen up

From: geab@leap2020.eu  Date: 18.09.2009 12:34 PM

Pound to Drop to Euro Parity, Dollar to Reach 85 Yen, BNP Says

By Candice Zachariahs

http://www.bloomberg.com/apps/news?pid=20601083&sid=aN1QyFidJWxA

Sept. 17 (Bloomberg) -- The euro will surge to parity versus the pound and reach its highest level in more than a year against the greenback as investors borrow low-cost funds in the U.K. and U.S. to buy higher-yielding assets, BNP Paribas SA said.

The Bank of England and Federal Reserve are flooding their financial systems with cash to keep borrowing costs low on expectations their economies will recover slowly from recession. That will spur investors to use funds from the nations to buy securities in countries with higher interest rates, BNP Paribas said. The bank raised its forecast for the yen and expects it to climb to its highest since 1995 against the dollar by year-end.

“Sterling is likely to be the weakest currency in town followed by the U.S. dollar,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas, wrote in a note to clients yesterday. “The U.S. dollar has been used as a funding and a reserve currency simultaneously, suggesting the U.S. dollar will depreciate less than sterling.”

The euro bought 89.317 pence as of 10:49 a.m. in Tokyo, from 89.244 pence yesterday in New York. The 16-nation currency rose above 98 pence for the first time on Dec. 30. It advanced a third day to $1.4716 and yesterday reached $1.4737, the strongest level since Sept. 25, 2008.

The yen was at 91.12 per dollar and yesterday hit 90.13, the strongest level since Feb. 12. The pound was at $1.6477 from $1.6493.

The U.S. dollar will slide to 85 yen by year-end and recover to 90 yen in the first quarter, BNP Paribas said, revising forecasts for 93 and 95 yen respectively.

‘Funding Currency’

Benchmark interest rates are 0.5 percent in the U.K. and as low as zero in the U.S., compared with 3 percent in Australia, 7 percent in South Africa and 8.75 percent in Brazil. The yield gap lures investors to borrow low-cost funds and invest in higher-yielding assets in so-called carry trades. ...

Standard & Poor’s in May lowered its outlook on the U.K. to “negative” from “stable” and said it faces a one-in-three chance of a ratings cut as debt approaches 100 percent of gross domestic product.

Fragile Recovery

The pound traded near its lowest since May as a report yesterday showed the jobless rate in the U.K. rose to the highest since 1995. BOE Governor Mervyn King said Sept. 15 policy makers may cut the rate paid to hold reserves at the central bank. ...

(2) $ in steep drop vs. ¥; Japan's new Finance Minister rejects buying $ to keep ¥ down

From: geab@leap2020.eu  Date: 18.09.2009 12:34 PM

http://money.cnn.com/2009/09/16/markets/yen_dollar_risk.reut/index.htm?postversion=2009091606

Dollar at risk of steep drop vs. yen

Traders worry about the Japanese currency's potential sharp 'snowball' drop against the greenback.

TOKYO (Reuters) -- The yen may surge against the dollar in coming days if it breaks through the ¥90 level, with traders worried that a complacent market may be caught off guard and add fuel to a sharp move.

A confluence of factors -- a new government stepping in with a hands-off view on currency intervention and a long holiday weekend in Japan -- is leaving the dollar prone to a deeper drop, possibly even beyond the 14-year low of ¥87.10 hit earlier in the year.

"A move below ¥87.20 runs the risk of a sharply accelerating move," said Gerrard Katz, head of North Asia foreign exchange trading at Standard Chartered in Hong Kong. He said some players were not as exposed at these levels as last year.

The yen pushed higher on Wednesday after incoming Finance Minister Hirohisa Fujii made clear he was not prepared to step into the market, saying he is opposed to intervention unless the market is volatile and he sees the current rise as rapid. ...

(3) Net capital outflow from US$

From: geab@leap2020.eu  Date: 18.09.2009 12:34 PM

TIC Outflow Data Is Terrible For The US Dollar

http://shockedinvestor.blogspot.com/2009/09/tic-outflow-data-is-terrible-for-us.html

Wednesday, September 16, 2009

Following on the topic of currencies, the Treasury Dept. has just announced the TIC outflow for July, and they are terrible (as in terrible for the USD).

U.S. Treasury data showed a sharp net capital outflow from the United States in July. The net capital outflow from the U.S. increased to $97.5 billion in July from a revised outflow of $56.8 billion in June (TICS Report) report.

Also, June data had originally reported an outflow of $31.2 billion.

This means money is not coming into the U.S, likely seen as too risky by foreign investors. BNN reported that these moves are not by major central banks, but by smaller institutions or individuals.

(4) Obama tariff on Chinese tyres heralds return of Protectionism
From: geab@leap2020.eu  Date: 18.09.2009 12:34 PM

Protectionist Measures Expected to Rise, Report Warns

Wall Street Journal

http://online.wsj.com/article/SB125295068841109309.html

SEPTEMBER 15, 2009

By JOHN W. MILLER

BRUSSELS -- This weekend's U.S.-China trade skirmish is just the tip of a coming protectionist iceberg, according to a report released Monday by Global Trade Alert, a team of trade analysts backed by independent think tanks, the World Bank and the U.K. government.

A report by the World Trade Organization, backed by its 153 members and also released Monday, found "slippage" in promises to abstain from protectionism, but drew less dramatic conclusions.

Governments have planned 130 protectionist measures that have yet to be implemented, according to the GTA's research. These include state aid funds, higher tariffs, immigration restrictions and export subsidies.

For example, Russia has planned across-the-board tariff increases, South Africa is changing government purchasing rules to favor domestic firms owned by nonwhites, and Japan is rewriting sanitation policies in a way that will restrict food imports.

The variety of today's protectionism demarcates it from the tariff-based economic warfare of the 1930s. Economists say the bottom line isn't as dire as then, but that creeping protectionism presents an obstacle to economic recovery. Global trade is expected to shrink 10% in 2009.

That is why economists and politicians are paying close attention to trade terms as the world's richest nations prepare to meet at the Group of 20 summit in Pittsburgh Sept. 24-25.

This weekend, they received a reminder of what a trade war could look like. On Friday, the Obama administration announced that, starting Sept. 26, it would impose duties of between 25% and 35% on imports of tires from China for the next three years. It would essentially price out of the market 17% of all tires sold in the U.S., and force up the market price for consumers.

On Monday, China said it would file a complaint at the WTO to protest the duties. The day before, Beijing announced antidumping investigations into U.S. exports of chicken and auto parts.

China "is testing Obama" on trade, said Nikolay Mizulin, a trade lawyer with Hogan & Hartson.

According to the GTA report, the number of discriminatory trade laws outnumbers liberalizing trade laws by six to one. Governments are applying protectionist measures at the rate of 60 per quarter. More than 90% of goods traded in the world have been affected by some sort of protectionist measure.

China is the country targeted by the most governments for protectionist measures. Fifty-five countries have passed measures that hurt Chinese exports. That is followed by the U.S., with 49 measures against it; and Japan, with 46.

The GTA director, Switzerland-based economist Simon Evenett, said the key finding was that "protectionist measures are focused on so-called dying industries, such as automobiles or agriculture." Special-purpose machinery and foods were the goods most affected.

At the G-20 summit in London in April, leaders pledged to "refrain from raising new barriers to investment to trade in goods and services, imposing new export restrictions....We extend this pledge to the end of 2010." But G-20 members have passed more than 100 "blatantly discriminatory measures," according to the GTA report.

The WTO's report, the fourth on protectionism released by the Geneva-based body this year, is more conservative. It found 53 new measures implemented between July and September. The GTA found 95.

Write to John W. Miller at john.miller@dowjones.com

(5) The ghost fleet of Johor: freighters with no cargo, no crew, no destination bode chill winds in City

From: orm <ormg1@bigpond.com>  Date: 17.09.2009 05:48 AM

Revealed: The ghost fleet of the recession anchored just east of Singapore

By Simon Parry

Last updated at 1:18 PM on 16th September 2009

{visit the link to see the ships}

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html

The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination  -  and is why your Christmas stocking may be on the light side this year

The 'ghost fleet' near Singapore. The world's ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world's economies

The tropical waters that lap the jungle shores of southern Malaysia could not be described as a paradisical shimmering turquoise. They are more of a dark, soupy green. They also carry a suspicious smell. Not that this is of any concern to the lone Indian face that has just peeped anxiously down at me from the rusting deck of a towering container ship; he is more disturbed by the fact that I may be a pirate, which, right now, on top of everything else, is the last thing he needs.

His appearance, in a peaked cap and uniform, seems rather odd; an o-fficer without a crew. But there is something slightly odder about the vast distance between my jolly boat and his lofty position, which I can't immediately put my finger on.

Then I have it - his 750ft-long merchant vessel is standing absurdly high in the water. The low waves don't even bother the lowest mark on its Plimsoll line. It's the same with all the ships parked here, and there are a lot of them. Close to 500. An armada of freighters with no cargo, no crew, and without a destination between them.

Simon Parry among the ships in southern Malaysia

My ramshackle wooden fishing boat has floated perilously close to this giant sheet of steel. But the face is clearly more scared of me than I am of him. He shoos me away and scurries back into the vastness of his ship. His footsteps leave an echo behind them.

Navigating a precarious course around the hull of this Panama-registered hulk, I reach its bow and notice something else extraordinary. It is tied side by side to a container ship of almost the same size. The mighty sister ship sits empty, high in the water again, with apparently only the sailor and a few lengths of rope for company.

Nearby, as we meander in searing midday heat and dripping humidity between the hulls of the silent armada, a young European offi-cer peers at us from the bridge of an oil tanker owned by the world's biggest container shipping line, Maersk. We circle and ask to go on board, but are waved away by two Indian crewmen who appear to be the only other people on the ship.

'They are telling us to go away,' the boat driver explains. 'No one is supposed to be here. They are very frightened of pirates.'

Here, on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers - all should be steaming fully laden between China, Britain, Europe and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.

They are a powerful and tangible representation of the hurricanes that have been wrought by the global economic crisis; an iron curtain drawn along the coastline of the southern edge of Malaysia's rural Johor state, 50 miles east of Singapore harbour.

'We don't understand why they are here. There are so many ships but no one seems to be on board,' said local fisherman Ah Wat

It is so far off the beaten track that nobody ever really comes close, which is why these ships are here. The world's ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world's economies.

So they have been quietly retired to this equatorial backwater, to be maintained only by a handful of bored sailors. The skeleton crews are left alone to fend off the ever-present threats of piracy and collisions in the congested waters as the hulls gather rust and seaweed at what should be their busiest time of year.

Local fisherman Ah Wat, 42, who for more than 20 years has made a living fishing for prawns from his home in Sungai Rengit, says: 'Before, there was nothing out there - just sea. Then the big ships just suddenly came one day, and every day there are more of them.

'Some of them stay for a few weeks and then go away. But most of them just stay. You used to look Christmas from here straight over to Indonesia and see nothing but a few passing boats. Now you can no longer see the horizon.'

The size of the idle fleet becomes more palpable when the ships' lights are switched on after sunset. From the small fishing villages that dot the coastline, a seemingly endless blaze of light stretches from one end of the horizon to another. Standing in the darkness among the palm trees and bamboo huts, as calls to prayer ring out from mosques further inland, is a surreal and strangely disorientating experience. It makes you feel as if you are adrift on a dark sea, staring at a city of light.

Ah Wat says: 'We don't understand why they are here. There are so many ships but no one seems to be on board. When we sail past them in our fishing boats we never see anyone. They are like real ghost ships and some people are scared of them. They believe they may bring a curse with them and that there may be bad spirits on the ships.'

Two container ships tied together in southern Malaysia, waiting for the next charter

As daylight creeps across the waters, flags of convenience from destinations such as Panama and the Bahamas become visible. In reality, though, these vessels belong to some of the world's biggest Western shipping companies. And the sickness that has ravaged them began far away - in London, where the industry's heart beats, and where the plummeting profits and hugely reduced cargo prices are most keenly felt.

The Aframax-class oil tanker is the camel of the world's high seas. By definition, it is smaller than 132,000 tons deadweight and with a breadth above 106ft. It is used in the basins of the Black Sea, the North Sea, the Caribbean Sea, the China Sea and the Mediterranean - or anywhere where non-OPEC exporting countries have harbours and canals too small to accommodate very large crude carriers (VLCC) or ultra-large crude carriers (ULCCs). The term is based on the Average Freight Rate Assessment (AFRA) tanker rate system and is an industry standard.

A couple of years ago these ships would be steaming back and forth. Now 12 per cent are doing nothing

You may wish to know this because, if ever you had an irrational desire to charter one, now would be the time. This time last year, an Aframax tanker capable of carrying 80,000 tons of cargo would cost £31,000 a day ($50,000). Now it is about £3,400 ($5,500).

This is why the chilliest financial winds anywhere in the City of London are to be found blowing through its 400-plus shipping brokers.

Between them, they manage about half of the world's chartering business. The bonuses are long gone. The last to feel the tail of the economic whiplash, they - and their insurers and lawyers - await a wave of redundancies and business failures in the next six months. Commerce is contracting, fleets rust away - yet new ship-builds ordered years ago are still coming on stream.

World shipping is tracked by satellite service Vesseltracker

Just 12 months ago these financiers and brokers were enjoying fat bonuses as they traded cargo space. But nobody wants the space any more, and those that still need to ship goods across the world are demanding vast reductions in price.

Do not tell these men and women about green shoots of recovery. As Briton Tim Huxley, one of Asia's leading ship brokers, says, if the world is really pulling itself out of recession, then all these idle ships should be back on the move.

'This is the time of year when everyone is doing all the Christmas stu-ff,' he points out.

'A couple of years ago those ships would have been steaming back and forth, going at full speed. But now you've got something like 12 per cent of the world's container ships doing nothing.'

Aframaxes are oil bearers. But the slump is industry-wide. The cost of sending a 40ft steel container of merchandise from China to the UK has fallen from £850 plus fuel charges last year to £180 this year. The cost of chartering an entire bulk freighter suitable for carrying raw materials has plunged even further, from close to £185,000 ($300,000) last summer to an incredible £6,100 ($10,000) earlier this year.

Business for bulk carriers has picked up slightly in recent months, largely because of China's rediscovered appetite for raw materials such as iron ore, says Huxley. But this is a small part of international trade, and the prospects for the container ships remain bleak.

Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a 'crisis of historic dimensions'. Last month the company reported its first half-year loss in its 105-year history.

Martin Stopford, managing director of Clarksons, London's biggest ship broker, says container shipping has been hit particularly hard: 'In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.

'Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything - and it's come out of nowhere.'

These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas.

Lights from the fleet of ships illuminate the night-time horizon

But retailers are running on very low stock levels, not only because they expect consumer spending to be down, but also because they simply do not have the same levels of credit that they had in the past and so are unable to keep big stockpiles.

Stopford explains: 'Globalisation and shipping go hand in hand. Worldwide, we ship about 8.2 billion tons of cargo a year. That's more than one ton per person and probably two to three tons for richer people like us in the West. If the total goes down by five per cent or so, that's a lot of cargo that isn't moving.'

The knock-on effect of so many ships sitting idle rather than moving consumer goods between Asia and Europe could become apparent in Britain in the months ahead.

'We will find out at Christmas whether there are enough PlayStations in the shops or not. There will certainly be fewer goods coming in to Britain during the run-up to Christmas.'

Three thousand miles north-east of the ghost fleet of Johor, the shipbuilding capital of the world rocks to an unpunctuated chorus of hammer-guns blasting rivets the size of dustbin lids into shining steel panels that are then lowered onto the decks of massive new vessels.

As the shipping industry teeters on the brink of collapse, the activity at boatyards like Mokpo and Ulsan in South Korea all looks like a sick joke. But the workers in these bustling shipyards, who teem around giant tankers and mega-vessels the length of several football pitches and capable of carrying 10,000 or more containers each, have no choice; they are trapped in a cruel time warp.

A decade ago, South Korean President Kim Dae-jung (who died last month) issued a decree to his industrial captains: he wished to make his nation the market leader in shipbuilding. He knew the market intimately. Before entering politics, he studied economics and worked for a Japanese-owned freight-shipping business. Within a few years he was heading his own business, starting out with a fleet of nine ships.

Thus, by 2004, Kim Dae-jung's presidential vision was made real. His country's low-cost yards were winning 40 per cent of world orders, with Japan second with 24 per cent and China way behind on 14 per cent.

But shipbuilding is a horrendously hard market to plan. There is a three-year lag between the placing of an order and the delivery of a ship. With contracts signed, down-payments made and work under way, stopping work on a new ship is the economic equivalent of trying to change direction in an ocean liner travelling at full speed towards an iceberg.

Thus the labours of today's Korean shipbuilders merely represent the completion of contracts ordered in the fat years of 2006 and 2007. Those ships will now sail out into a global economy that no longer wants them.

Maersk announced last week that it was renegotiating terms and prices with Asian shipyards for 39 ordered tankers and gas carriers. One of the company's executives, Kristian Morch, said the shipping industry was in uncharted waters.

As he told the global shipping newspaper Lloyd's List only last week: 'You have a contraction of oil demand, you have a falling world economy and you have a contraction of financing capabilities - and at the same time as a lot of new ships are being delivered.'

Demand peaked in 2005 when, with surplus tonnage worldwide standing at just 0.7 per cent, ship owners raced to order, fearing docks and berths at major shipyards would soon be fully booked. That spell of 'panic buying' has heightened today's alarming mismatch between supply and demand.

Keith Wallis, East Asia editor of Lloyd's List, says, 'There was an ordering frenzy on all types of vessel, particularly container ships, because of the booming trade between Asia and Europe and the United States. It was fuelled in particular by consumer demand in the UK, Europe and North America, as well as the demand for raw materials from China.'

Cranes at Singapore Dock stand idle, waiting for work

Orders for most existing ships to be delivered within the next six to nine months would be honoured, he predicted, and the ships would go into service at the expense of older vessels in the fleet, which would be scrapped or end up anchored off places like southern Malaysia.

But, says Wallis, 'some ship owners won't be able to pay their final instalments when the vessels are completed. Normally, they pay ten per cent down when they order the ship and there are three or four stages of payment. But 50 to 60 per cent is paid on delivery.'

South Korean shipyard Hanjin Heavy Industries last week said it had been forced to put up for sale three container ships ordered at a cost of £60 million ($100 million) by the Iranian state shipping line after the Iranians said they could not pay the bill.

'The prospects for shipyards are bleak, particularly for the South Koreans, where they have a high proportion of foreign orders. Whole communities in places like Mokpo and Ulsan are involved in shipbuilding and there is a lot of sub-contracting to local companies,' Wallis says.

'So far the shipyards are continuing to work, but the problems will start to emerge next year and certainly in 2011, because that is when the current orders will have been delivered. There have hardly been any new orders in the past year. In 2011, the shipyards will simply run out of ships to build.'

Christopher Palsson, a senior consultant at London-based Lloyd's Register-Fairplay Research, believes the situation will worsen before it gets better.

'Some ships will be sold for demolition but the net balance will be even further pressure on the freight rates and the market itself. A lot of ship owners and operators are going to find themselves in a very difficult situation.'

The current downturn is the worst in living memory and more severe even than the slump of the early Eighties, Palsson believes.

'Back then the majority of the crash was for tankers carrying crude oil. Today we have almost every aspect of shipping affected - bulk carriers, tankers, container carriers... the lot.

'It is a much wider-spread situation that we have today. China was not a major player in the world economy at that time. Neither was India. We had the Soviet Union. We had shipbuilding in the United Kingdom and Europe.

'But then, back in those days the world was a very different place.'

(6) Is Stimulus Still Necessary? - Robert Skidelsky

From: Robert Skidelsky's Website <mosleyl@parliament.uk> Date: 17.09.2009 01:06 PM

Is Stimulus Still Necessary?

Robert Skidelsky

Posted: 13 Sep 2009 01:23 AM PDT

London – Have stimulus packages brought the world’s traumatized economies back to life? Or have they set the scene for inflation and big future debt burdens? The answer is that they may have done both. The key question now concerns the order in which these outcomes occur.

The theory behind the massive economic stimulus efforts that many governments have undertaken rests on the notion of the “output gap.” This is the difference between an economy’s actual output and its potential output. If actual output is below potential output, this means that total spending is insufficient to buy what the economy can produce.

A stimulus is a government-engineered boost to total spending. Government can either spend more money itself, or try to stimulate private spending by cutting taxes or lowering interest rates. This will raise actual output to the level of potential output, thereby closing the output gap.

Some economists – admittedly a diminishing number – deny that there can ever be an output gap. The economy, they argue, is always at full employment. If there are less people working today than yesterday, it is because more people have decided not to work. (By this reasoning, a lot of bankers have simply decided to take long holidays since last September’s financial meltdown.) So today’s output is what people want to produce. Attempts to stimulate it will produce only higher prices as people spend more money on the same quantity of goods and services.

A more sensible view is that today’s economy is not producing as much as it could and that there are many more people who want to work than there are jobs available. So a stimulus will boost both output and employment.

But how large must such a stimulus be? The United States Congressional Budget Office (CBO) estimates that American output will be roughly 7% below its potential in the next two years, making this the worst recession since World War II. American unemployment is projected to peak at 9.4% towards the end of 2009 or the beginning of 2010, and is expected to remain above 7% at least until the end of 2011.

The US government has pledged $787 billion in economic stimulus, or about 7% of GDP. Superficially this looks about right to close the output gap – if it is spent this year. But it is in fact a three year-program. Some $584 billion is allocated for 2009-2010, leaving perhaps $300 billion of extra money for this year. Even so, it is not clear how much of that will be spent.

This can be illustrated by a simple example. Suppose the government distributes the extra cash to its citizens. Some of it will be saved. American household saving has shot up from 0% to 5% since the start of the recession, understandably to pay off debt.

Another part of the extra money will be spent on imports, which does nothing to stimulate spending on US output. Let’s subtract 20% for these two items. The bad news, then, is that only 80% of the $300 billion, or $240 billion, will be spent initially.

The good news is that this figure is multiplied over successive rounds of spending, as one person’s spending becomes another person’s income, and so on. The value of the multiplier depends on assumptions about the size of the “gap,” “leakages” from the spending stream, and the effect of government programs on confidence.

Estimates vary from a multiplier of about two all the way down to zero. A multiplier of two would generate $480 billion of extra spending, compared to a multiplier of one, which would generate just the initial $240 billion. If the multiplier is zero, as conservative-minded economists believe, there will be no effect on output, only on prices.

A further source of stimulus is “quantitative easing,” or, more simply, printing money. By buying government securities, the central bank injects cash into the banking system. This is intended to stimulate private spending by bringing down the rate of interest at which banks lend to their customers. Extra hundreds of billions of dollars have been injected into banks worldwide by this means.

But the stimulus effect of quantitative easing is far less certain than even that of fiscal stimulus. While the policy caused credit spreads to narrow and bond market liquidity to improve, many banks have been using the extra money to rebuild their balance sheets (the equivalent of increased household savings) rather than lending it to businesses and individuals.

Several conclusions can be drawn from what admittedly are back of the envelope calculations. The first is that stimulus packages around the world arrested the slide into depression, and may have started a modest recovery.

Second, it is too early to scale down the stimulus, as Japan and the US seem ready to do. As one British official said ahead of the G-20 summit in Italy in July, “We should start to prepare exit strategies, but we should start implementing them only when [we] are sure [we] have got a recovery that is entrenched and self-sustaining, and I don't think anyone is saying we are at that point yet.”

Third, existing policy, even if maintained, will not produce self-sustaining recovery. At best, it offers the prospect of several years more of sub-normal activity. A double round of stimulus packages is needed to counteract the real prospect of a double-dip recession. The time to start worrying about inflation is when the recovery is entrenched. To pay back the debt without strain, we need a booming economy.Talk of cuts is premature. ‘A boom not a slump is the right time for austerity at the Treasury’ said Keynes. He was right.