Adair Turner; Beyond QE?

One result of the recession is that people are saving money on skin care pharmaceuticals by extemporising with substitutes that are lying around in the kitchen. A survey of 5,000 adults found two thirds of them resorting to self-treatment of skin complaints. The commonest homespun remedies for dry skin are cooking oil, lemon juice, honey and mayonnaise while toothpaste is used to dry out pimples. A pharmacist speaking on behalf of the skin cream manufacturer which sponsored the survey warned that some self-prescribed treatments " may actually aggravate the skin condition further". That would explain why respondents tended to steer clear of such non-standard remedies as scouring powder, shoe polish and bleach. 

There are similar reservations concerning the non-standard remedies that some central banks are applying to their struggling economies. Opponents of the asset purchase programmes of quantitative easing (QE), as enacted in Britain, America and Japan, claim they are of doubtful benefit and store up trouble for the future. That objection will probably not prevent the Bank of England (BoE) from announcing another round of asset purchases next month. 

But, according to one of the candidates for the Bank governor's job, asset purchases will not be enough to set Britain back on the road to growth. In a speech last night Adair Turner, who is currently chairman of the Financial Services Authority, recommended going beyond the asset purchase programme with "more innovative and unconventional policies". 

As the scheme currently stands, the money printed for the buying is temporary, not permanent. The idea is that eventually, in better economic times, the Bank will resell its collection of bonds and cancel the money it raises by their sale. Analysts' inference is that Lord Turner would be inclined to omit the second resale phase, leaving the created money permanently in circulation. Whatever the broader economic benefits of such a strategy, its announcement would make the pound much much more competitive very very quickly. 

The dangers of an uncompetitive currency were illustrated yesterday when Greece reported another rise in its unemployment rate, this time to 25.1% and roughly the same as in Spain. Investors didn't pay much attention to the figure. They were not unduly bothered by the earlier credit downgrade of Spain either; if anything they thought it would encourage Prime Minster Rajoy to get on with asking for a bailout. 

Investors seem utterly relaxed about the euro at the moment. Yesterday it strengthened by one yen, half a US cent and by half a cent against the pound. Sterling also lost ground to the Canadian and New Zealand dollars but moved higher against the yen and the Aussie and held steady against the US dollar. 

Other than the uncontroversial US and Canadian trade figures there were few economic data released on Thursday. It doesn't get much better today. All Europe can offer is Italian inflation and Euroland industrial production. The US covers producer prices and the Michigan consumer sentiment index. Unless anything goes horribly wrong, FX market participants will probably not be missing much if they linger at lunch. Have a good weekend.