Brad DeLong's Semi-Daily Journal: A Weblog: Third Quarter GDP Growth at 3.7 Percent per Year

Time to raise the interest rates! Time to tell everyone how everything is booming! oops, don't look at the new filings for unemployment! You twits! Look over here! Look at what I say!

Posted by: Carol at October 29, 2004 09:43 AM

3.7% is still pretty good, historically.

The big problems with Bush's economic performance are all redistributive: e.g., all the benefits of productivity growth are going to corporate profits; the deficits are condemning Social Security, etc.

Posted by: Bruce Wilder at October 29, 2004 10:07 AM

back when bush-enablers and optimists were expecting 4.2% or better, i kept asking: where's the engine for growth?

and the answer turns out to be just what i expected: nowhere.

Posted by: howard at October 29, 2004 10:18 AM

http://www.nytimes.com/2004/10/29/business/29spitzer.html

Big Insurer Denies Any Ties to Plan to Attack Spitzer
By ALEX BERENSON

With Eliot Spitzer pounding the insurance industry, American International Group, the world's largest insurer, needs all the good press it can get.

Instead the company faces a new mini-controversy to go with Mr. Spitzer's investigation into bid rigging and price fixing among insurers and insurance brokers.

A Washington agency that represents public speakers sent e-mail messages to four financial industry experts on Monday, offering them fees of at least $25,000 if they would attack Mr. Spitzer and defend the insurance industry. Two weeks ago, two A.I.G. executives pleaded guilty to criminal involvement in what Mr. Spitzer described as a widespread conspiracy to cheat customers.

In its e-mail message, Leading Authorities, the speakers' bureau, said it was making the offer on behalf of American International. "We have had an inquiry from A.I.G. for assistance in getting the insurance industry's side of the story out to the public," wrote Mark French, the president of Leading Authorities.

Yesterday, Mr. French and a spokesman for A.I.G. said the e-mail was incorrect. A.I.G. did not know of the offer, they said.

Mr. French said he had sent out the e-mail at the behest of Qorvis Communications, a Washington public relations firm that until Monday worked for A.I.G. Qorvis hoped to identify possible insurance industry supporters, Mr. French said. "We had simply responded to their request for potential people," he said. "We never spoke with A.I.G., and I've had no communication with them."

Posted by: anne at October 29, 2004 10:19 AM

http://www.nytimes.com/2004/10/29/business/worldbusiness/29yuan.html?pagewanted=all&position=

China's Bank, in Transition, Raises Rates
By KEITH BRADSHER

HONG KONG - China's central bank raised official borrowing costs for the first time in nine years Thursday night, a step aimed at slowing breakneck economic growth and inflation but one that could risk social unrest if heavily indebted state companies respond by laying off more workers.

Beijing also removed the ceiling on what banks could charge for loans, a measure that paradoxically could make more loans available to risky private enterprises and ultimately enhance China's long-term growth prospects and give its economy much greater stability.

The two moves shift China further toward a Western-style financial system in which markets determine the allocation of credit, not government officials.

The interest rate increase, a little more than a quarter of a percentage point, is not big enough by itself to change the direction of the Chinese economy. But it is widely expected by economists to be the first in a series of increases that could lift rates by as much as two percentage points in the coming year, which could seriously curtail economic growth.

That would damp demand for products offered by the United States and other countries rushing to take advantage of the Chinese market. But the effect on American consumers is likely to be quite small, as Chinese companies are expected to take the steps needed to keep prices low and maintain their exports.

For Beijing, the interest rate increase is a historic embrace of free-market tools of economic management despite possible internal political repercussions, said Tao Dong, the China economist at Credit Suisse First Boston's office here.

"This probably will anger a lot of people, but I give the government high marks," he said. Indebted property developers and laid-off workers are likely to be among the angriest.

By seeking to control inflation with higher interest rates, Beijing may limit some profit opportunities for a long list of companies and countries involved in the roaring Chinese market - from luxury automakers in Europe, to iron ore producers in Brazil and Australia, to oil exporters in the Middle East.

Higher interest rates could also cause some hiccups for American companies with large beachheads in China, like General Motors. Indeed, prices of oil, copper, cotton and other commodities declined Thursday, underscoring concerns among investors that demand is easing in China for many raw goods used in manufacturing, everything from clothes to washing machines.

After concluding last spring that the economy was expanding at an unsustainable pace and fueling inflation, Chinese leaders initially chose mostly administrative methods to try to limit excessive growth, like the denial of approvals for construction projects.

But these methods have failed to rein in rising prices. Consumer goods, on average, cost 5.2 percent more last month than a year earlier despite price controls on many products. Price increases are running at nearly twice that pace for goods traded between companies, which are subject to fewer price controls.

In making its move, the Peoples Bank of China, the central bank, raised the benchmark rates that the state-owned banking system offers for one-year loans and one-year deposits by a little more than a quarter of a percentage point: 27-hundredths of a percentage point, to be exact. The lending rate rose to 5.58 percent and the deposit rate climbed to 2.25 percent.

The Peoples Bank also ended years of regulations tightly limiting the maximum interest rates that banks could charge on loans. The limits, which the Peoples Bank started to loosen last December, had discouraged the country's banks, almost all state-owned, from taking the risk of lending to small and medium-size private companies. Similar businesses in other countries can attract loans by agreeing to pay higher rates of interest.

Most state-owned enterprises already have the political connections to borrow at no more than the benchmark rate, and sometimes pay an even lower rate. Raising the benchmark rate will hit them especially hard at a time when many of them are struggling to repay previous loans and avoid laying off workers.

Posted by: anne at October 29, 2004 10:25 AM