Rivals compete to show off economic nous

By Andrew Gumbel in Los Angeles
Thursday, 24 January 2008

It's the economy all over again, stupid. America's presidential candidates may have thought this election race was going to be about Iraq or terrorism or healthcare, but the US Federal Reserve's three-quarter point interest cut earlier this week has confirmed what was already becoming obvious: that the deepening economic crisis will dominate everything between now and November.

Republican and Democratic candidates are rushing to fill their speeches with proof of their bona fides as economic managers, with claims and counter-claims about tax cuts, rebates, stimulus packages and who was first to propose what. The latest opinion polls confirm that the economy has leapt into first place among voters' concerns, offering the most obvious immediate benefit to Hillary Clinton for the Democrats and Mitt Romney for the Republicans.

The latest survey taken in California – the state with single largest economy, whose primary takes place on Super Tuesday, 5 February – showed that voters prefer Senator Clinton over her nearest rival, Barack Obama, by a 2-1 margin on economic issues. Overall, she leads in the Golden State by 12 percentage points.

Mrs Clinton's dominance on the economy appears to derive from her White House experience and her political savvy in proposing a comprehensive economic stimulus package a week before Senator Obama. It was her husband who famously focused on "the economy, stupid" and denied George Bush Snr a second term in the middle of a recession.

Mr Romney, the former Massachusetts governor, derives his authority on economic issues from his long, lucrative experience in the private sector.

Polls show him very close to both John McCain and the former New York mayor Rudy Giuliani in Florida, and catching up fast with Senator McCain in California.

This week, Mr Romney issued a new economy-centred campaign advert, proclaiming: "I know how America works because I spent my life in the real economy. I ran a business, turned around the Olympics and led a state. My plan will make our economy strong. We need to invest in people and business with tax cuts."

Tax cuts are the predominant theme on the Republican side, with candidates falling over each other to proclaim that their tax cuts are the biggest.

Many candidates are pushing for big corporate tax breaks rather than relief for individuals. Many want to make President Bush's controversial tax-cut package – weighted heavily in favour of the richest 2 per cent of Americans – permanent. The former Arksansas governor Mike Huckabee wants to abolish income tax altogether. On the Democratic side, the emphasis has been more on tax rebates for ordinary working families and pensioners.

Senator Clinton did her best to sound authoritative on White House protocol by calling for a meeting of the President's working group on financial markets to address what she called a "global economic crisis".

John Edwards, the former North Carolina Senator now struggling to stay in contention, was bold enough to declare the economy was already in recession and, like his adversaries for the Democratic nomination, blamed the Bush White House for much of it. "The tragedy of all this is that this could have been largely avoided," he said.

Hopes of large cuts in interest rates dashed by bankers

By Nikhil Kumar
Thursday, 24 January 2008

Hopes for aggressive, American-style interest rate cuts in Britain faded yesterday while the turmoil in the global markets showed little sign of abating.

As the Office for National Statistics revealed that Britain's economy was growing at its slowest pace for more than a year, analysts were surprised to learn that members of the Bank of England's Monetary Policy Committee had voted eight-to-one in favour of keeping interest rates on hold – at 5.5 per cent. The emphatic nature of the vote, revealed in the minutes of the MPC's last meeting, surprised analysts who had thought the decision rejecting calls for a second interest rate cut – after the 0.25 percentage point cut in December – had been finely balanced.

The minutes reveal the extent to which the committee is concerned about the need to keep control of inflation. As the cost of food and oil has spiralled – a situation made worse by a sharp fall in the value of sterling – the outlook for inflation was noted to have deteriorated "markedly". The committee was wary of cutting interest rates because of the risk of putting the Government's 2 per cent annual inflation targetunder "substantial upward pressure". David Blanchflower, known as the most "dovish" member of the MPC, was the only member to vote for a cut in January.

The MPC's report echoed earlier comments by the Bank's governor, Mervyn King, and disappointed those who were hoping the committee would follow the lead of policymakers in America and make a sizeable interest rate cut to stimulate the economy. On Tuesday, the US Federal Reserve slashed its interest rates by three-quarters of a percentage point.

The MPC's hawkish stance was one factor in another disappointing day for the markets yesterday, with the FTSE 100 index of leading British shares closing down 130.8 points at 5609.3. Hopes that the markets would rally after the Fed's emergency move soon faded after strong overnight performances by Asian markets failed to be imitated in Europe.

"After digesting the news, markets have come to the conclusion that it will not resolve problems in the US economy," said Niels From, an analyst at Dresdner Kleinwort.

Simon Ward, an economist at New Star Asset Management, maintained his forecast of a quarter-point cut but said that he wondered about the unanimity of MPC members.

He added: "If you look closely at the minutes, you can see that although one member voted for a cut, some of the others were probably waiting for February's inflation figures. If things get much worse, the stance may change. The Fed made the cuts it did because in the US there is a real risk of recession, but here its looks like we are only slowing down a bit."