Theories about why some rich-world economies are doing better than America’s don’t stand up

AMERICA is used to making the economic weather. It has the world’s largest economy, its most influential central bank and it issues the main global reserve currency. In recent months, however, some rich-world economies (notably Germany’s) have basked in the sunshine even as the clouds gathered over America.

On August 27th America’s second-quarter GDP growth was revised down to an annualised 1.6%. That looked moribund compared with the 9% rate confirmed in Germany a few days earlier. America’s jobless rate was 9.5% in July (figures for August were released on September 3rd, after The Economist went to press). But in Germany the unemployment rate is lower even than before the downturn. Other rich countries, including Britain and Australia, have enjoyed sprightlier recent GDP growth and lower unemployment than America. ...

Investors should pay more attention to dividends

DIVIDENDS do not get the respect they deserve. Over the long run they provide the bulk of equity investors’ returns. Work by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School* found that over the period from 1900 to 2005, the real return from global equities averaged 5%. The mean dividend yield over that period was 4.5%.

Despite this, stockmarkets devote a lot more time to forecasting and analysing profits than they do to thinking about payouts. Profits can be easily manipulated and come in a bewildering variety of forms (operating, reported, post-tax, pre-exceptional, etc). Dividends are (mostly) paid in cash and so are hard to fake. ...

A once-revered buy-out firm is going under. Who’s next?

FOR years people have been predicting the demise of private equity. Now they have a proper tombstone to point at. On August 31st Candover, once one of Britain’s leading private-equity firms, announced that it would unwind its assets and return money to shareholders and investors. The 30-year-old firm is the biggest buy-out victim of the crisis so far.

Bad investments during the boom helped undo Candover. Several companies in its portfolio have struggled under their debts over the past two years, including Ferretti, a luxury-yacht maker. In June Candover relinquished control of Gala Coral, a gambling company, to creditors. It has had to write down several other investments. ...

Monetary and fiscal stimulus make a potent, if uneasy, combination

THE Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyoming, is the big event of the year for central bankers. But defining monetary policy is far harder than it used to be. In recent years central bankers have lurched ever closer to the realm of fiscal policy, mainly by buying government debt with freshly printed money. They can justify such “quantitative easing” (QE) on monetary grounds since they have already lowered short-term interest rates to, or close to, zero. But they also worry it is a slippery slope from QE to monetising government deficits and thence, inevitably, to inflation. When Phillip Swagel, then an official with the US Treasury, was asked why he attended the conference in 2008, he shrugged: “Fiscal policy, monetary policy—what’s the difference?”

For central bankers this is an unsettling thought. Their mistrust of fiscal policy was nicely captured in a paper presented at this year’s Jackson Hole conference by Eric Leeper of Indiana University*. As central bankers have become more independent, they have increasingly based their policies on rigorous economic analysis. By contrast fiscal policy is deeply politicised, with haphazard methods and few, if any, defined goals. ...

An alluring trade in “supergreenhouse” gas emissions is coming under scrutiny

ONE of the curiosities of carbon markets is that they do not just trade in carbon. Other greenhouse gases can be given a value, too—sometimes a very high one. Claims that these prices promote scammery are now prompting some searching questions.

The gas at the centre of the controversy is HFC-23, a greenhouse gas which, on a weight-for-weight basis, is 14,800 times better at trapping heat than carbon dioxide. HFC-23 is produced as a by-product of the manufacture of HCFC-22, an ozone-destroying refrigerant. HCFC-22 is banned in developed countries, but developing countries can keep making it until 2030. ...

Germany’s biggest bank is trying to make investment banking boring. The latest in our series of profiles of financial institutions after the crisis

JOSEF ACKERMANN, the head of Deutsche Bank, combines a silky manner with blunt words. When the German government set up a bail-out fund to stabilise the country’s banking system, he said he would be “ashamed” to use it. When Europe and the IMF bailed out Greece, Mr Ackermann said he doubted it would pay back the loans. And when regulators and economists say that big banks should be broken up, with “casino” investment banks split off from “utility” retail banks, Mr Ackermann retorts that “smaller banks will not make us safer.”

Mr Ackermann speaks with the authority of a man who steered his bank through the crisis more deftly than most. Deutsche did not escape unscathed. In 2008, a year in which it had confidently forecast a record profit of more than €8 billion ($11.7 billion), it posted a net loss of almost €4 billion because of a huge hit to its investment bank (see chart). Yet it emerged from the crisis as the leading member of an exclusive club of large banks—others include Barclays and Credit Suisse—that did not have to take direct injections of public funds (although all, of course, benefited from a wide range of other government props to the system). ...

The IMF offers indebted governments some reassurance

ONE consequence of the deepest recession since the Depression has been the biggest peacetime build-up of public debt the rich world has ever seen. Some reckon that the debt position of many rich countries is now unsustainable. It is a measure of just how nervous people have become about the mountain of debt that the IMF—not usually known for taking doveish views—concluded in two papers released on September 1st that there is too much pessimism about public finances.

The IMF argues that despite historically high debt-to-GDP ratios, many countries still have room for fiscal manoeuvre. Typically, the debate on the point at which a country’s debt burden spirals out of control has tried to identify a single debt-to-GDP threshold, above which things are no longer sustainable. The fund’s economists argue that a universal debt limit does not make sense. ...

China restricts exports of some obscure but important commodities

BEHIND the rise of resource-poor countries like Japan, South Korea and China into industrial giants has been the readiness of other countries to sell them critical commodities, albeit sometimes at excruciating cost. An unfolding collision around a group of elements known as “rare earths” is seen by some as a test of China’s willingness to reciprocate.

Rare earths have become increasingly important in manufacturing sophisticated products including flat-screen monitors, electric-car batteries, wind turbines and aerospace alloys. Over the summer prices for cerium (used in glass), lanthanum (petrol refining), yttrium (displays) and a bunch of other –iums have zoomed upward (see chart) as China, which accounts for almost all of the world’s production, squeezes supply. In July it announced the latest in a series of annual export reductions, this time by 40% to precisely 30,258 tonnes. That is 15,000-20,000 tonnes less than consumption by non-Chinese producers, says Judith Chegwidden of Roskill Information Services, a consultancy. ...

A slow fuse still burns on eastern Europe’s foreign-currency debts

AFTER firefighters extinguish a blaze they usually look carefully for glowing embers before rolling up their hoses and heading off. With the worst of the banking crisis now receding in most rich countries, it is tempting to send the financial firefighters home. But wafts of smoke from eastern Europe suggest the job of stabilising Europe’s banking system is not yet done.

In early August a number of banks operating in the region reported sometimes startling rises in loan losses. Among them were UniCredit, Erste Group and OTP. It had been hoped that loan losses would start falling. Instead they have continued to climb—alarmingly in some cases. In Kazakhstan more than a third of outstanding debt is non-performing. In Latvia, almost a fifth of debt is going bad. ...

The sorry end to a bold banking experiment

“LET’S change the world”: ShoreBank’s slogan shouted that the Chicago-based lender saw itself as not just a bank but the leader of a movement. Founded in 1973, it set out to prove that money could be lent profitably to poor people in poor neighbourhoods. For 35 years it thrived but the financial storm that hit in 2008, and the economic downturn that followed, proved its undoing. On August 20th the Federal Deposit Insurance Corporation (FDIC), the bank’s regulator, called time on its experiment in what became known as community-development finance.

Like many financial institutions, ShoreBank was hit hard by America’s housing bust. Yet in the first few months after the house-price bubble burst, Ron Grzywinski, a founder of the bank, was able to contrast the low default rates on ShoreBank’s mortgages with the higher ones of less responsible subprime lenders, such as Countrywide. The difference, he argued, was that ShoreBank did it the “old-fashioned way”—getting to know the borrower and securing a significant down payment against a realistically-valued property. ...