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ALEX BRUMMER: IMF's priority should be cutting dollar down to size 

Lots of money: Dollar rush left other G7 economies stranded as greenback surged

Greenback in the spotlight: IMF’s top priority should be to cut almighty dollar down to size, says ALEX BRUMMER

Kwasi Kwarteng’s pushback on lowering the top income tax rate turned the tide on financial markets.

Traders, strategists and even the IMF had seized on the cut as a symbol of fiscal incompetence.

And no doubt, telling the Office for Budget Responsibility to take a hike was bad judgment.

Lots of money: Dollar rush left other G7 economies stranded as greenback surged

Lots of money: Dollar rush left other G7 economies stranded as greenback surged

Nevertheless, the idea that Britain has somehow become more profligate than its G7 compatriots must be challenged.

No other G7 government has chosen to raise taxes in the face of the energy price crisis, except the UK. Thus, the most significant changes, the removal of the National Insurance Surtax and the increase in corporation tax, have just restored the status quo ante.

Joe Biden has raised some taxes, but they are more than offset by his spending sprees. In any case, the rich Americans are taxed much less than their British counterparts. This is why British leaders, such as Reckitt Benckiser boss Laxman Narasimhan, chose to flee to the United States.

The reality is that the war in Ukraine triggered a global price shock and the Federal Reserve led the way by raising interest rates.

The dollar rush left other G7 economies stranded as the greenback surged. Japan has seen the yen fall to its lowest level in 35 years and is actively talking about intervention to restore order.

The past week has seen frequent references to the barbershop boom of the early 1970s, but “competition and control of credit” was a monetary expansion, not a fiscal one.

Moreover, the UK’s exit from the exchange rate mechanism in 1992 is portrayed as a disaster but also sowed the seeds for inflation targeting in Britain and a glorious period of growth.

The priority next week at the IMF and G7 annual meeting should be to persuade US officials to show the foresight of former US Treasury Secretary James Baker and seek a path, as at the Plaza in 1985, towards what Amundi fund managers call a “reversal”. currency wars. It means cutting the almighty dollar down to size.

swiss cheese

There is very little trust around Credit Suisse.

The last thing the global economy needs at this point is an implosion at a major global bank. Memories of Lehman Brothers are still fresh even though the collapse of the Vienna-based Creditanstalt in 1931 is nothing more than a footnote to the Great Depression.

Regulators and executives can’t ignore a nearly 60% drop in Credit Suisse’s share price this year. Short sellers often make the right choices, as seen in the UK during the financial crisis when falling stock prices predicted the fate of, among others, HBOS, Bradford & Bingley and Royal Bank of Scotland.

The Swiss bank’s credit risk is at an alarming level. Some analysts argue that this is not so exceptional. Companies such as General Motors are more at risk, as measured by credit default swaps.

Banks are not like car manufacturers. It is the unprecedented rush of commercial deposits that seals the fate of banks. In financial markets, there is a flight to safety.

Credit Suisse’s ability to get sucked into scandals, including the fall of hedge fund Archegos, Greensill, Mozambique tuna bonds and Bulgarian money laundering, has left its reputation full of holes.

Faced with market challenges, Chief Executive Ulrich Koerner sought to calm markets, emphasizing the bank’s strong liquidity and capital base.

All of this only increased the nervousness about the prospects, but he probably had no other options.

Despite the work done to end “too big to fail”, it is unthinkable that Credit Suisse will be allowed to fail. Emergency funding from the Swiss National Bank or a merger with UBS are possible outcomes.

After all, the reputation of the Zurich gnomes is in danger.

three problem

Vodafone’s effort to buy Hutchison-owned Three has been one of the city’s worst secrets. This would create a market-leading mobile company with some 27 million customers, with the aim of investing heavily in 5G. Such a deal, which would separate Vodafone UK into a separate entity, will largely depend on competition authorities.

Until recently, the consolidation of four – Vodafone, BT’s EE, Virgin’s O2 and Three – into three mobile operators was considered a no-go zone.

This would almost certainly strengthen Vodafone’s pricing power. This makes decisions difficult for Ofcom and the Competition and Markets Authority.

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