Is it the mega-gigabytes of memory enabling constantly faster computer processing speeds that makes an entire year seem to elapse in the space of what felt to be only a few months? The year 2010 is almost over as fast as it was upon us, and the events that shaped it are now history.
So what happened in economic and finance terms? Plenty – definitely some maneuvering around the globe as central bankers and markets everywhere positioned and repositioned to jump start a disappointing economic recovery. Although the Great Recession was certified to have ended in the summer of 2009, it just doesn’t feel that way.
Looking back over the past eleven and a half months, here are the stories I think were most intriguing, and will impact our 2011 more than most:
Federal Reserve – the Fed was probably in the news much more than they wanted to be in 2010, accentuated by a tense election cycle commandeered by an angry contingent of conservative libertarians named the “Tea Party.” Promoting strict adherence to the U.S. Constitution, which few apparently understood or was given a creative license to define. They railed about much and actually elected a few people to Congress who subscribe to the conspiratory myths about its origin and therefore oppose the existence of the Fed.
Hopefully, the new Congress will begin attacking the unemployment rate, budget deficit, and complicated tax code, and leave the paper monsters alone until the next election. I am afraid the fireworks will continue though, as perennial gadfly and Tea Party kindred spirit Rep. Ron Paul is set to Chair a House subcommittee overseeing the Fed.
Domestic Banks – Banks did not fail at the predicted rate in 2010. Only 154 failed through December 17th, which is far short of the predicted 200-250 failures that were expected by none other than the Federal Deposit Insurance Corporation.
While many banks have begun to see daylight, some markets like Atlanta, Phoenix and Las Vegas are still going to be tough places to get new financing. The real estate recovery in those cities will be slow to unload their remaining volume of unsold properties.
The Dodd-Frank Act enacted a number of sweeping financial regulatory reform measures, particularly regulations to break up a major failing bank, provide consumer protection, and beef-up bank capitalization.
Wall Street – The Street is back – profits soared again at most major brokerage firms and year-end bonuses have returned with a vengeance. Lobbyists for the industry did an effective job of avoiding much of the feared regulatory reform in the Dodd-Frank Act, which barely tightened a modest oversight of derivative trading.
These overpaid, “masters of the universe” traders also proved to be fairly thin-skinned when made the object of criticism of the economic malaise presently sidetracking most of Main Street. The Dow Jones Average has returned to its highest level since mid-2007.
Small Business Jobs Act – A bone was thrown to the small business sector in the form of the Small Business Jobs Act, bantered around unnecessarily for months by politics in the U.S. Senate. The final bill provided a $30 billion fund to invest in community bank capital, which could be leveraged 10:1 into $300 billion of small business financing. The more banks grow that lending, the cheaper the payback will be to Uncle Sam.
Also big news was authorization to increase SBA loan size limit to $5 million (from $2 million) which will enhance program’s utility for larger companies. Concurrently, the agency expanded eligibility for an SBA loan to tens of thousands of new businesses.
European Union – Some of the poor cousins in the EU had to face up to a debt crisis, with pending defaults. During 2010, booth Greece and Ireland had to be bailed out of a crisis, with a poorly kept secret that Spain and Portugal are probably next.
Finance ministers continue to grapple with longer term solutions, and are beginning to talk publicly about the possibility of “common fiscal policy.” That will be an interesting idea to follow next year.
China – It’s another year, another continuation of an undervalued Renminbi to other major world currencies. That trend may prove to have lasted too long, because in 2011 the Chinese Central Bank will have to deal with an accelerating inflation rate, fueled by a 9% GDP growth rate. Watch for more pressure on their own housing bubble as well.
A more ominous trend for American’s to watch is the recent approval to exchange the Renminbi outside China for the first time. They are settling trades with Russia directly with Rubles and Renminbi, instead of using Dollars. What’s next, the Petro-Renminbi?
There were plenty more stories, but needless to say, 2010 has proven to be another fascinating year in finance. Tune in next week for a look ahead to 2011.