The.Economist.2007-02-10 (966424), страница 43

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If money istoo abundant or too cheap, inflationary pressures may build up or bubbles may appear in financialmarkets—until central banks tighten policy or market opinion suddenly changes. A slackening of economicactivity or a drop in asset prices can leave households, businesses and financial institutions in trouble iftheir balance sheets are not liquid enough (the second concept) or if they cannot find a buyer for assets(the third).In principle, you can view the first concept through prices or quantities.

Stephen Roach, of MorganStanley, suggests that for emerging markets, quantities (monetary aggregates, volumes of credit andforeign-exchange reserves) matter more; price signals (interest rates, credit spreads and so forth) are abetter guide in developed economies, where capital markets are deeper and more liquid. In practice, it isusual to look at quantities.Often, says Mr Barnes, it is assumed that the monetary environment is determined by central banks.

Buthe thinks this too simplistic. Of course, by setting short-term interest rates they affect banks' reservesand lending, and the willingness of consumers and firms to spend or invest. They can still squeeze liquidityout of the economy, as the Federal Reserve did in the early 1980s, or create a deluge, as it did earlier inthis decade. But America's bank reserves, at $47 billion, amount to only 6% of the country's monetarybase and only 0.7% of the broad M2 measure of money supply. And the growth rates of both themonetary base and M2 have slowed in recent years, to below that of nominal GDP (see left-hand chart,above). From this, you might conclude that liquidity in America was not especially abundant.However, that would be to ignore several important developments.

A huge amount of credit is createdoutside banks and through clever instruments. Banks are increasingly able to securitise loans and getthem off their balance sheets. The ratio of financial-sector to non-financial-sector debt, reckons MrBarnes, has climbed from around 10% to 50% in the past 30 years. Financial innovation and deregulationhave both helped these trends and aided international flows of credit. Looking at domestic numbers is nolonger enough: you need to see the global picture.Globally, money looks plentiful. In the euro area and Britain, broad money growth is running well ahead ofnominal GDP.

Or take the global supply of dollars, fuelled by America's large current-account deficit, theaccumulation of reserves by foreign governments and their recycling back to the United States. A commonmeasure of this, says Mr Barnes, is the American monetary base plus United States securities held by theFed for foreign countries.

Its annual growth rate peaked in 2004, at more than 20%. But because thosesecurities have continued to pile up, this measure of liquidity is still growing at a rate of around 10% (seeright-hand chart, above). Another gauge, combining all foreign-exchange reserves with America'smonetary base, has risen at an average rate of perhaps 18% in the past four years. And this omits thecontribution to global liquidity of the Bank of Japan, whose low interest rates are fuelling the “carry trade”.All this is reflected in financial markets for everything from developing-country debt to corporate junk,commodities and art.

Global willingness to save and lend is running ahead of investment. Ben Bernanke,chairman of the Fed, has spoken of a savings glut. Then again, the real puzzle could be companies'“investment restraint”, according to Raghuram Rajan, of the University of Chicago's business school (anduntil recently chief economist at the IMF). Maybe, he suggests, investment is becoming more centred onpeople and less on physical capital; maybe physical investment is being switched to emerging economies;maybe uncertainty still holds back investment abroad—as it does not, say, investment in property athome. Whatever the cause, a shortage of investment in fixed assets implies a shortage of debtcollateralised on them.

The financing glut has thus spilled over into markets for existing assets.So what are central banks to do? Mr Rajan does not think that easy financing conditions can be laid mainlyat their door. Still, he thinks that they may face an awkward dilemma. Tighter policy may push down longterm interest rates, boosting some asset markets further. Easier policy, however, would let inflationarypressures build. Mr Barnes concludes that it is too early to worry about liquidity: with inflation low, thereis little prospect of a monetary squeeze; and American households and businesses' balance sheets (butnot those of pension funds and mutual funds) are fairly liquid.

Were there a market scare, he thinks,central banks would ease policy. One day, they may be tested.Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved.About sponsorshipBiotechnologyRoses are blue, violets are redFeb 8th 2007From The Economist print editionIf you don't like GM food, try flowers insteadAlamyGet article backgroundBEAUTIFUL flowers—like beautiful women—can separate the most sensible of men from their money.Those men invest in the reproductive organs of plants such as roses to signal, albeit coyly, analogousintentions of their own.The result is a cut-flower industry in which roses alone are worth $10 billion a year.

But that is peanutscompared with what happened in the past. In 17th century Holland, tulips (the fashionable flower du jour)grew so expensive that people exchanged them for houses. One bulb of the most sought-after variety, theflaming red-striped Semper Augustus, sold for twice the yearly income of a rich merchant.For modern flower growers, the equivalent of the Semper Augustus is the blue rose, which horticulturalistshave longed for since the Victorian period. Any blue rose sent on St Valentine's day this year will havebeen dyed.

But if Yoshi Tanaka, a researcher at Suntory, a Japanese drinks company, has his way, thatwill soon change. Dr Tanaka is currently overseeing the first field trials of a blue rose developed bySuntory's subsidiary, Florigene. If the trials are successful, a dozen blue roses—even if they do lookslightly mauve—could, by 2010, be what separates an unsuccessful suitor from Prince Charming.Flaming tulips. Blue roses. What Dutch growers of old and Dr Tanaka's employers both grasped is thatrarity, and hence economic value, can be created by genetic manipulation.The stripes of the Semper Augustus were caused by the genes of a virus.

Not knowing that an infectionwas involved, the Dutch growers were puzzled why the Semper Augustus would not breed true. Thegenetics of blue roses, too, have turned out to be more complicated than expected. The relevant genescannot easily be pasted into rose DNA because the metabolic pathway for creating blue pigment in a roseconsists of more chemical steps than it does in other types of flower.

(Florigene has sold bluish geneticallymodified carnations since 1998.) Success, then, has been a matter of pinning down the genes that allowthose extra steps to happen, and then transplanting them to their new host.Buy any other nameMere colour, however, is for unsophisticated lovers. A truly harmonious Valentine gift should smellbeautiful as well. Sadly, commercial varieties of cut rose lack fragrance. This is because there is a trade-off between the energy that plants spend on making the complex, volatile chemicals that attract womenand insects alike, and that available for making and maintaining pretty-coloured petals. So, by artificiallyselecting big, long-lasting flowers, breeders have all but erased another desirable characteristic.Smell is tougher to implant than colour because it not only matters whether a plant can make odoriferouschemicals, it also matters what it does with them.

This was made plain by the first experiment designed tofix the problem. In 2001 Joost Lücker, then a researcher at Plant Research International in Wageningen, inthe Netherlands, added genes for a new scent into petunias. Chemical analysis showed that the new scentwas, indeed, being made, but unfortunately the flowers did not smell any different. As happens inFlorigene's blue carnations and roses, Dr Lücker's petunias dumped the foreign chemical they were beingforced to create into cellular waste buckets known as vacuoles. Whereas pigments are able to alter apetal's colour even when they are inside a vacuole, because the cell contents surrounding the vacuole aretransparent, smelly molecules must find a route to the sniffer's nose by getting out of the cell andevaporating.Like Dr Lücker, Natalia Dudareva, of Purdue University, in Indiana, eschews experiments with roses, sincethese plants have scents composed of 300 to 400 different molecules.

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