Another Brother (again)

In a post back in January, I asked:

So, what does Ed Balls think should be done about “rising inflation”, which he seems to think is a bad thing, and to secure the greater borrowing that Labour's deficit reduction plans imply – must interest rates go up? He could ask his brother at Pimco. After all, as the Sunday Times, Independent and Daily Telegraph pointed out last July: “...the bond house's European investment team is headed by Andrew Balls, brother of Labour leadership candidate Ed Balls.”

So it was worth listening carefully on 25 March when BC Radio 4’s Today programme had an item on Portugal’s debt problem which had just led to their Prime Minister resigning. The Today website later reported the following:

Andrew Balls, head of European investments at the world's largest bond traders, Pimco, told the programme that eurozone countries face "weeks of ongoing uncertainty".
"Portugal has essentially lost access to financial markets," he said, making it more difficult for the country to meet repayment deadlines coming up in the next few months.
And he added that it was "hard to see significant default risk" in United Kingdom, the United States and Japan, all of which have their own currencies, their own central banks and more flexibility over financial policy.

Evan Davis, who was Andrew Balls’ interviewer, didn’t introduce him as Ed’s brother. Andrew B wasn’t asked for his reaction to the warnings a day earlier from credit ratings agencies Fitch and Moody's that weaker growth or persistently high inflation could jeopardise the UK's prized AAA rating. Davis also didn’t ask Andrew B about the bond market’s view of Labour’s alternative to the Coalition’s economic policies. This had been set out by Ed B, also the day before, in the Budget debate, and it is interesting to read his speech in full in Hansard. A key extract:

Rory Stewart (Penrith and The Border) (Con): Will the right hon. Gentleman please share his plan and growth strategy with us?
Ed Balls: I will gladly share our plan. First, the economy was strengthening and unemployment was falling- …Unemployment was falling and growth was rising because we were halving the deficit over the four years. The Chancellor has gone from halving the deficit to trying to get rid of it entirely in four years, by implementing the largest cuts to spending and tax rises of any economy in the world. It is not working. In fact, we heard today that Moody's, the credit rating agency, is looking at whether it needs to downgrade the British economy because of the threats to growth following yesterday's Budget.
...
Halving the deficit over four years was ambitious but deliverable. Eliminating the budget deficit in four years means a massive fiscal contraction. Unless we suspend all the laws of economics, assume that no international evidence counts, and believe that fiscal multipliers do not count in our kind of economy, that kind of contraction in fiscal policy and its impact on the public and private sectors is crushing. Only Greece is trying to go faster. We have already seen the biggest fall in consumer confidence for 20 years, and unemployment is up before the cuts have really started to bite.

Andrew came over as a calmer character than Ed, and I would guess he is the older brother. Is he yet another Oxford PPE graduate - like Ed, the Milibands, Cameron et al?

ADDENDUM 30 MARCH: John Rentoul today posted on his Independent blog a profile of Ed Balls which he had written for GQ magazine in March 2009. This reveals that Andrew Balls is seven years younger than Ed, also went to Oxford (subject not clear from Rentoul’s article) and also worked for the FT, but left for fund management.

Labour: another problem, another brother

In ‘Old Labour’ times, when party members knew the words of The Red Flag, they would refer to each other as “brother”, as opposed to “comrade”, associated with the far left and those who had never read 1984 or Animal Farm. Nowadays “Labour” and “brother” is likely to bring to mind “Miliband”, a name not exactly synonymous with fraternal solidarity. In September 2010 Ed Miliband was elected leader of the Labour party thanks to trade union backing. His brother, David, who had been the favourite, came a close second and subsequently chose not to join the shadow cabinet.

The third place in the leadership election went to Ed Balls, who, last week, was appointed shadow Chancellor of the Exchequer by Ed Miliband for reasons largely beyond the latter’s control. Miliband had originally made Balls education shadow, keeping his rival away from the economics post he wanted and was suited to. The key political issue in the UK for the foreseeable future will, of course, be the economy and the impact of deficit reduction. Balls has wasted no time in making his views clear:

2011 is a critical year for Britain’s economy and public services, and the coming weeks and months will tell us whether David Cameron and George Osborne’s reckless gamble has worked. With no plan for jobs and growth, they have instead staked the whole future of the economy on one card – the fastest, deepest deficit reduction plan in Britain’s peacetime history.

... cuts that go too far and too fast

… Over the coming months, as the impact of the VAT rise, deep spending cuts and rising inflation starts to hit home, we will be able to gauge the true impact of the Tory economic plan, and see whether their gamble has worked.

On the same day (22 January) the Financial Times (£) led with an ‘inflation up, interest rates to follow’ story which included the following quote:

“Why would you want to be a bondholder with bond yields so low and that sort of inflationary trend,” Bill Gross, who runs the world’s largest bond fund at Pimco, told the Financial Times. “If CPI continues above 3 per cent in the UK and 2 per cent in the US, then we are accepting negative real interest rates, and that is not an attractive investment.”

Pimco nuances its views quite often. A year ago (when Labour was in office) Bill Gross said that UK gilts were "resting on a bed of nitro-glycerine" as a result of the nation's high debt levels. In April, Mr Gross reiterated that Britain remained on its list of "must avoid" countries with Greece. After the election in July their views seemed to have changed, when according to the Daily Telegraph:

One of the UK's fiercest economic critics has moderated its tone and even begun advising clients to start gambling on a recovery. Pimco, the world's second largest bond house, has reversed its aggressive stance against the UK gilts, saying: "We do not expect the UK to fail in meeting its commitments". For sophisticated investors, Pimco added: "We believe exposure to the UK in the credit default swap (CDS) market offers a valuable opportunity."

... Mr Amey [a Pimco executive vicepresident] said: "The Coalition has demonstrated its intent to tackle the deficit immediately and we think that is generally good news. "At the margin, the risk of a double-dip recession has decreased." However, he remained doubtful about the investment potential of UK gilts, saying: "Given the risk to the pound and ... upside risk to inflation, we think there is relatively less value in longer-term UK bonds."

...Much of the recovery has been driven by the Government's plans to attack the deficit. "UK sovereign debt risk will continue to be an issue as long as UK debt levels remain high," Mr Amey warned.

So, what does Ed Balls think should be done about “rising inflation”, which he seems to think is a bad thing, and to secure the greater borrowing that Labour's deficit reduction plans imply – must interest rates go up? He could ask his brother at Pimco.  After all, as the Sunday Times, Independent and Daily Telegraph pointed out last July:

...the bond house's European investment team is headed by Andrew Balls, brother of Labour leadership candidate Ed Balls.

ADDENDUM: More on the Balls brothers in my post on 27 March 2011.