David Beckworth
"The response was euphoric - stock markets railed, risk premiums on the Eurozone periphery fell, and the Euro strengthened - and demonstrated that expectations matters.Without actually doing anything, the ECB was able to catalyze a shift in portfolios toward riskier assets that, if followed through, could kickstart a recovery. It is what Matt O'Brien calls the Jedi mind trick or Nick Rowe dubs the Chuck Norris approach to central banking. This power by central banks to manage expectations is often overlooked or dismissed by many observers. The markets' response to Draghi's speech should give them pause."
lunes, 30 de julio de 2012
domingo, 29 de julio de 2012
How far is the ECB really prepared to go to save the euro?
Aca
"It is particularly salient that Mr. Draghi highlights the fatal flaw of the euro zone noted by Professor Peter Garber some 14 years ago: As long as there was no perceived probability of euro exit by any euro nation, the established transfer system coupling private markets with European system of Central Bank support (Target 2, ELA, ECB repos) would function like any other monetary system in a single nation state. However, Garber recognized that if there arose the prospect of a euro exit and, therefore, a devaluation risk for holders of deposits in the banks domiciled in the country slated for exit (e.g. Greece or Spain), the European monetary system would be exposed to a bank run. Under the EU treaty capital mobility was guaranteed. Under the common currency deposit transfers from domestically domiciled banks in countries at risk of euro exit (e.g. Greece, Spain) to banks domiciled in other euro nation states (e.g. Germany, Netherlands) was costless. Faced with any non-negligible perceived risk of a euro exit and thereby a devaluation loss, rational market participants should move all their deposit funds from the banks domiciled in the country at risk of euro exit to banks domiciled in nations at the Eurozone’s unassailable core."
Tim Duy sobre el discurso de Draghi
Tim Duy sobre el discurso de Draghi
DeLong vs Cochrane sobre la posibilidad de inflación
Aca
DeLong apuesta con Noah Smith
Màs
"...Of that, it looks as though on net about 2/3 are purchases of U.S. government debt and government-guaranteed debt. Call it $350 billion/year. Current foreign holdings of U.S. government and government-guaranteed debt look to be about $6 trillion. $350 billion/$6 trillion means that foreigners are adding to their holdings of U.S. government and government guaranteed debt at a pace of about 5.8%/year. With world nominal GDP outside the United States growing at about 6%/year, that means that foreigners are… buying about as much U.S. Treasury, Agency, and other goverenment-guaranteed debt as they should in order to keep their portfolio shares constant.
It does not look as if it is the case that the US government is running out of its foreign-based debt capacity.
Could foreigners all of a sudden decided that there governments are not worse than the US government, decide to dump US government bonds and buy their own country bonds, send the dollar down, and have that falling dollar set off a upwards surge of import prices that then set off an inflationary spiral here at home? Yes. Is this a high probability scenario? I confess that I do not see how: imports are a relatively small fraction of total US spending, foreign governments are at least as feckless as our own and are subject to political risks that we are not, and nobody--literally nobody, not even the people Cochrane talks to directly--is willing to bet any money on Cochrane's favored scenario."
Un comentarista: "Note also that foreigners dropping US debt would cause high interest rates which would lower demand. Given the ratio of imports to GDP, this effect could dominate. And with the Federal Funds rate of around zero, the idea that the Fed could do nothing to fight inflation is really utterly totally crazy. Not to mention that inflation would be an excellent thing (better 5% than 2% and, I think, better 10% than 5% except for the fact that the Fed could and would respond)."
DeLong apuesta con Noah Smith
Màs
"...Of that, it looks as though on net about 2/3 are purchases of U.S. government debt and government-guaranteed debt. Call it $350 billion/year. Current foreign holdings of U.S. government and government-guaranteed debt look to be about $6 trillion. $350 billion/$6 trillion means that foreigners are adding to their holdings of U.S. government and government guaranteed debt at a pace of about 5.8%/year. With world nominal GDP outside the United States growing at about 6%/year, that means that foreigners are… buying about as much U.S. Treasury, Agency, and other goverenment-guaranteed debt as they should in order to keep their portfolio shares constant.
It does not look as if it is the case that the US government is running out of its foreign-based debt capacity.
Could foreigners all of a sudden decided that there governments are not worse than the US government, decide to dump US government bonds and buy their own country bonds, send the dollar down, and have that falling dollar set off a upwards surge of import prices that then set off an inflationary spiral here at home? Yes. Is this a high probability scenario? I confess that I do not see how: imports are a relatively small fraction of total US spending, foreign governments are at least as feckless as our own and are subject to political risks that we are not, and nobody--literally nobody, not even the people Cochrane talks to directly--is willing to bet any money on Cochrane's favored scenario."
Un comentarista: "Note also that foreigners dropping US debt would cause high interest rates which would lower demand. Given the ratio of imports to GDP, this effect could dominate. And with the Federal Funds rate of around zero, the idea that the Fed could do nothing to fight inflation is really utterly totally crazy. Not to mention that inflation would be an excellent thing (better 5% than 2% and, I think, better 10% than 5% except for the fact that the Fed could and would respond)."
viernes, 27 de julio de 2012
jueves, 26 de julio de 2012
miércoles, 25 de julio de 2012
martes, 24 de julio de 2012
Sobre las bajas tasas de interes nominales
Scott Sumner: The implosion of a policy regime
"Even if the Fed does something semi-bold on August 1st, it most likely won’t be enough to change the underlying dynamic. And the reason is pretty basic; the Fed simply doesn’t have a grip on what went wrong. They had a policy regime that targeted short-term interest rates as a way of targeting inflation. Both of those decisions were flawed, and now the regime has collapsed. Markets are saying that the Fed may never again be able to using its preferred interest rate targeting mechanism. Let me emphasize that I still believe interest rates are more likely than not to eventually rise above zero. But these low yields are consistent with a non-zero probability of the US essentially becoming Japan."
Daniel Kuehn
Paul Krugman. Cullen Roche
Bye buy zero lower bound on nominal interest rates?
We have entered the world of disaster economics
The message of TIPS: Extremely weak growth ahead
"Even if the Fed does something semi-bold on August 1st, it most likely won’t be enough to change the underlying dynamic. And the reason is pretty basic; the Fed simply doesn’t have a grip on what went wrong. They had a policy regime that targeted short-term interest rates as a way of targeting inflation. Both of those decisions were flawed, and now the regime has collapsed. Markets are saying that the Fed may never again be able to using its preferred interest rate targeting mechanism. Let me emphasize that I still believe interest rates are more likely than not to eventually rise above zero. But these low yields are consistent with a non-zero probability of the US essentially becoming Japan."
Daniel Kuehn
Paul Krugman. Cullen Roche
Bye buy zero lower bound on nominal interest rates?
We have entered the world of disaster economics
The message of TIPS: Extremely weak growth ahead
domingo, 22 de julio de 2012
Sobre el pago de intereses a las reservas
David Glasner
"I pointed out that whether monetary policy has been simulative depends on whether the demand to hold the monetary base or the size of the monetary base has been increasing faster. I should have pointed out explicitly that the payment of interest on reserves has guaranteed that the demand to hold reserves would increase by at least as much as the quantity of reserves increased, thereby eliminating any possibility of monetary stimulus from the increase in bank reserves."
Pushback on the 'interest on reserves debate'
Stephen Williamson comenta sobre esa política. Scott Sumner también
Algunas observaciones
Scott Sumner le comenta a Mark Thoma
Quantitative easing and bank lending
The reserve requirement confusion
La Fed de NY: Interest on excess reserves and cash “parked” at the Fed. Cullen Roche comenta
Scott Sumner está en desacuerdo: The fallacy of composition lies at the very heart of monetary economics
Viejo post de Nick Rowe: Fallacies of composition and decomposition: The supply of money and reserves
Karl Smith tambien critica a la Fed
Otro sobre las reservas bancarias
Macroresilience
Cullen Roche y Noah Smith
Matt Klein aclara confusión sobre las reservas de Robert Hall
"I pointed out that whether monetary policy has been simulative depends on whether the demand to hold the monetary base or the size of the monetary base has been increasing faster. I should have pointed out explicitly that the payment of interest on reserves has guaranteed that the demand to hold reserves would increase by at least as much as the quantity of reserves increased, thereby eliminating any possibility of monetary stimulus from the increase in bank reserves."
Pushback on the 'interest on reserves debate'
Stephen Williamson comenta sobre esa política. Scott Sumner también
Algunas observaciones
Scott Sumner le comenta a Mark Thoma
Quantitative easing and bank lending
The reserve requirement confusion
La Fed de NY: Interest on excess reserves and cash “parked” at the Fed. Cullen Roche comenta
Scott Sumner está en desacuerdo: The fallacy of composition lies at the very heart of monetary economics
Viejo post de Nick Rowe: Fallacies of composition and decomposition: The supply of money and reserves
Karl Smith tambien critica a la Fed
Otro sobre las reservas bancarias
Macroresilience
Cullen Roche y Noah Smith
Matt Klein aclara confusión sobre las reservas de Robert Hall
DeLong vs Steve Keen sobre la crisis
DeLong
"In the neo-Wicksellian framework that Krugman likes to use when the economy is at its zero nominal interest rate bound, the central immediate problem with the economy is that because private households want to deleverage--planned saving at full employment is high--and because private businesses do not want to leverage--planned investment at full employment is low--planned spending is less than expected income and the economy spirals downward."
"In the neo-Wicksellian framework that Krugman likes to use when the economy is at its zero nominal interest rate bound, the central immediate problem with the economy is that because private households want to deleverage--planned saving at full employment is high--and because private businesses do not want to leverage--planned investment at full employment is low--planned spending is less than expected income and the economy spirals downward."
viernes, 20 de julio de 2012
jueves, 19 de julio de 2012
miércoles, 18 de julio de 2012
The terminal disease affecting banking
Es que se estan acabando, dice el FT
There’s no doubt, for example, that banks have held the top spot in credit creation for decades, if not centuries. Yet, there’s equally little doubt that banks have spent most of the last quarter of a century branching out into ever more exotic services and roles.
So why has that been?
In order to answer that it’s first important to understand what traditionally drives bank profitability.
As Steve Randy Waldman at Interfluidity points out it’s not, contrary to popular belief, their ability to create credit. Indeed, as we have also argued, any reputable institution or individual has the ability to do that. No, in Waldman’s opinion the power of banks actually lies in their more unique ability “to issue liabilities that are widely accepted as near-perfect substitutes for whatever trades as money despite being highly levered.”
So it’s really all about guarantees, and more specifically faith in those guarantees. You give money to a bank on deposit because you trust that it will remain a money-like instrument even though it’s earning you some interest.
Indeed, you get a return without having to compromise the liquidity profile of your holding. You get something seemingly out of nothing.
The rise of shadow banking is thus closely connected to investors becoming ever more satisfied that non-banks can perform a similar role. That, combined with the fact that these shadow banks can also guarantee liquidity without sacrificing basic returns, of course suddenly makes them competitors with banks.
There’s no doubt, for example, that banks have held the top spot in credit creation for decades, if not centuries. Yet, there’s equally little doubt that banks have spent most of the last quarter of a century branching out into ever more exotic services and roles.
So why has that been?
In order to answer that it’s first important to understand what traditionally drives bank profitability.
As Steve Randy Waldman at Interfluidity points out it’s not, contrary to popular belief, their ability to create credit. Indeed, as we have also argued, any reputable institution or individual has the ability to do that. No, in Waldman’s opinion the power of banks actually lies in their more unique ability “to issue liabilities that are widely accepted as near-perfect substitutes for whatever trades as money despite being highly levered.”
So it’s really all about guarantees, and more specifically faith in those guarantees. You give money to a bank on deposit because you trust that it will remain a money-like instrument even though it’s earning you some interest.
Indeed, you get a return without having to compromise the liquidity profile of your holding. You get something seemingly out of nothing.
The rise of shadow banking is thus closely connected to investors becoming ever more satisfied that non-banks can perform a similar role. That, combined with the fact that these shadow banks can also guarantee liquidity without sacrificing basic returns, of course suddenly makes them competitors with banks.
martes, 17 de julio de 2012
lunes, 16 de julio de 2012
Monetary policy, money and inflation
Paper de la Fed de San Francisco
Textbook monetary theory holds that increasing the money supply leads to higher inflation. However, the Federal Reserve has tripled the monetary base since 2008 without inflation surging. With interest rates at historically low levels and the economy still struggling, the normal money multiplier process has broken down and inflation pressures remain subdued.
Textbook monetary theory holds that increasing the money supply leads to higher inflation. However, the Federal Reserve has tripled the monetary base since 2008 without inflation surging. With interest rates at historically low levels and the economy still struggling, the normal money multiplier process has broken down and inflation pressures remain subdued.
sábado, 14 de julio de 2012
viernes, 13 de julio de 2012
The Fisher-Keynes-Minsky theory of debt-deflation
Aca
"A liquidity trap is a circumstance in which the private sector is deleveraging in the wake of enduring negative animal spirits caused by the bursting of joint asset price and credit bubbles that leave private sector balance sheets severely damaged. In a liquidity trap the animal spirits of the private sector cannot be revived by a reduction in short-term interest rates because there is no demand for credit. This effectively means that conventional monetary policy does not work in a liquidity trap
Deleveraging can be rational for an individual household. It can be rational for an individual corporation. It can be rational for an individual country. However, in the aggregate it begets the paradox of thrift: what is rational at the microeconomic level is irrational at the community, or macroeconomic, level.
This is not to say that the private sector should not deleverage. It has to. It is a part of the economy’s healing process and a necessary first step toward a self-sustaining economic recovery.
However, deleveraging is a beast of a burden that capitalism cannot bear alone. At the macro level, deleveraging must be a managed process: for the private sector to deleverage without causing a depression, the public sector has to move in the opposite direction and re-lever by effectively viewing the balance sheets of the monetary and fiscal authorities as a consolidated whole."
"A liquidity trap is a circumstance in which the private sector is deleveraging in the wake of enduring negative animal spirits caused by the bursting of joint asset price and credit bubbles that leave private sector balance sheets severely damaged. In a liquidity trap the animal spirits of the private sector cannot be revived by a reduction in short-term interest rates because there is no demand for credit. This effectively means that conventional monetary policy does not work in a liquidity trap
Deleveraging can be rational for an individual household. It can be rational for an individual corporation. It can be rational for an individual country. However, in the aggregate it begets the paradox of thrift: what is rational at the microeconomic level is irrational at the community, or macroeconomic, level.
This is not to say that the private sector should not deleverage. It has to. It is a part of the economy’s healing process and a necessary first step toward a self-sustaining economic recovery.
However, deleveraging is a beast of a burden that capitalism cannot bear alone. At the macro level, deleveraging must be a managed process: for the private sector to deleverage without causing a depression, the public sector has to move in the opposite direction and re-lever by effectively viewing the balance sheets of the monetary and fiscal authorities as a consolidated whole."
miércoles, 11 de julio de 2012
El 'pecado original' de la Union Europea
Aca
"When the European Monetary Union was set up, member-states adopted what was essentially a foreign currency (the euro) but were left in charge of their own fiscal policy. Dimitri Papadimitriou and Randall Wray explain in a new Policy Note (“Euroland’s Original Sin“) why this basic structural defect was always bound to tear the eurozone apart. The solvency crises and the bank runs afflicting Spain, Greece, and Italy were entirely foreseeable (and as Papadimitriou and Wray point out, entirely foreseen). Unless something is done to remedy this design flaw, the EMU will continue to crumble."
"When the European Monetary Union was set up, member-states adopted what was essentially a foreign currency (the euro) but were left in charge of their own fiscal policy. Dimitri Papadimitriou and Randall Wray explain in a new Policy Note (“Euroland’s Original Sin“) why this basic structural defect was always bound to tear the eurozone apart. The solvency crises and the bank runs afflicting Spain, Greece, and Italy were entirely foreseeable (and as Papadimitriou and Wray point out, entirely foreseen). Unless something is done to remedy this design flaw, the EMU will continue to crumble."
Living cells show how to fix the financial system
Aca
"Hierarchy, in other words, is a way of limiting complexity in the interest of both stability and evolvability. Simon argued that systems structured in this way possess a basic, competitive simplicity"
"...Bone, like most other structures in biology, is not just complex, but complex in a highly organized way. What about structures in economics and finance? "
"The growth of modern finance seems to have violated the principle of hierarchical structures, and with gusto. Two trends in the past 30 years -- the merging of banks into huge institutions and the explosion of derivatives that link them around the globe -- have made the network much less modular. We have created a vast web of interconnections with extreme complexity but little organization. And this does appear to have made the system less resilient."
El paper de Herbert Simon
"Hierarchy, in other words, is a way of limiting complexity in the interest of both stability and evolvability. Simon argued that systems structured in this way possess a basic, competitive simplicity"
"...Bone, like most other structures in biology, is not just complex, but complex in a highly organized way. What about structures in economics and finance? "
"The growth of modern finance seems to have violated the principle of hierarchical structures, and with gusto. Two trends in the past 30 years -- the merging of banks into huge institutions and the explosion of derivatives that link them around the globe -- have made the network much less modular. We have created a vast web of interconnections with extreme complexity but little organization. And this does appear to have made the system less resilient."
El paper de Herbert Simon
martes, 10 de julio de 2012
lunes, 9 de julio de 2012
jueves, 5 de julio de 2012
martes, 3 de julio de 2012
Wages, household debt, and the fiscal cliff
Aca
"One of the important consequences of the stagnation of wages in the United States has been the increasing reliance on debt as a source of funds for spending. Pivetti and Barba (2009) have argued that rising household indebtedness should be seen essentially as a reaction to stagnant real wages and the cutbacks in the welfare state. In other words, financialization has been the counterpart of enduring changes in income distribution. A point that has also been raised by Jamie Galbraith in his new book Inequality and Instability."
lunes, 2 de julio de 2012
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