Credit Writedowns » central banks

The Problem with Success

Marc Chandler — Mon, 06 Feb 2012 15:00:00 +0000

Cash accounts for almost 6% of all corporate assets and the highest in sixty years. This increase is a result of a number of factors. Record profits give businesses the wherewithal. But corporations are not rewarded for the cash holdings. Moreover, the cash is held in such instruments as money market funds, commercial paper and bank deposits

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Banking Wasn’t Meant to Be Like This

Michael Hudson — Mon, 30 Jan 2012 02:00:36 +0000

the banks now browbeat governments – not by having ready cash but by threatening to go bust and drag the economy down with them if they are not given control of public tax policy, spending and planning. The process has gone furthest in the United States. Joseph Stiglitz characterizes the Obama administration’s vast transfer of money and pubic debt to the banks as a “privatizing of gains and the socializing of losses. It is a ‘partnership’ in which one partner robs the other.” Prof. Bill Black describes banks as becoming criminogenic and innovating “control fraud.” High finance has corrupted regulatory agencies, falsified account-keeping by “mark to model” trickery, and financed the campaigns of its supporters to disable public oversight. The effect is to leave banks in control of how the economy’s allocates its credit and resources

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Stephen Roach on US, the Fed, China, and Europe

Edward Harrison — Fri, 27 Jan 2012 15:00:02 +0000

Stephen Roach says the Fed is going all in in support of QE and I agree. But what else are they going to do? Look at Europe, for example. The ECB there has a hydra-headed problem with sovereigns and banks on the brink of insolvency and they too have expanded the balance sheet like mad. China faces many of the same challenges with excess credit growth and fragile financial firms in the face of asset price deflation

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Developments continue to be bullish for Mexico

Win Thin — Wed, 25 Jan 2012 17:30:12 +0000

Given what we see as a basically hands off policy with regards to the exchange rate when MXN is appreciating, we see more potential upside for MXN compared to, say, BRL, where Brazilian authorities are clearly going to work against further currency strength. Others in Latin America are concerned with currency strength, including Colombia. As such, going long MXN vs. BRL or COP would be a good alternative too. On the other side, Banxico has installed circuit-breakers to help boost peso liquidity during times of stresses as part of an effort to prevent disorderly downside movement in the peso

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Milton Friedman’s 1948 Functional Finance Proposal

Randall Wray — Tue, 17 Jan 2012 14:00:07 +0000

Milton Friedman's 1948 article, "A Monetary and Fiscal Framework for Economic Stability" put forward a proposal according to which the government would run a balanced budget only at full employment, with deficits in recession and surpluses in economic booms. There is little doubt that most economists in the early postwar period shared Friedman’s views on that. But Friedman went further, almost all the way to Lerner’s functional finance approach: all government spending would be paid for by issuing government money (currency and bank reserves); when taxes were paid, this money would be “destroyed” (just as you tear up your own IOU when it is returned to you). Thus, budget deficits lead to net money creation. Surpluses would lead to net reduction of money

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Playing Chicken And Rooster With Hungary

Edward Hugh — Fri, 13 Jan 2012 00:15:15 +0000

Tension surrounding the application of a series of so-called “unorthodox policies” by Hungary’s Fidesz government has certainly been rising in recent days. While Washington has been reasonably quiet as government emissary Tamas Fellegi meets with top IMF officials, Brussels has seen a veritable avalanche of official statements and policy initiatives. Despite constant rumours that an agreement with the IMF is near, I find it pretty implausible that any deal can be reached without some kind of EU assent. At the present time this assent is unlikely to be forthcoming, and indeed the ”ante” has been pushed up and up

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Successful Auctions Boost Tone in Europe

BBH — Thu, 12 Jan 2012 12:30:04 +0000

Better than expected reception to Spain and Italy’s debt auctions have spurred risk on; dollar softer. BoE, as expected, left policy unchanged, ECB expected to do the same; Japan’s current account shrinks. US advanced retail sales expected to rise to 0.3% from 0.2%; thoughts on the EM central bank outlook

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Euro Slides Ahead of BOE and ECB Meetings

Marc Chandler — Wed, 11 Jan 2012 12:30:29 +0000

The euro was recovering in early Europe, moving back toward the upper end of its recent narrow range and it reversed course sharply, triggering stops along the way as it dropped nearly a cent to $1.2695. The technical failure yesterday at $1.2820 may also have been more telling. News from the German stats office that its economy may have contracted 0.25% quarter-over-quarter in Q4 is a bit disappointing as some hoped for stagnation

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What has the Fed done to avoid the US becoming the next Japan?

Guest Author — Mon, 09 Jan 2012 14:15:00 +0000

Imagine being on the FOMC and in the mainstream paradigm. In 2008 you moved quickly to make sure the US would not become the next Japan. What do you have to show for it, 3 years later

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Full Text: Swiss National Bank Chairman, Philipp Hildebrand, resigns with immediate effect

Edward Harrison — Mon, 09 Jan 2012 13:42:40 +0000

The Swiss franc is moving up strongly on this news from the Swiss National Bank

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From Here To Eternity, Hungarian Style

Edward Hugh — Sun, 08 Jan 2012 18:00:28 +0000

It was in Hungary that the new orthodoxy of relying on “non-Keynesian” effects related to expectations and credibility was formally announced and put to work. However, private consumption, unfortunately, has notably failed to rise. Perhaps there will be more than a little historic irony involved in Hungary being the country where the whole experiment eventually went badly wrong, although I doubt the Hungarians themselves will se it that way

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PBOC Easing To Continue In 2012

Win Thin — Sun, 08 Jan 2012 02:20:48 +0000

With the Chinese New Year holiday period approaching, it becomes a bit harder to discern PBOC’s policy intentions. It typically adds liquidity aggressively ahead of the holidays, but this year it comes at a time when the central bank is embarking on what we see as a protracted easing cycle

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A Quiet Putsch in Hungary?

Marc Chandler — Mon, 02 Jan 2012 13:00:09 +0000

A putsch, as any dictionary will tell you, refers to the violent overthrow of a government. Hungary has not been subject to that kind of action per se, but rather a more insidious grab for power. Its new constitution goes into effect today, and while perfectly legal, marks the end of Hungary's flirtation with liberalism (meant in the classical sense of "liberty" and not the modern partisan sense)

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Is a eurozone bailout already in play?

Guest Author — Wed, 21 Dec 2011 21:12:40 +0000

Listen: they can go kicking and screaming all they want to but, unless they’re on board to with ending the euro, it seems likely that the rich nations in Northern Europe will end up bailing out their poorer brethren. Whether they call it a bailout or not is another issue. But check out what’s already happening

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The ECB Long-Term Repo Operation is about price not quantity

Guest Author — Wed, 21 Dec 2011 16:16:17 +0000

To it’s credit, the ECB has been pretty good on the liquidity front all along. I’d give it an A grade for liquidity vs the Fed where I’d give a D grade for liquidity. Back in 2008 the ECB was quick to provide unlimited euro liquidity to its member banks, while the Fed dragged its feet for months before expanding its programs sufficiently to ensure its member banks dollar liquidity. And the FDIC did the unthinkable, closing WAMU for liquidity rather than for capital and asset reasons

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Bond vigilantes and the currency relief valve

Edward Harrison — Wed, 21 Dec 2011 15:49:20 +0000

The last post by Randall Wray below is an interesting one because it points out how the world has changed since the end of the gold standard and why the sovereign debt crisis is centered in the euro zone. While I have an Austrian bias overall, for me, MMT is the best way to think about nonconvertible floating exchange rate systems as distinct from fixed exchange rate, currency board, pegged and convertible systems. The difference is policy space and what I would call the bond vigilante relief valve

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Euro Squeezed Higher, Takes Others With It, Positive Newstream

Marc Chandler — Tue, 20 Dec 2011 12:30:23 +0000

Successful Spanish and Greek bill auctions and better than expected German IFO caught the market wrong-footed, if the record net speculative short at the IMM is anything to go by. The euro has shot up to almost $1.3090 and pulled up the other major currencies and emerging market currencies in its wake

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China: Lots of news, signifying nothing new

Michael Pettis — Sun, 18 Dec 2011 02:24:51 +0000

I don’t think there is a whole lot to say about this week’s numbers beyond what I have been saying for the past several months. Nothing substantial has really changed. China’s external account is worsening, and will continue to worsen since global imbalances have no choice but to adjust. Growth in China is slowing but remains relatively rapid, and as unhealthy as ever, but there is little likely to be done to improve the quality of growth until 2013. Beijing will continue veering back and forth between stomping on the credit accelerator and stomping on the credit brakes as the only way they can manage the economy

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Norway Surprises and Ongoing Funding Woes

Marc Chandler — Wed, 14 Dec 2011 18:45:05 +0000

By cutting 50 bp in one swoop, the Norges Bank hopes to get ahead of the curve. This is part insurance against addition headwinds, but also responds to the recent data indicating an economic slowdown

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Liquidity is the Word

Marc Chandler — Tue, 06 Dec 2011 17:00:43 +0000

Tomorrow the central banks will auction dollars for the first time under the lower rates. There was some talk that the lower take down at this week's regular refi operation (about 13 bln less euros than were maturing from last week's operation) was due to the fact that participants are anticipating taking up dollars tomorrow. It may seem counter-intuitive, but the larger the participation tomorrow the more risk-on (in whatever limited way ahead of Thursday ECB meeting and Friday's summit) insofar as banks would secure their dollar funding in a less disruptive way. The smaller the take down, the more dysfunctional the system may appear

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Central Bank Action Not A Solution

Comstock Partners — Fri, 02 Dec 2011 00:00:28 +0000

European leaders will meet again on December 9th in an attempt to come up with the solution. The important point, though, is that the probable solution would call for European nations to surrender some sovereignty over fiscal policy to a higher authority dominated by the stronger EU nations, particularly Germany. In addition, the new fiscal policy would amount to more austerity. Given that the people in the weaker nations have already been rioting against the austerity programs proposed by their own governments, how will they feel when that austerity is imposed from the outside? And even if these obstacles were overcome, the result would be highly restrictive. As we have repeated ad nauseam, the overall problem is too much global debt. The policy solutions are inherently deflationary and will result in slow growth and disappointing market returns for years to come

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News Links: European and Chinese Manufacturing Stalls, as US Advances

Edward Harrison — Thu, 01 Dec 2011 14:30:45 +0000

ISM – ISM Report – November 2011 Manufacturing ISM Report On Business® "The PMI registered 52.7 percent, an increase of 1.9 percentage points from October’s reading of 50.8 percent, indicating expansion in the manufacturing sector for the 28th consecutive month. The New Orders Index increased 4.3 percentage points from October to 56.7 percent, reflecting the

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Chart of the day: the graph that shows why the central banks had to act

Edward Harrison — Wed, 30 Nov 2011 22:48:15 +0000

What is clear is that, with the U.S. dollar as the world’s major reserve currency, this move to lower the price on U.S. dollar liquidity swap arrangements is due to the world’s banks being short U.S. dollars. In the past few days, there have been rumors that a European bank was on the verge of failure due to a lack of U.S. dollar liquidity

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Full Text: FRB Statement on Coordinated Central Bank Action on Currency Swaps

Edward Harrison — Wed, 30 Nov 2011 22:15:16 +0000

"The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity. "

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Turkey: Outlook Remains Bearish

Win Thin — Thu, 24 Nov 2011 01:30:09 +0000

The central bank intervened aggressively in September-October to limit TRY weakness, but it does not have a huge war chest like Brazil or Asia. Reserves were $84.4 bln at the end of October, down 10% from a peak of $93 bln in July. Reserves are thus less than short-term debt of around $85 bln, making a protracted intervention defense unworkable. Instead, the central bank should hike interest rates. While it wouldn’t save the lira in this environment, it would be a step towards re-establishing credibility and perhaps help it become an EM market performer instead of an underperformer

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Euro bank funding, collateral, and outlook

Marc Chandler — Tue, 22 Nov 2011 16:00:51 +0000

Bank borrowing from the ECB reach a new high for the year at today's 7-day repo operation. Banks borrowed 247.17 bln euros for a week at 1.25% fixed rate. The key question is what are banks doing with those euros. The answer is that banks appear to be recycling those funds by putting them on deposit with the

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Chart of the day: Hours of work needed to buy an ounce of gold

Global Macro Monitor — Thu, 17 Nov 2011 16:38:05 +0000

Central banks have done a great job at driving up the price of gold but a horrible job at creating wage inflation. If it now takes 88 hours to buy an ounce of gold versus 20 hours in 2000, hasn’t that grossly deflated real wages in a strict monetary sense? Just askin’

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Credible lenders of last resort use price, not quantity signals

Edward Harrison — Mon, 07 Nov 2011 03:15:25 +0000

Let’s talk about credible government bond backstops for a bit

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Watch Switzerland on Monday

Marc Chandler — Fri, 04 Nov 2011 18:50:21 +0000

Switzerland reports its October consumer prices on Monday. This could be important. The Swiss National Bank's decision to cap the franc took place on the same day that the August CPI was reported (Sept 6). It showed a 0.3% month-over-month decline after a 0.8% decline in July. There are many observers who expect the SNB to lower its cap for the franc (that is raise the euro floor form CHF1.20 to CHF1.25 or higher) and see the risk of deflation as a potential trigger

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Reserves, Governement Bond Sales, and Savings

Randall Wray — Mon, 31 Oct 2011 14:30:14 +0000

Last week we showed that government deficits lead to an equivalent amount of nongovernment savings. The nongovernment savings created will be held in claims on government. Normally, the nongovernment sector prefers to hold that much of that savings in government IOUs that promise interest, rather than in nonearning IOUs like cash. This week we will look at this in more detail

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Chart of the day: Savings Rate 21 May 2008

The BoJ’s Intervention Treat

BBH — Mon, 31 Oct 2011 11:30:00 +0000

Risk aversion is taking hold again with global stocks broadly lower; dollar firmer against majors. Price action dominated in part by BoJ intervention; on the data front Chicago PMI and Canadian GDP. Norway’s central bank indicated it will add to foreign currency to oil fund; Korean IP focus in EMs

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Sketch of Week’s 6 Key Events and A Few Things to Monitor

Marc Chandler — Mon, 31 Oct 2011 01:55:55 +0000

Risk appetites returned in a big way in October, as equities, emerging markets, commodities and currencies all generally advanced and smartly so, recouping much of the ground lost in September. The events in the week ahead will likely set the tone for the month of November. They include three central bank meetings (RBA, Fed and ECB), two data points (UK Q3 GDP and US employment report) and the G20 summit

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Quantitative Easing!!!

Guest Author — Thu, 27 Oct 2011 14:46:29 +0000

The BoJ announced today that it will expand its asset purchase programme by JPY5trn (USD66bn), with all the purchases being directed at JGB's. Add that to the GBP75bn (USD120bn) by the BoE, CHF50bn (USD57bn) by the SNB and the EUR341bn (USD477bn) expansion of the ECB balance sheet since the end of June, and it collectively adds up to USD720bn. Clearly this explains the market rally from the low

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Gold Breaks Out — Print Away!

Global Macro Monitor — Tue, 25 Oct 2011 23:47:47 +0000

Gold is up big today and trading like the monetary printing presses are ready to kick into overdrive. We believe the recent Fed speak about QE3, possible BofJ intervention to weaken the yen, and growing expectations that tomorrow’s announcement by by the EU may fall short and force the ECB to monetize bond purchases are contributing to the move. In addition, given the recent PMI data out of Europe, the ECB may be forced to ease sooner rather than later and even hearing hints and rumors floating around the ether of China easing

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Felix Zulauf says the die is cast. Is it?

Edward Harrison — Tue, 25 Oct 2011 21:30:31 +0000

I was just looking at Barry Ritholtz’s synopsis of Felix Zulauf’s observations from an in-office interview Barry had with him and I have to say I agree with the man 100%. But is the die cast? Are we headed into something much worse

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