Visar inlägg från april, 2016

Friedman soft in his criticism of Keynesian doctrines - Glasner DeLong

Friedman famously held the Fed responsible for the depth and duration of what he called the Great Contraction… in sharp contrast to hard-core laissez-faire opponents of Fed policy, who regarded even the mild and largely ineffectual steps taken by the Fed…  as illegitimate interventionism to obstruct the salutary liquidation of bad investments, thereby postponing the necessary reallocation of real resources to more valuable uses… Brad DeLong 27 April 2016

Money market rates at the zero bound for 90 straight months - Stockman

Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months. There has never been a time in financial history when anything close to this happened, including the 1930s.  Nor was interest free money for eight years ever even imagined in the entire history of monetary thought. So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression? David Stockman 30 April  2016 Comment by Rolf Englund: Stockman writes that: The truth is, there can never by an honest shortage of “aggregate demand” because the latter is nothing more than spending for consumer and capital goods that is financed from the flow of income and production. As “Say’s Law” famously and correctly insists, “supply creates its own demand”. End cit We can read at Wikipedia that Say's law was generally accepted throughout the 19th century, though modified

Why is Stockman wrong when he writes that "US actually didn’t borrow its way out of the Great Depression; it saved its way out"

As I documented in The Great Deformation, total public and private debt at the end of 1938 amounted to 210% of GDP, but by the end of 1945 it had dropped to 190% of GDP.   David Stockman 28 April 2016 ”Det som satte stopp för trettiotalsdepressionen i USA var ett massivt underskottsfinansierat program för offentliga arbeten som kallas andra världskriget”. Carl Johan Gardell, Understreckare SvD 13 augusti 2009

Pensions are under enough pressure - Authers

Risk has been pushed back to individuals, through 401(k) plans, personal pensions and the like,  while those public bodies and big corporations still guaranteeing an income to their members face large and mounting deficits.  And yet many assume equity returns of 7 per cent. The Long View, FT 29 April 2016 The baby boomers, those born between 1946 and 1970, were the richest, and largest, generation that the world has ever seen . Unsurprisingly, they created a truly golden age for housing, auto sales and overall consumer demand.

Republican-controlled Congress is "obsessed with this deficit to a point that I think it's almost pathological." Carl Icahn

"I do believe in general that there will be a day of reckoning unless we get fiscal stimulus," he said, pointing to the Federal Reserve's maintaining low interest rates, and potentially creating "tremendous bubbles." On the fiscal side Icahn argued that "you certainly could do more spending." "The Republican party that I used to be more sympathetic with — I'm right in the middle now, although as you know I'm for (GOP front-runner Donald) Trump — but what I would say is Congress is in this massive gridlock obsessed," he said, explaining that the Republican-controlled Congress is "obsessed with this deficit to a point that I think it's almost pathological." Icahn: Markets will have 'a day of reckoning', CNBC 28 April 2016

Is the World Getting Crazier, But We No Longer Notice? Charles Hugh Smith


Investors face damaging losses if yields rise even a little A half-percentage point increase would wipe out $1.6 trillion

Time Bomb Ticking In The Global Bond Market $17 Trillion Of Governments Yield Less Than 1%,  Duration Risk Soaring Bloomberg Business 26 April 2016

Cheap borrowing has funded dividends, stock buybacks, and M&A, Authers

Corporate America is swimming in cash.  There is no great news about this, and no great mystery about where it came from.  Seven years of historically low interest rates will prompt companies to borrow. A new development, however, is that investors are starting to ask in more detail what companies are doing with their cash.  And they are starting to revolt against signs of over-leverage. John Authers, FT 27 April 27, 2016

Portugal - The Euro's Next Existential Crisis

So long as at least one of the four rating agencies judges Portugal to be worthy, its government debt remains eligible to participate in the ECB's bond-buying program.  But if the country drops to sub-investment grade at all four, the ECB’s own rules forbid it from buying any more Portuguese government securities - purchases which have ballooned to almost 15 billion euros ($17 billion) in the program's one-year lifetime. Mark Gilbert, Bloomberg 25 April 2016

En märklig sak med svensk politik är att stora skandaler kan inträffa utan att någon tar ansvar för dem.

Hansson, Belfrage, Bildt och Magdalena Andersson Karin Pettersson Aftonbladet 2016-04-24

Famous skeptic, SocGen's Albert Edwards

"I have long recognised my own contrariness (or is it bloody-mindedness) and hopefully put it to good use in my chosen profession. If you want the consensus bull-market cheerleading nonsense, readers know it is amply available elsewhere." I am neither monetarist nor Keynesian. I see merit and demerit in both sides of a very fractious argument.  But what I do know is when in the last few weeks I have heard that Janet Yellen sees no bubble in the US, when Ben Bernanke hones and restates his helicopter money speech, and when Mario Draghi says that the ECB's policy of printing money and negative interest rates was working, I feel utterly depressed  Zerohedge 22 april 2016 Albert Edwards at IntCom

Feldt, Englund och Keynes

Sveriges riksbank sprutar in dopningsmedel i kreditmarknaden med en extremt expansiv penningpolitik för att få igång inflationen. Men det går inte utom på bostadsmarknaden där prisstegringarna ses som en samhällsfara. Finanspolitiken har i vårt land liksom i andra hållits fången av en doktrin som med anspråk på vetenskap säger att penningpolitik är det enda styrmedel som kan åstadkomma både stabilitet och tillväxt.  Doktrinens resultat kan vi nu se i en värld som skakas av kriser och utebliven tillväxt. Kjell-Olof Feldt, Dagens Industri 21 april 2016 - Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken. Det skrev jag på min blogg första gången  den 5 december 2009 . Keynes, Krugman, Secular Stagnation and The Death of the Rentiers Izabella Kaminska, FT Alphaville, 23 January 2014 Kjell-Olof Feldt hos IntCom

Tobisson, löntagarfonderna och Tidsandan

Lars Tobisson har gjort en värdefull insats genom att skriva en bok som kommer att bli standardverket om kampen om löntagarfonderna. Så här i efterhand kan det, i synnerhet för de som är födda på 70- och 80-talen, eller än senare, framstå som obegripligt att socialdemokraterna och LO i början och mitten på 1970-talet lade fram förslag som skulle ha lett till att Sverige blivit socialistiskt, nästan som Östtyskland, om ungdomarna vet vad det var. Rekordåren avlöstes runt 1968 av vänstervågen. Olof Palme besökte Fidels Castros Kuba 1975. Den I5 april 1975 intog Pol Pots styrkor, med blivande talmannen Birgitta Dahls gillande, Kambodjas huvudstad Pnom Penh och inledde masmordet känt från filmen Killing Field s. Den 30 april 1975 lämnade de sista amerikanska trupperna ambassadens tak med helikopter och Saigon intogs enligt myten av FNL eller VietCong som de själva också kallade sig. I själva verket intog Saigon av Nordvietnamesiska trupper med ryskbyggda stridsvagnar.

Germany and Sweden are the two EU countries where life insurers face the biggest gap between market rates and guaranteed rates. Munchau

The business models of German financial institutions depend critically on the presence of positive nominal interest rates.  Rightly or wrongly, Wolfgang Schäuble regards the policies of the ECB as an attack on Germany’s economic model, which is heavily dependent on the viability of the country’s peculiar banking system German life insurers have to guarantee a minimum rate of return, which is now 1.25 per cent a year.  This is hard to do when the yield of the 10-year German government bond is only 0.13 per cent.  Wolfgang Münchau, FT 17 April 17  2016 

The underlying problem – which has plagued the global economy since the crisis, but has worsened slightly – is lack of global aggregate, demand., Stiglitz

Clearly, the idea that large corporations precisely calculate the interest rate at which they are willing to undertake investment – and that they would be willing to undertake a large number of projects if only interest rates were lowered by another 25 basis points – is absurd. It should have been apparent that most central banks’ pre-crisis models – both the formal models and the mental models that guide policymakers’ thinking – were badly wrong.  None predicted the crisis; and in very few of these economies has a semblance of full employment been restored.  The ECB famously raised interest rates twice in 2011, just as the euro crisis was worsening and unemployment was increasing to double-digit levels, bringing deflation ever closer. Joseph E. Stiglitz, Project Syndicate 13 April 2016 Stiglitz at IntCom

Buybacks will remain the key source of equity inflow in 2016

We already know that in a world of declining cash flows, the primary source of funds to facilitated this behavior was debt issuance. In fact, as SocGen showed in a stunning chart last year, the only reason for the increase of net debt in the 21st century has been to fund buybacks. Zerohedge 15 April 2016

Ms Lagarde is now confronting the possibility of pulling the IMF out of the Greek rescue

after nearly six years during which the fund’s reputation has taken a battering.  Although Athens and its eurozone partners agreed to a third bailout in July, the IMF has not yet signed up.  Germany has repeatedly warned it may no longer be able to support the deal if the IMF quits. FT 14 April 2016

David Stockman's Conspiracy Theory

Ben S Bernanke is  the one who falsely insisted that Great Depression 2.0 was just around the corner in September 2008.  Along with Goldman’s plenipotentiary at the US Treasury, Hank Paulson, it was Bernanke who stampeded the entirety of Washington into tossing out the window the whole rule book of sound money, fiscal rectitude and free market discipline. In fact, there was no extraordinary crisis .  The Lehman failure essentially triggered a self-contained leverage and liquidity bust in the canyons of Wall Street, and it would have burned out there had the Fed allowed money market interest rates to do their work.  That is, to rise sufficiently to force into liquidation the gambling houses like Lehman, Goldman and Morgan Stanley that had loaded their balance sheets with trillions of illiquid or long-duration assets and funded them with cheap overnight money. There would have been no significant spillover effect.  The notions that the financial system was implo

BlackRock chief Larry Fink negative and low interest rates around the world are crushing savers, and those policies are "going to become the biggest crisis globally."

Fink called on political leaders to step in and provide fiscal reform to complement monetary policy. "We have become too dependent on central bankers" to boost the global economies, he said, stressing easy money policies were supposed to be a temporary healing.  "I don't call seven, eight years temporary. ... I don't see how that [still] has a positive impact." "Over 70 percent of our clients are retirement plans and insurance plans.   "Our clients are very worried how they're going to be meet their liabilities" because the yields are so low in the bond market. CNBC 14 April 2016

Resurgent Keynesianism. IMF worry over insufficient aggregate demand, Sandbu

While the IMF wouldn’t be the IMF if it didn’t call for structural reforms, the theme that can be discerned across all the analysis is a worry over insufficient aggregate demand, which needs to be supported by all the policy tools in the toolbox  — monetary stimulus, “growth-friendly” fiscal policy and even those structural reforms, which the fund wants applied selectively... Martin Sandbu, FT Free Lunch 14 April 2016 Keynes at IntCom

Stockman: China's apparent prosperity is not that of a sustainable economic miracle; its the front street of the greatest Potemkin Village in world history.

David Stockman, 11 April 2016

Martin Wolf: Negative rates are not the fault of central banks

The world economy is suffering from a glut of savings relative to investment opportunities.  Why does such a savings glut exist? That is the important question. Given its current account surplus of almost 9 per cent of gross domestic product — that is, savings far in excess of what it absorbs domestically, even at ultra-low interest rates — Germany might ask what its domestic interest rate would be if it had to absorb this glut at home. Unfortunately, the rest of the world cannot absorb these savings easily either. Fiscal policy should have come into play more aggressively.  Indeed, it is hard to understand the obsession with limiting public debt when it is quite as cheap as it is today. Martin Wolf, FT 12 April 2016 - Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken. Det skrev jag på min blogg första gången den 5 december 2009 . Nu skriver jag det igen.

I hate to say it, but I fear that we are in for a new round of euro zone troubles.

The Market Monetarist, Lars Christensen, 11 April 2016 I don't hate to say it.

It is very damaging that the idea has been allowed to take hold that central bankers cannot or should not do more.Sandbu Wren-Lewis

Simon Wren-Lewis has just asked the important question of whether their bad policies will erode central banks’ independence from political interference.  He identifies three major central bank mistakes:  their failure to see the crisis coming (which he rightly asserts that they were best placed to see);  their unwillingness to warn that they had run out of ammunition — hit the so-called “zero lower bound” on interest rates — so that fiscal policy should be used to stimulate economies instead (and ward off premature budget tightening);  and their unwillingness to stimulate growth more today.  If central banks repeatedly commit errors that cause so much harm to the economy, Wren-Lewis argues, it becomes hard to justify their independence from electoral politics to citizens. Central banks cannot escape the searchlights Martin Sandbu FT 11 April 2016 Can central banks make 3 major mistakes in a row and stay independent? Simon Wren-Lewis 10 April 2016 Asset price bu

Why Germany do not like Zero interest rates

In many countries like Sweden and UK people tend to like low or zero interest rates because they have invested heavily in housing with borrowed money. But in German most people rent their flats and have put their money in savings accounts or insurance. That is the background for an interesting article in Der Spiegel. - In hardly any other euro-zone country is the financial investment sector so dominated by savings accounts and insurance policies.  It is mostly life/retirement insurance policies that are suffering. Insurance providers have primarily invested their customers' money in sovereign bonds. But returns are extremely low, in part because of the massive ECB purchases of such bonds. The idea of pumping money directly into the economy, Draghi said, was a "very interesting concept," with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended.  German money being thrown out of a helicopter: It wo

Yellen, Volcker, Bernanke and Greenspan: No Bubbles, No Troubles

Janet Yellen  gave an optimistic assessment of America’s performance, dismissing suggestions put forward by Donald Trump among others that it was a “bubble” economy, When Mr Volcker was at one point asked if any of his successors had put too much “vodka in the punch bowl” by running excessively lax policy, he merely responded that he looked at them with “great awe”. Both Mr Bernanke and Mr Greenspan chimed in that they did not see a looming risk of recession. FT 8 April 2016  --- Donald Trump said in an interview that economic conditions are so perilous that the country is headed for a “very massive recession” and that “it’s a terrible time right now” to invest in the stock market, embracing a distinctly gloomy view of the economy that counters mainstream economic forecasts. The New York billionaire dismissed concern that his comments — which are exceedingly unusual, if not unprecedented, for a major party front-runner — could potentially affect financial markets. Trump U

The Fed 'is a god that has failed' Gilder

The Fed decides what money is worth and who receives it and how much.  The Fed prices it at zero interest rates, allegedly to stimulate economic growth. But whenever something is free, it's distributed by queue, and only the privileged, connected people in the front of the line get any, not the innovators who create growth and opportunity for Main Street.  Trump voters are wrong if they blame Mexico and China, but they are right about one big thing: The economy is rigged against them. George Gilder, author of "The Scandal of Money" CNBC  5 Apr 2016 "The Scandal of Money" Asset price bubbles and Central Bank Policy

Vice President Biden underscored the need for Europe to follow through on its commitment to put Greece's debt on a sustainable path through debt relief.

Office of the Vice President, April 04, 2016 “It’s not a demand of the federal government to have no debt haircut  but rather in our opinion this is legally not possible in the eurozone,”   Merkel said. Speaking after a six-hour meeting of eurozone finance ministers in Brussels, Christine Lagarde, the IMF managing director, said:  “I remain firmly of the view that Greece’s debt has become unsustainable and that Greece cannot restore debt sustainability solely through actions on its own.”   FT 14 August 2015

The good news is that the recovery continues. The not-so-good news is that the recovery remains too slow, too fragile, and risks to its durability are increasing. Lagarde

Frankfurt, Germany, April 5, 2016

For the first time since the Great Depression, the world is in a global liquidity trap. FT

The unintended consequence of many central banks pushing negative interest rate policy is conjuring deflationary headwinds, stronger currencies, and slower growth — the exact opposite of what struggling economies need.  But when monetary policy is the only game in town, negative rates are likely to beget even more negative rates, creating a perverse cycle with important implications for investors. Scott Minerd is global chief investment officer at Guggenheim FT 6 April 2016 Liquidity trap

Concerns that central banks are not powerful enough to generate a strong and sustained economic recovery

Investors poured money into haven asset as fears of fragile global growth intensified  FT 6 April 2016

John Kay Excellent new book by Mervyn King, The End of Alchemy, uncertainty

to quote Donald Rumsfeld, former US defence secretary: “ The things we do not know we do not know.” “By uncertain knowledge,” wrote Keynes in 1921, “I do not mean merely to distinguish what is known for certain from what is only probable. The sense in which I am using the term is that in which the prospect of a European war is uncertain . . . There is no scientific basis to form any calculable probability whatever. We simply do not know.” John Kay FT 5 April 2016 The End of Alchemy: Money, Banking, and the Future of the Global Economy Learn to say ‘I don’t know.’ If used when appropriate, it will be often.  Rumsfeld's Rules

Wikileaks IMF wants EU debt relief for Greece

IMF officials raised questions in a private discussion  published by WikiLeaks about what it would take to get Greece's creditors to agree to debt relief. CNBC/NYT 3 April 2016

– Vi vill bromsa skuldsättningen men utan att sätta krokben för bostadsmarknaden eller Sveriges ekonomi, säger Henrik Braconier, chefsekonom på FI.

Louise Andrén Meiton, SvD 2 april 2016 Det är väl det konststycket som de flesta av världens centralbankschefer försöker hitta på hur det skall gå till. Huspriser

2016: The End Of The Global Debt Super Cycle. ZeroHedge

The day after the 1987 crash (Oct. 20, 1987) Alan Greenspan, Chairman of the Fed, announced to the world that The Fed stood ready to provide whatever liquidity was needed by the banking system to prevent the crash from turning into a systemic financial crisis.  That was the day the Fed “put” was born. Fed Funds Rate drop from 6.5% to 1% from 2000 to 2003. This in effect morphed the tech stock bubble into a housing bubble.  Large investment banks, like Bear Stearns and Merrill Lynch, became insolvent and were forced to merge with better capitalized banks.  Lehman Bros. was allowed to fail and brought the global financial system to its knees. Full text