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Mervyn King's analysis of the “Great Stagnation”

Policymakers like to congratulate themselves on how they avoided the mistakes of the Great Depression during the Global Financial Crisis

We have not really addressed any of the fault lines at the heart of our economies and financial system. The low interest rate environment has given rise to a desperate search for yield, setting us up for renewed financial crisis.

Larry Summers resurrected the term “secular stagnation” six years ago

King’s big point is that there has been an intellectual failure at the heart of the policy response to low growth. We’ve seen it as just another Keynesian downturn, only worse, that can be treated using tried and tested, countercyclical fiscal and monetary means.

As so often with analysis of this sort, King is good at articulating what’s wrong with the global economy, not so good when it comes to solutions.

Jeremy Warner 22 October 2019

Secular Stagnation

Money, Banking and the Future of the Global Economy, by Mervyn King. 
Review by John Plender

Lord Mervyn King, former governor of the Bank of England. 
His book is called The End of Alchemy.


Four books on 1989 and its impact

1989. On June 4, the day when Poland’s patriotic trade union movement Solidarity swept to an overwhelming victory over the Communist party in semi-free elections

Tony Barber FT 17 October 2019

No. 303 (Polish) Fighter Squadron


Low interest rates fuel financial risk-taking, IMF warns

“Accommodative monetary policy is supporting the economy in the near-term, but easy financial conditions are encouraging financial risk-taking and are fuelling a further build-up of vulnerabilities in some sectors and countries,” the IMF said.

FT 16 October 2019

IMF fears the world's financial system is even more destructive than in 2008

We will have to be very creative if any of the IMF’s dark fears come true.

Ambrose Evans-Pritchard Telegraph 16 October 2019

IMF Global Financial Stability Report


In the end, then, Mr Tsipras morphed into the kind of leader Brussels wanted him to be.

A harrowingly detailed tale of incompetence and intransigence in the Greek debt crisis

The Last Bluff, by Viktoria Dendrinou and Eleni Varvitsioti

FT 14 October 2019


What the heck is happening in the Cayman Islands?

Almost 20 per cent of banks’ cross-border dollar funding is now supplied by entities based in the Cayman Islands

Gillian Tett 10 October 2019

Goldman Sachs alumnus Raoul Pal says the third biggest issue facing stocks involves the baby boomers, Americans born between the mid 1940s and mid 1960s.

They face an annual requirement to sell about 5% of their individual retirement accounts, loaded with stocks in some cases, as they reach 70.5 years old.

MarketWatch 10 October 2019

Babyboomgenerationen kan komma att hålla ned börskurserna i två decennier framåt. Det spås bli följden när en åldrande befolkning säljer sina aktieandelar för att finansiera pensionen.

Varningen kommer från Federal Reserve Bank of San Francisco

In theory, eurozone member states, being monetary sub-sovereigns, should perform the fiscal stabilization function.

But in practice, they do not, either because they are restricted by the quasi-constitutional rules of the EU’s “fiscal compact,” or because their vulnerable public-sector finances leave them constrained by debt markets. 

Hans-Helmut Kotz, a former member of the executive board of Deutsche Bundesbank, Project Syndicate 10 October 2019

There is a whiff of the Brezhnev era about the long cautious reign of Angela Merkel.

“If you compare us with southern Europe or Italy we look fantastic. Compared to the Nordics we don’t look so good at all,”said Marcel Fratzscher, president of the German Institute for Economic Research in Berlin (DIW) and author of The Germany Illusion.

Ambrose Evans-Pritchard Telegraph 9 October 2019



Why do economists continue to get it so wrong? Lucas

Five years before the financial meltdown of 2008, Robert Lucas famously declared that “the central problem of depression-prevention has been solved . . . and it has been for many decades”.

Lucas, whose Chicago School housed the high priesthood of mathiness, won a Nobel Prize for his rational expectations theory. It demonstrated that the market was always right.

“Policymakers at the start of 2019 seem to be just as out of touch with what is going on outside the big cities as they were as the great recession was nearing,” writes Blanchflower.

The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society, by Binyamin Appelbaum

Not Working: Where Have all the Good Jobs Gone?, by David Blanchflower

Capitalism, Alone: The Future of the System That Rules the World, by Branko Milanovic

Edward Luce FT 9 October 2019

Former ECB Chief Economist Peter Praet appealed for calm

The memorandum raised alarm over the longer-term impact of negative interest rates and

alleged the institution is financing governments with its bond-buying program -- a move that’s forbidden by European Union law.

Bloomberg 9 October 2019

Buying 30-year German debt at a sub-zero yield looks like an odd trade at the best of times.

If you expect the ECB to get anywhere near its target over the next three decades, it looks downright foolish.

FT 8 October 2019


The hardest job for the ECB’s incoming boss will be explaining to Germany why it should back monetary - and fiscal - stimulus.

In the 1990s, selling the Germans on the euro was hard. Even if they vaguely liked the idea of Europe’s “ever closer union,” they loved their D-Mark even more. That’s because they trusted Germany’s arch-conservative central bank.

As Jacques Delors, a Frenchman and former president of the European Commission, once put it: “Not all Germans believe in God, but they all believe in the Bundesbank.”

Bloomberg 8 October 2019

In Strasbourg on Dec. 9, 1989, after the Berlin Wall fell,
Germany agreed to monetary union in order to get President Mitterand to agree to German reunification

Central bank stimulus is distorting financial markets, BIS finds

the full consequences were unlikely to become clear until major central banks started to shrink their balance sheets.

FT 7 October 2019

BIS committees release two major reports on unconventional policy tools


Negative rates also destroy the stability of pension and insurance funds.

If negative rates cause the next crisis by distorting capital allocation and encouraging unmanageable levels of debt, central bankers will discover that the real danger is to them personally. 

The whole idea that they are politically independent good guys will come tumbling down.

Merryn Somerset Webb FT 4 October 

The writer is editor in chief of MoneyWeek


Former central bankers attack ECB’s monetary policy

“As former central bankers and as European citizens, we are witnessing the ECB’s ongoing crisis mode with growing concern,” said the memo that was signed by several German, Austrian, Dutch and French former central bankers including Jürgen Stark and Otmar Issing, who both worked as ECB chief economist.

FT 4 October 2019

The extraordinary salvo from six eminent European former central bank mandarins against the European Central Bank’s ultra-loose monetary policy earlier this month is too easily dismissed as the work of tired hawks protecting the interests of rich northern Europeans.

John Plender 15 October 2019


Costa-Gavras film fails to thrill Greeks angry with Varoufakis

‘Adults in the Room’ is a rare attempt to make artistic sense of the financial crisis

FT 4 October 2019


The greater fool theory is at work in the bond market

Both sovereign and corporate borrowers are raising money at negative rates of interest. 

Buy on the assumption that the central banks will play the role of the greater fool through their asset purchasing programmes, thereby providing a profitable exit from a profoundly unattractive investment.

John Plender FT  30 September 2019


Svag krona? Stark dollar.

The primacy of fiscal policy is the new global orthodoxy in a deflationary world

The primacy of fiscal policy is the new global orthodoxy in a deflationary world where $17 trillion of debt is trading at negative yields and central banks are deemed – rightly or wrongly – to be exhausted.

The canonical case was spelled out in Olivier Blanchard’s prize lecture to the American Economic Association earlier this year.

“Put bluntly, public debt may have no fiscal cost,” he concluded.

Rarely has an academic paper of this kind gone viral so instantly

Ambrose Evans-Pritchard Telegraph Newsletter 1 October 2019

Central banks push for action on Europe’s rising house prices

Frustration at governments’ reluctance to introduce mortgage safeguards

FT 1 October 2019