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http://www.biggles.info/ Biggles Home Page at IntCom,Internetional Communications The logic of constructing an entire financial order around one arbitrary variable such as inflation was never compelling.  This technocrat urge to fine-tune prices is a radical departure from their historic role of central banks: to ensure financial stability and act as a lender-of-last resort in a crisis.  Ambrose 1 November 2017 Riksbankens mål om 2,0 procents inflation tillkom i all hast för litet mer än 20 år sedan Inflationsmålet skulle inte ha funnits där, om Sverige hade klarat att hålla fast växelkurs.  Johan Schück, DN 2015-05-08 https://englundmacro.blogspot.com/2017/11/ambrose-wolf-och-johan-schuck-om.html När man ställs inför livets svåra frågor bör man ställa sig frågan: Vad hade Biggles gjort? Så även inom nationalekonomin. De flesta Biggles-böcker börjar ungefär så här: Flygbåtens motorer brummade entonigt och Biggles lät blicken glida över instrumentbrädan.  Han kollade ...

 ”Både konjunkturen och inflationen pekar tydligt på att vi ska sänka räntan”, säger Anna Hammer, investeringschef på Länsförsäkringar.  ”Det enda orosmolnet är kronan, men den går inte att använda som ett enskilt argument för att låta bli. Vi behöver inte vänta in andra centralbanker”, säger hon. SEB:s seniora ekonom Robert Bergqvist håller med. Kronsvagheten är mer dollarstyrka än kronsvaghet. Den står absolut inte i vägen för en räntesänkning. ”Om inflationen är 2 procent är det inte logiskt att ha en styrränta på 4 procent.” Viktor Munkhammar DI 5 maj 2024 https://www.di.se/nyheter/skuggdirektionen-splittrad-om-rantesankning/ Riksbanken sänker räntan på onsdag. Det tror i fall de svenska storbankerna.  Knäckfrågan är om Riksbanken vågar få före Federal Reserve och ECB – och vad som i så fall händer med den svenska kronan. ”Det troligaste är att det blir en sänkning och det som talar för är i första hand svenska förhållanden. Svensk inflation har kommit ned närmare mål...

Mervyn King having run the Bank of England from 2003 to 2013,  says the Bank’s Monetary Policy Committee has more recently been plagued by “group-think” “It is troubling,” he told fellow peers. “There were no dissenting voices to challenge the view inflation was transitory.” A “lack of intellectual diversity” on the MPC, he argued, led to a failure to challenge consensus. So UK interest rates were kept ultra-low – allowing inflationary expectations to build further. And by the time the MPC did finally start raising rates, in December 2021, annual inflation was already dangerously high at 5.4pc – approaching three times the official target.  after 2009, when the Bank started its QE money-printing programme in the wake of the global financial crisis, the Treasury-dominated appointments procedure has effectively blocked any monetarist economists from the MPC. That’s because monetarists have been warning for a long time that QE would ultimately cause inflation. During 2020 and 202...

Tighter money still isn’t slowing the US economy because: Money supply is growing Companies are paying less in interest thanks to cheap fixed rates Disinflation is stimulating the economy. US house prices survived 8% mortgage rates, so less pressure for lower fed funds rates The dramatic rise in interest rates engineered by the Federal Reserve has, to date, had little discernible impact on economic growth or employment. Working out just why this has happened now becomes critical both for the Fed and investors as they try to navigate a course through the post-Covid world. Tim Congdon, a former adviser to Margaret Thatcher and now head of the Institute of International Monetary Research, points out that by M3, December saw an increase of almost 0.6% (an annualized rate of 7.2%). His suggestion is that the federal government is funding its deficit by borrowing from banks, which has the effect of increasing money in circulation. Another issue is that the Fed’s long wait created far too gen...

  The graph, which I have created with a little help from data from the Federal Reserve St. Louis' FRED database, and which I have processed through ChatGPT 4.0, illustrates what has happened. In 2020-21, the USA implemented massive monetary and fiscal policy easing. Basically, the American government sent money directly to every citizen. These funds were financed by the government issuing treasury bonds, which the Federal Reserve purchased with newly printed American dollars. This money circulated in the American economy. The money supply consists of two parts: physical notes and coins in circulation and deposits in banks. The graph below shows the total deposits in the banks - adjusted for inflation. Lars Christensen The Market Monetarist 19 January 2024 https://marketmonetarist.com/2024/01/19/why-soaring-rates-have-failed-to-kill-us-growth/ Very good. But this might have someting to do with it. Institutions and investors together have a record $5.7 trillion parked in cash-like m...

The story so far: Despite an aggressive tightening campaign by the Federal Reserve, US consumption continues startlingly robust. That is the main reason why US growth has been stronger than forecast this year.  Virtually everyone agrees that the explanation lies in the extraordinary stimulus payments paid out during the pandemic. That left consumers with money in their pockets, meaning that higher interest rates had less effect than they usually might. While consumers had so much extra cash, consumption could continue. How much do they have left? Not much, the San Francisco Fed suggested. I’ve taken the following numbers from a note by the Morgan Stanley economics team called “The Swift, Beyoncé, and Barbenheimer Effect.”  During the third quarter, Swift’s “Eras” tour had 15 concerts, with average stadium capacity of 54,000 people. The average spend per attendee was $1,500, (Repeat: Each person paid $1500 to go to a concert, my emphasis added) including tickets, hotels, flight...

 They’re equally spendable and freely convertible from one form to the other. But the paper bill in your hand is an obligation of the federal government, while the electronic entry is an I.O.U. from your bank.  Their interchangeability at a rate of one to one is not a fact of nature but a social construct.  Now think about how money is created. Banks don’t need to wait for more deposits to arrive to make fresh loans. You go to your bank for a loan. The bank says OK. It goes into its computer and marks up your checking account by whatever amount you borrowed. Presto — new money. You owe it to the bank, and the bank owes it to you. The government’s money used to be backed by real stuff like gold and silver. Now, as we know, paper money is backed by nothing more than fiat Paul Sheard a new book.  titled “The Power of Money: How Governments and Banks Create Money and Help Us All Prosper.” Sheard is worth listening to on this topic. I have followed his work since before 2...

 ... for bowing to pressure from inflation headbangers and joining the grotesquely-mistimed monetary stampede. Having stoked an inflationary storm by monetising the post-pandemic recovery with zero rates and extra lacings of QE, it is now committing the opposite error at the worst moment in the cycle by over-tightening into a deepening global downturn. You don’t have to be a monetarist to see danger in the precipitous contraction of all key measures of the money supply over recent months, even adjusting for the legacy stock of pandemic savings. The key aggregates never came close to turning negative in this way during the 1970s. The Bank of England and its acolytes have a bad habit of misrepresenting what serious monetarists actually say. It propagates strawman arguments based on a pidgin caricature of the quantity theory of money – an approach best expounded by Keynes (yes, Keynes) in his Tract on Monetary Reform. Ambrose Evans-Pritchard Telegraph 22 June 2023 https://www.telegrap...

 Now scientists and economists are worried about another knock-on effect: faster inflation. On this episode of Stephanomics, we hear from reporter Laura Curtis, who explains how drought has lowered the water level of a lake feeding the Panama Canal, which could in turn boost shipping costs.  Molly Smith and Stephanie FlandersBloomberg 22 juni 2023  https://www.bloomberg.com/news/articles/2023-06-22/podcast-climate-change-is-driving-global-inflation-even-higher Comment by Rolf Englund: They should know that all price risis is not inflation. Inflation is when prices and wages are risinng together.

 Apollo Global Management chief economist Torsten Slok, shows the close relationship  Here, Fed QE is defined as the Fed’s total assets minus the balance of the Treasury General Account as well as the temporary cash added or drained through overnight reverse repos. “With the Fed turning more hawkish and continuing QT [quantitative tightening], the downside risks to equities are growing,” he said. It should, of course, be noted that dual Y charts are inherently misleading, since the magnitude can be altered just by playing with the axes. That said, the idea that liquidity is a key driver of financial asset performance is widely shared. One of the concerns coming out of the debt-ceiling impasse was the impact of delayed Treasury bill issuanc Steve Goldstein MarketWatch 19 June 2023 https://www.marketwatch.com/story/this-incredible-chart-shows-the-close-relationship-between-the-s-p-500-and-fed-liquidity-166542a7

 Six books that tell the history of money The Economist 8 May 2023 https://www.economist.com/the-economist-reads/2023/05/08/six-books-that-tell-the-history-of-money

 When a bank lends, it creates new liquidity for the borrower, accepting in return an illiquid asset such as real estate or an intangible asset such as a credit score. This process of making illiquid things liquid is what we mean when we say “banks create deposits when they lend”. The deposit created as a result of lending is real money as far as the borrower is concerned: it can be drawn in the form of banknotes, transferred to another account, or paid out in return for goods and services. It is indistinguishable from money the borrower deposits in their account. But as far as the bank is concerned, deposits are merely an accounting record, not a means of settlement. Banks create deposits, but they can’t create the liquidity needed to enable those deposits to be drawn.  So when a bank whose liabilities consist mainly of deposits withdrawable on demand suffers a bank run, it can literally run out of money. Its ability to “create money” doesn’t help it. It can’t bootstrap its o...

 FANGs eight companies — Apple Inc., Amazon.com Inc., Alphabet Inc., Meta, Microsoft Corp., Netflix Inc., Nvidia Corp. and Tesla Inc. — have accounted for all the S&P 500’s growth this year.  The other 492 stocks are down slightly Credit Suisse Group AG, for all its difficulties in recent years, remains a far more important institution for the rest of the world than Lehman Brothers was back in 2008. And yet its forced fire sale to rival UBS Group AG seems to have satisfied everyone that the problem is over. UBS’s share price has wavered widely in the last month, but its direction is plainly upward Across the system as a whole, deposits are declining, although the total cash piles being kept on deposit still appear to be larger than they would have been had they merely continued to grow in line with the pre-pandemic trend Arguably the most worrying element of the First Republic imbroglio is that a big coordinated effort was made a month ago to avert such a scenario, and it ...

It is therefore not surprising that bank problems are now arising. It is a completely natural consequence of the massive monetary tightening. Given the insane expansion of the money supply in 2020-21, there was no way around tightening monetary policy. It is now quite clear that the Fed has overdone it. It is therefore now very difficult to see how a recession in the US can be  avoided. The damage has been done.   The Market Monetarist 29 March 2023 https://marketmonetarist.com/2023/03/29/from-excessively-easy-to-excessive-tight-us-monetary-policy/

The depositors fleeing Silicon Valley Bank (svb) did not ask for notes and coins. They wanted their balances wired elsewhere.  Nor were deposits written off when the bank went under. Instead, regulators promised to make svb’s clients whole.  Although the failure of the institution was bad news for shareholders, it should not have reduced the aggregate amount of deposits in the banking system. The odd thing is that deposits in American banks are nevertheless falling.  Over the past year those in commercial banks have sunk by half a trillion dollars, a fall of nearly 3%. This makes the financial system more fragile, since banks must shrink to repay their deposits.  Where is the money going? The answer begins with money-market funds, low-risk investment vehicles that park money in short-term government and corporate debt.  Such funds saw inflows of $121bn last week as svb failed. Yet there is one new way in which money-market funds may suck deposits from the bankin...

 Credit is available at rates that imply no particular risk of default, and very little risk of recession.   In both the euro zone and the US, high-yield bonds are looking misnamed. After a brief and sharp rise last year, their spreads over equivalent five-year government bonds are right back to a level that suggests all is quiet The parallels with the GFC, which began in 2007 as credit markets that had long been absurdly overvaluing corporate and mortgage-backed credit began to crack, are obvious.  Credit market might just conceivably have it right. Memories of the GFC are still fresh. People keep making the same mistakes, but it’s rare to repeat a mistake quite this big quite this quickly.  It’s hard to deny that the massive expansion in the money supply changes things. It’s arguably the key factor in causing inflation to ignite again; but it also helps to explain why there is so little financial distress.  How has Italy managed to survive the biggest ene...

Jag har alltid föreställt mig att M är som skatten som finns på Skattkammarön. När du öppnar skattkistan hittar du mynt överst och familjens silver längst ner. Den dominerande mängden finns i ditt eget hus. Marknadspriset på hus har stigit mycket. Om bankerna ställer upp kan många av oss höja lånet  och Spend, Spend, Spend. Beloppen är svindlande. Att känna till M hjälper inte mycket för att förutsäga P eller Q, eftersom V är mycket variabel Människors vilja att låna och finansiella institutioners vilja att låna ut spelar också roll. Pengarnas cirkulation – dess hastighet – beror på handlingar från ett stort antal finansiella mellanhänder och deras kunder, av vilka bankerna bara är en liten del. Bill Dudley Bloomberg 28 februari 2023 Det totala värdet av amerikanska bostäder nådde en topp på 47,7 biljoner dollar i juni 2022. Minskade med 2,3 biljoner dollar, eller 4,9 %, under andra halvåret 2022. Medianpriset för bostäder nästan tredubblades under de senaste 22 åren  Marknade...

I have always imagined that M is like the treasure found on Treasure Island. When you open the box you find coins at the top and the family silver at the bottom. The dominant amount is found in your own house. The market price of houses has risen a lot. Banks willing many of us can take out a  second mortgate and Spend, Spend, Spend. The amounts are staggering. Other staggering amounnt of more liquid types can be found on the stock market. Knowing M doesn’t help much in predicting P or Q, because V is highly variable People’s willingness to borrow, and financial institutions’ willingness to lend, matters as well.  The circulation of money — its velocity — depends on the actions of a vast array of financial intermediaries and their customers, of which banks are only a small part. Bill Dudley Bloomberg 28 februari 2023 The total value of US homes peaking at $47.7 trillion in June 2022. Declined by $2.3 trillion, or 4.9%, in the second half of 2022.  Bloomberg 22 februari 20...

 People’s willingness to borrow, and financial institutions’ willingness to lend, matters as well.  The circulation of money — its velocity — depends on the actions of a vast array of financial intermediaries and their customers, of which banks are only a small part. The Fed has targeted money supply only once, during Paul Volcker’s battle with inflation from 1979 to 1982. Even then, the motivation was primarily political: The imperative of slowing money-supply growth provided cover for Volcker to push interest rates up to previously unfathomable levels. Once inflation was defeated, the Fed quickly discarded money supply as a target. What really matters is the level of short-term interest rates (how high for how long), their impact on financial conditions and how this influences people’s willingness to borrow and spend. Bill Dudley Bloomberg 28 februari 2023 https://www.bloomberg.com/opinion/articles/2023-02-28/money-supply-doesn-t-explain-us-inflation

När man ställs inför livets svåra frågor bör man ställa sig frågan: Vad hade Biggles gjort? Så även inom nationalekonomin. De flesta Biggles-böcker börjar ungefär så här: Flygbåtens motorer brummade entonigt och Biggles lät blicken glida över instrumentbrädan. Han kollade inte bara  kompassen utan även höjdmätaren.  Annars kunde det gå illa. Därutöver kollade han även bensinmätaren, detta eftersom det, även om både riktning och höjd varit rätt, hade gått riktigt illa om bensinen tagit slut. Självklart? Javisst, men många av våra vanligaste ekonomer och politiker förefaller bara kunna ha en tanke i huvudet åt gången. - Växelkursen skall vara fast. - Inflationen skall vara två procent. - Budgeten skall visa överskott. Det har inte gått så bra. Låt oss nu bli lite mer komplicerade, om än fortfarande på ett enkelt sätt. Detaljerna kan säkert Klas Eklund och de duktiga tjänstemännen på finansdepartementet och Konjunkturinstitutet räkna ut.             ...