Englund

  Of course, the merits of independent central banking can be overstated.  Central bankers have credited themselves with delivering sustained low inflation in the 1990s and 2000s — the Great Moderation — when in reality stable prices were largely the product of a global labour market shock.  This resulted from the incorporation of China and other developing countries into the world economy. The ability to carry out monetary policy insulated from governmental pressure is clearly valuable.  The logic is that elected governments have an incentive to lower unemployment in the short run at the expense of longer run impacts on inflation and growth. They also have an incentive, when heavily indebted, to rely on inflation to reduce the real value of debt obligations. US economy will confront big supply shocks coinciding with expansionary fiscal policy. John Plender Financial Times 29 November 2024 https://www.ft.com/content/3963b783-00da-44df-a45b-39b54b9f7c78 The Great Mode...

The widespread adoption of 2 per cent inflation targets has been, at best, a mixed blessing. Conventional economic wisdom tells us that monetary policy has no lasting effects on the real economy.  This simply does not square with what has happened in the era of financial deregulation which has been marked by repeated, ever   William White, former economic adviser at the Bank for International Settlements, points out https://www.ineteconomics.org/uploads/papers/WP_210-White-Monetary-Policy.pdf that the first three of the four interest cycles we have seen since the late 1980s — ending in 1990, 2001, 2008 and 2020 — finished with a financial crisis What we know for sure is that ultra-low interest rates after the 2007-09 financial crisis were morally hazardous, encouraging a huge increase in borrowing.  Global debt rose from 280 per cent as a percentage of GDP in 2008 to nearly 360 per cent in 2021.   Excessive monetary easing has had other unintended consequen...

and risk-free investments, relative to supposedly riskier equities. Take the US treasury market, regarded as the safest bolt hole on the planet.  But the return on US treasuries in 2022 was minus 17.8 per cent compared with minus 18.0 per cent on stocks in the S&P 500 index. Fractionally safer, then, to the point of meaninglessness. FDIC estimates that unrealised losses on American banks’ securities amounted to $515.5bn at the end of March, equivalent to 23 per cent of the banks’ capital. John Plender Financial Times 11 August 2023 https://www.ft.com/content/91f39150-9abe-4257-8d52-17520d35e534

 and more especially the big index constituents. It is a momentum or trend following strategy that helps ensure that prices are a poor reflection of fundamental value while reinforcing any tendency to market bubbles as fresh money pours in. We are a long way from a world in which stock prices reflect fundamentals, where people invest to generate a straightforward income to pay a pension or where investors routinely try to buy low and sell high.  Meantime, the goal of market efficiency appears painfully elusive. John Plender Ft 11 June 2022 Market mispricing of risk will continue | Financial Times (ft.com)

 Years of overblown asset prices and mispricing of risk may be giving way to more normal conditions Since the turn of the year the rules of the game in markets have been dramatically upended. Gone are those notorious acronyms Fomo (fear of missing out), Tina (there is no alternative to higher risk equities and credit) and BTD (buy the dip). The big question is whether this all marks the end of asymmetric monetary policy, whereby central banks have repeatedly put a safety net under collapsing markets while declining to curb irrational exuberance.  It is important to note that the real policy interest rate remains negative.  Global non-financial corporate debt rose to $86.6tn. This sum suggests a greater than usual corporate sensitivity to interest rate increases and a serious vulnerability. John Plender FT 7 May 2022 https://www.ft.com/content/24aeec82-b856-45f0-a8a8-f18fdad41882

John Plender is a Financial Times columnist. He has written for the FT since 1981, before which he was financial editor of The Economist.  John Plender | Financial Times (ft.com)

The nearest the world has come to one was a British gilt-edged security during the gold standard era.  But then in the 20th century Britain abandoned the gold standard, demonstrating that super-safety in gilts was illusory. Before the financial crisis, these global creditors also invested in supposedly safe private assets, namely triple-A rated mortgage-backed securities. Their claim to safety was blown in the credit crunch of 2007.  Richard Nixon, then president, break the dollar’s link with gold — a de facto sovereign default. John Plender FT 18 april 2022 https://www.ft.com/content/0603172c-7eae-4e18-ad80-a21b3559f18d Englands beslut att lämna guldmyntfoten 1931 framkallades av att det rådde myteri inom Royal Navy, ett myteri framkallat av de lönesänkningar som regeringen beslutat om. https://englundmacro.blogspot.com/2013/10/hur-det-kom-sig-att-england-overgav.html On August 15, 1971, US President Richard Nixon announced in a televised address that he was “closing the gold...

 ...explores the rise of the sovereign debt market all the way from the Italian city states to the multitrillion global government debt overhang of the 21st century. In addition it offers a debt management primer rooted in historical experience. Why, you might ask, does public debt need to be defended? One reason is that austere moralists dislike debt and fear the burden it might impose on future generations.  Some economists argued that fiscal retrenchment would be expansionary in the eurozone crisis because it would bolster confidence, although a 2011 IMF study poured cold water on this view. More thoughts would have been welcome, too, on the existence or otherwise of a debt trap whereby monetary tightening might now beget a perpetual cycle of financial instability, involving frequent returns to morally hazardous ultra-low interest rates. John Plender FT 7 February 2022 https://www.ft.com/content/731d5674-bb3c-422d-8982-f8e392d4d5a4 In Defense of Public Debt by Barry Eicheng...

 (obdurate: stubbornly persistent in wrongdoing) In the case of 10-year TIPS yields for the U.S., they have managed to fall once again below the once-inconceivable minus-1% level. Yields like that are not supposed to happen, and certainly not when the economy is growing and people are worried about inflation.  Biden’s political difficulties have multiplied with startling speed.  That leads to the risk that it waits too long to raise rates, allows inflation to take hold, and has to raise rates more in consequence. That is the kind of miserable prospect that might make it sensible to accept a negative real yield.  Can I summarize all of this neatly? No, not really. A few decades from now, it will be obvious what was going on as the world tried to emerge from the pandemic. At present, all that is clear is that things are changing profoundly. Q: What’s the difference between a Bond and a bond trader? A: A Bond matures. James Bond has a license to kill, so does the long b...

The threat of global contagion from the troubled Chinese property developer Evergrande is far from negligible. For good measure the ebb and flow of news on the pandemic continues to be alarmingly unpredictable. And then there is the renewed threat of stagflation. Power outages, supply chain disruption, shortages in the shops, soaring energy prices, labour shortages, accumulating debt — the bad news piles up. The difficulty amid all these uncertainties is to understand precisely where we are in a cycle that has been hijacked by Covid-19... What is confusing now is that inflationary pressure is arising much earlier than usual in an upturn. John Plender FT 7 October 2021 https://www.ft.com/content/eb8ea1ed-ddb1-4265-a1e7-ef01bb8faf52

until such companies achieve profitability (or not as the case may be). And the structure of capital markets generally is dictated increasingly by ultra-loose monetary policy.  In effect they outsourced liquidity management to the central bank with liquidity risk ultimately falling on the taxpayer. Under the rules of the Basel Committee on Banking Supervision, liquidity has since been rebuilt John Plender FT 12 July 2021 https://www.ft.com/content/fb3cddae-daca-4f4f-b0b7-aa58656041a0

Yet Druckenmiller’s views on currencies should not be cavalierly dismissed.  This is the man, after all, who with George Soros “broke” the Bank of England when he made a hugely profitable bet back in 1992 on sterling leaving the European exchange rate mechanism. The question then is are there circumstances in which what still amounts to dollar dominance suddenly could turn into a dollar rout? John Plender FT 25 May 2021 https://www.ft.com/content/408d4065-f66d-4368-9095-c6a8743b0d01 Kronkursförsvaret 1992 https://internetional.se/iccab92.htm Former chancellor Norman Lamont speaks out, 25 years after the UK crashed out of the ERM He predicted Brexit as far back as the 1990s because he was alarmed at talk of a single currency and political union. ‘My friends said it was just rhetoric, but I realised there was a significant element among European countries that were deadly serious about creating a state called Europe. I personally find that not something I want to live in. ‘I don’t be...

lies in the loose monetary policy that has delivered ultra-low policy interest rates and contributed to low nominal bond yields, which remain in historically unprecedented territory even after the recent upward adjustment. Investors search for more yield regardless of risk, and everyone — households, companies and governments — borrows to excess while debt servicing costs are minimal. The result is an explosive growth in debt. John Plender 15 April 2021 https://www.ft.com/content/edcaecb2-5f83-4909-9d96-cb4daa0f0401 Jeremy Grantham https://englundmacro.blogspot.com/2020/06/stock-market-legend-who-called-3.html

Because policy rates cannot be raised to address any looming inflationary threat without inflicting serious financial instability along with economic recession, or worse. John Plender FT 28 March 2021 https://www.ft.com/content/1fdf201b-ed47-4e1a-b5ff-098310db8bc2

Central banks’ ultra-loose monetary policies encourage business to invest in suboptimal projects. Creative destruction, the mainspring of capitalist dynamism, has been anaesthetised. Also worrying is the potential for a repeat of the Long-Term Capital Management hedge fund’s near-collapse and bail out in 1998. No doubt most investors assume the Federal Reserve will come to the rescue if an ailing hedge fund looks too big and too interconnected to fail.  But therein lies much of the explanation for all those Alice in Wonderland valuations. John Plender FT 1 February 2021 https://www.ft.com/content/ba875bce-0c7f-47f8-8c3f-5b98bd0b0b9b

where investors relying on interest income would struggle to survive as rates fall.  In today’s world of low and negative interest rates we are witnessing both the euthanasia of the rentier and of the bond vigilante. This accumulation of debt appears to have a diminishing ability to generate growth.  This is worrying because the complementary monetary policy toolbox is close to bare.  John Plender FT 28 November 2020 https://www.ft.com/content/784460c2-b12c-4269-be5c-11ffc9b80626

Financial bubbles are a perennially fascinating phenomenon. Some modern economists, notably of the Chicago variety, deny their very existence, arguing that investors are rational and markets are efficient in the sense that prices accurately reflect all known, relevant information.  Others offer refined versions of the irrationality thesis advanced by Charles Mackay in 1841 in his celebrated book Extraordinary Popular Delusions and the Madness of Crowds. John Plender FT 4  November  2020 https://www.ft.com/content/5a8f46bb-c0c4-4ede-bdfd-1e04145da2cf https://www.internetional.se/shares.htm#tulip05

It is hard to believe that government bonds yielding little or nothing are not a hostage to fortune when central banks are working overtime to generate higher inflation.  John Plender FT 3 September 2020

 Real estate sector is a victim of the virus, debt and technological change The Bank for International Settlements, the central bankers’ bank, calculates that in the US, UK, continental Europe and Japan the Covid-19 shock has wiped out Reits’ cumulative valuation gains of the past five years.  John Plender 21 August 2020 https://www.ft.com/content/aaf192ac-dc94-4509-8f24-5831a32e7aa2

 If it is unfathomable that anybody would manage so badly as to lose more than $50bn as he suggests Merrill Lynch did in 2008, then what is the explanation?  His answer is that the fault lay in “absent management” compounded by flawed incentive structures. John Plender 17 August 2020