Helicopter money won’t work in Japan, says Nomura’s Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it.
Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong.
Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It’s one of four ways he thinks helicopter money policy could be implemented — since the real challenge with helicopter money is how it would be distributed, and to whom. Read more
Where helicopter money = central bank monetary financing, and the constraints are lower than commonly conceived.
From Deutsche. Click to enlarge:
From BofAML’s FX strategist Athanasios Vamvakidis, do click to enlarge:
By Morgan Stanley, do obviously click to enlarge:
So charted by Citi.
As they say, the coolness of global inflation is not just an energy price story:
In the event of a new downturn please press the giant red button. To do so please break through the glass emblazoned with the words “political reality”.
What to do if the world turns sour is, of course, a fair question. And one that Andy Haldane recently tackled while discussing 5000 years of dread, the record low interest rates and stretched central bank balance sheets, we are currently seeing.
Citi are starting to point to a new global recession too, triggered by EM and a stumbling China. We’re not sure we buy that just yet but here’s Citi’s Englander with what he think is coming down the policy path in response, with our emphasis:
We now think that the move to central banks endorsing fiscal policy and essentially monetizing the added spending will be relatively quick and direct, in the event of a sudden slump in the global activity.
And here’s that paragraph, from JPM’s Niko Panigirtzoglou and team, with our emphasis:
- First, we disagree with the description that FX reserve depletion is QE in reverse. This is because the FX reserve depletion that is happening currently is not an exogenous policy action but represents a policy reaction to capital flows out of EM. But the capital that leaves EM does not disappear from the financial system. In fact, the capital that flows out of EM could find its way back into DM bonds. For example three major manifestations of capital flowing out of EM are 1) the reduction of dollar denominated debt previously issued by EM corporates, 2) the accumulation of dollar deposits by domestic EM corporates or other entities who try to protect themselves against further dollar appreciation, and 3) the withdrawal of EM currency (e.g. Renminbi deposits) by foreign investors who in turn convert them back into dollar deposits.
This is a snapshot of the Peruvian economy’s growing dependency on central bank intervention by way of BNP Paribas on Tuesday,
Did you know there’s something called the Eijffinger-Geraats central bank transparency index?
There is one. It’s in the Warsh Review. On Thursday, the Bank of England accepted the review’s recommendations in favour of more open central banking. So, it decided to release minutes of meetings alongside policy decisions as they come out, to release transcripts of those meetings eight years later — and to hold fewer meetings a year from 2016 (8 versus 12). Read more
Take another 100bp puny market!
Oh… Read more
Nonsense is a rude word. But there isn’t a milder way of describing the Bank of England’s estimates of UK labour market slack.
For three inflation reports in a row, the BoE has published a chart (below) showing its model of labour market slack with accompanying text highlighting its great importance in the monetary policy decision. “One of the key determinants of inflationary pressures in the economy is spare capacity or slack – that is the balance between demand and supply,” the November inflation report states. Read more
… are doomed to repeat it.
Or you could say, “have we learned nothing from the crisis?!”
That at least is the assessment of HSBC’s Stephen King regarding the current nuttiness of the market. He joins the growing ranks of concerned types who worry that it’s only a matter of time before the house of cards we are building collapses, especially given that we’re now at beyond 2008 levels on almost all fronts (apart from, you know, things like jobs).
Which brings King in his latest note to question the soundness of inflation targeting in and of itself. He claims instead that it’s the stability of inflation targeting which may be causing the instability:
In a similar fashion, the pursuit of price stability more recently appears to have given way to financial instability. Propagandists for the Great Moderation were inadvertently sowing the seeds for its eventual downfall.
Look, no minus signs.
Which means an experiment has ended in Denmark, for now. The CD rate rose 0.15 per cent on Thursday.
From the central bank… Read more
George Magnus, former chief economist at UBS, writing in a private capacity on his blog, says central banks can’t do much more to support the economy and it’s time to stop obsessing about their every policy manoeuvre because it’s counterproductive.
In his opinion, the economy’s future health lies in structural adjustments which can only be implemented and organised by government. The burden of responsibility, meanwhile, has only been placed on central banks because of bad politics, which have prevented necessary fiscal and structural action being taken. The sooner we realise this, the sooner we can make progress. In the meantime, he says, it’s best for central banks to remain reassuringly vague so as to put the onus on progressive government action and step out of government’s way. Read more
In the last few weeks the “Is QE deflationary?” debate has fused with the “What’s the natural rate of interest anyway?” and the “Is it really all about the risk premium?” conversation.
Many important insights have been offered by a whole host of people. A notable development, however, came in the shape of Tyler Cowen’s post on negative T-bill returns in which he considered the phenomenon of T-bill “entrance fees” during a zero-rate climate and how this can take returns for many investors into negative nominal territory, while providing advantages to those with access to “special technologies’” even when official rates are very mildly positive. Read more
Which part of future Fed tightening “is now completely up in the air”?
The answer (according to Societe Generale) is in the useful table below… click to enlarge: Read more
The ECB, BOE and Fed all meet this week, though expectations vary about what will emerge from each:
– The Fed: The FOMC seems unlikely to announce anything major regarding its possible tapering strategy until September, though as always its post-meeting statement will be scrutinised for changes regarding the committee’s outlook for the economy. Some private sector strategists think the Fed could introduce a tapering schedule as soon as this week’s meeting without actually beginning to taper. But given the obviously unanticipated and unwelcome market reaction to Bernanke’s comments about tapering in the latest meeting, we doubt it. If anything, the minutes to this meeting will probably be more interesting than the statement itself. Then again, the FOMC has surprised us before, so we could turn out to be wrong. Read more
Ostensibly, this is Governor Mervyn King and Governor Zhou Xiaochuan celebrating the RMB 200bn currency swap announced between their two central banks this weekend.
The voices arguing that digital e-money should be added to the central bank/government toolkit are not only rising in number, they’re getting louder as well.
Among the first to argue the point, of course, was Willem Buiter back in 2009, before he took up the position of chief economist at Citi. But there’s also been a strong patter of support from advocates such as Mobino’s Jean-Francois Groff and Slate’s Matt Yglesias (to name a few). Read more
Back in July, 2012 the Danish central bank, Nationalbanken, lowered the deposit rate to -0.2 per cent. Back then we wrote that it was going to be costly for the banks, and that money market rates were going deeper into negative territory. With Draghi’s comments last week, how did that whole negative deposit rate action turn out for Denmark?
Nordea had a note out last week on that very subject. Now, before we move, let’s remember that Danish monetary policy is tailored around the FX peg. The deposit rate was there to assure outflow because of mounting pressure on the EUR/DKK pair. Read more
Liquidity and credit are not always best friends — Funding for Lending in the UK and the LTROs spring to mind. However, blaming liquidity alone for the lack of credit out there is obviously [expletives removed].
For one, banks can’t lend if they can’t find borrowers — although it might be unfair to blame borrowers who are seeing unappealing terms — and for two, central banks have poured a fair amount of liquidity out there with more available on tap.
There’s been some thought-provoking revisionism floating around about Cyprus lately.
The gist seems to be this: Why not push bank bail-in policy in the eurozone much harder, right into uninsured depositors if need be, if Cyprus has not (yet?) budged most gauges of bank funding from their current calm. And more importantly, when there is a vicious circle to resolve. Read more
Here follows a thoughtful commentary on the changes going on in gold market from BNY Mellon’s Neil Mellor, including the point that central bank purchases are in many ways helping to stabilise what might otherwise be a much more substantial slump.
Our emphasis throughout… Read more
Anyone who bought gold in 2008 is probably more than tempted to cash in their profits right about now.
Reflecting the scale of the change in sentiment — and confirming that there was indeed something of a choke level for gold at around the $1,908 mark — is the following chart from Macro Risk Advisors which neatly sums up the degree to which investors have been liquidating gold ETF positions. Read more
Okay. Negative interest rates have now gone fully mainstream in the UK thanks to this week’s testimony by Bank of England deputy governor Paul Tucker.
Even the Daily Mail is writing about it.
But a number of major misunderstandings are popping up as a result. So let us try to clear some of them up. Read more
This alarming gilt fact is brought to you by Bank of America Merril Lynch and it underlines one of the main fears many people raised about the QE surplus “raid” staged by the Her Majesty’s Treasury on the Bank of England last year.
From BofAML’s John Wraith (our emphasis):
As a result of the dramatic spike higher in yields that occurred over the first week or so of the New Year, the mark-to-market value of the BoE’s portfolio of Gilts acquired through QE over the past four years dropped by more than £7bn. This exceeds the largest decline in the portfolio’s value in any full month since QE began by more than £1.5bn, emphasizing both the extent of the rise in yields, and also the very large size the BoE’s holdings have reached (£326.7bn in nominal terms, with a basis point value of about £360m).
Remember the whipsawing days of 2008? The days when commodity prices couldn’t get crazier?
Nowadays, the idea of not having an independent central bank is seen as being a bit backward. One could even say that central bank independence is widely accepted as the optimum set-up for any country’s monetary system, a reflection of its developmental status.
“Independent central bank? Check.”
“This country must be civilised. ”
Yet, can we really be so absolute about the matter? Read more
Central bank puts have done a great job of removing tail risks.
Such is the conclusion of the team at Bank of America Merrill Lynch upon analysing the remarkable drop in trade conviction of late.
In FX, the move in volatility has been notable… Read more