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
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
So, apart from the roads — which go without saying — the aqueduct, sanitation, irrigation, medicine, education, wine, public baths and public order — what have the Romans ever done for us?
Well, as we pointed out on Wednesday, there is a growing view among some ancient scholars that the Monty Python boys could and should have included credit in that list. And in in a big way, since the Roman economy likely featured a lot more paper money assets than most ancient historians care to admit. (Something a lot of modern-day economists and strategists who like throwing Roman coinage supply charts into their research don’t often explain.) Read more
This trip down the central bank money supply lane will seem almost nostalgic to some people, so we thought it’d be worth a revisit.
It is excess rather than gross money supply that generates upward pressure on asset prices or prices of goods and services in the economy.
There’s a polite blogosphere debate going on between Paul Krugman and Steve Keen, an Australian economics professor who has some strong views about the role of debt and the financial sector, and about how conventional economics has overlooked or misunderstood them.
Keen, who is a beneficiary of George Soros’ Institute for New Economic Thinking, last week published a summary of a paper he’s going to present at an INET conference next week, which looks at why Hyman Minsky’s ideas are important and how they’ve been misunderstood/misappropriated. Read more
We think the following chart from Nomura’s Richard Koo on Wednesday is something that every inflationista and goldbug should study closely:
Biggest monthly drop in M4 broad money since data began in 1982, biggest monthly drop in consumer credit since data began in 1993… (charts via the Bank of England)
China’s December lending and money supply growth exceeded economists’ estimates, reports Bloomberg, with new loans totalling 640.5bn yuan ($101bn) for the month. M2 rose 13.6 per cent, compared with the 12.9 per cent median of 18 estimates of economists surveyed by Bloomberg. People’s Bank of China governor Zhou Xiaochuan said on Sunday the nation must be ready to combat possible shocks from Europe’s debt crisis and an uncertain US economic outlook, echoing comments by Premier Wen Jiabao. Meanwhile the WSJ says a top-level financial policy meeting ended in Beijing on Sunday with little in the way of concrete announcements, and no mention of liberalisation of interest rates for bank depositors, which some analysts had been expecting.
The below is from the FT’s Money Supply blog that covers on all things central banky. FT Alphaville enjoyed it so much, that we had to ask Claire if we could
nick it cross-post. She kindly agreed.
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The 10-year gilt yield hit an eight-month high on Tuesday…
Life is surely too short for this.
Out on Thursday — Almost 500 pages (well, 480) of European Central Bank discourse on why monetary analysis should be included in monetary policy decisions. Read more
Here’s an elegant solution to the problem of the US’s missing money multiplier.
Just declare it doesn’t exist. Or at least, not as we know it. Read more
Underlying money supply grew at its fastest rate since the early days of the financial crisis in the three months to May, in a sign that the effects of quantitative easing may be coming through more strongly than previously estimated, the FT says. Separately, Bloomberg reports that Bank of England markets director, Paul Fisher, said the central bank’s mandate is “clear” if inflationary pressures persist.
On Wednesday, the European Central Bank had a technical hiccup.
It accidentally published a “test message” outlining details of the planned sale of €10bn worth of three-month debt certificates to help mop up some eurozone liquidity. The sale was quickly squashed by ECB spokespeople, but the idea is continuing to appear in market commentary on Thursday. Read more
Eurozone money supply is contracting all over at the moment — except in Italy.
Which is curious. And possibly sovereign debt-related. Read more
When the Federal Reserve decided to get rid of its M3 measure of monetary supply in 2006, it sparked fears that it was trying to hide news on inflation. But now M3 has turned negative – signalling deflation, FT Alphaville says. Read more
Currently doing the rounds on the interweb is the Bank of England’s answer to a curious freedom of information request from one Mr. T. Cuff.
Mr. Cuff, who submitted his request via email on April 15, appears to have wanted to know the answers to the following basic questions: Read more
The latest edition of the St Louis Fed’s Monetary Trends is literally off the chart, FT Alphaville finds — which should prompt some reflection on the relationship of monetary policy to asset prices. Read more
Oh dear. Fed tightening talk abounds and yet there’s still no evidence that all that extra liquidity has got into the system.
Note the latest M-1 multiplier data from the Federal Reserve, which continues to show a deterioration in the velocity of money (H/T Themis Trading’s Joe Saluzzi): Read more
Here’s a bit of datapoint-diversion, post the Federal Open Market Committee’s decision on Tuesday, FT Alphaville writes — a Fed paper on the effects of budget deficits on interest rates. Read more
We won’t pretend to understand all of this 2008 Federal Reserve paper.
The basic premise seems to be that central banks can separate monetary policy from actual money. They can do this by using a “floor system” as opposed to the more traditional corridor system. Read more
The end of QE is nigh! Cue much hand-wringing over the gilt market and the potential impact of future tightening on equity markets.
But David Owen, of Jefferies Fixed Income, on Wednesday, has a nice exploration of a deflationary-doom scenario: Read more
Inflation is always and everywhere a monetary phenomenon.
Always and everywhere apart from in Britain, that is. Read more
That’s certainly what Standard Chartered thinks.
In a research note published on Thursday morning, the emerging market specialist says that M2 money supply growth has come off its first-half of 2009 highs — with one major exception: China. Read more
Data for the Bank of England’s preferred money supply measure has just landed in our inbox:
M4 excluding intermediate OFCs fell by £14.6 billion in September, compared with a £1.4 billion increase in August. M4 lending excluding intermediate OFCs rose by £0.9 billion in September, higher than the £7.9 billion fall in August.
Sean Corrigan of Diapason Commodities — ever cautious on inflation — is unsurprisingly also a bit of a money-supply fiend. The issues of monetary base, M2, M4, and all other definitions thereof, frequently make a prominent appearance in his research notes.
Given that Corrigan is so passionate about the issue, it is not surprising that a general misunderstanding of money supply might grate — especially when the said misunderstanding emanates from the establishment itself. Read more