Citi’s Willem Buiter-headed team of economists provides an interesting external solution for the Greek debt crisis in an opinion piece late on Monday: bail out Greek banks but not the Greek government.
Remember, the problem for eurozone banks is part of their core capital is supposed to be made up of liquid instruments like government bonds, but in the case of Greece these bonds are as toxic as subprime securities and depreciating quickly.
Even if the ECB continues accepting Greek bonds as collateral for Emergency Liquidity Assistance, the terms would no doubt involve much larger haircuts, bringing us back to a 2011 capital hole scenario very quickly. So, it actually makes more sense for Greek banks to start swapping government bonds into different types of assets. Read more
Suggestion for a new series: things Buiter said a while ago that we need to talk about again.
This time… the search for a nation state’s “comprehensive balance sheet”. Which is exactly what it sounds like: a plea to establish a realistic balance sheet full of contingent liabilities and properly valued assets.
The new thing this time is that we’re talking about this balance sheet alongside the idea that “governments across the world are either ignorant of the true value (or indeed the existence) of some of their most important assets – they often have actively tried to hide these assets and have been highly successful in doing so.” Read more
We’ve spilt a fair few pixels on the potential limits of negative rates and proposals to get around the pesky zero lower bound. Citi’s Buiter has weighed in on this for some time and has done so again on Thursday.
We present three practical ways to eliminate the ELB: i) abolish currency, ii) tax currency or iii) remove the fixed exchange rate between zero-interest cash currency and central bank reserves/deposits denominated in a virtual currency.
There’s more in the usual place for those who want it but, for now we thought we might just pull out his list of disadvantages to getting rid of cash Read more
Citi’s chief economist and former BoE MPC member Willem Buiter is worried that the ECB’s new profit-and-loss sharing stance on National Central Bank asset exposures risks transforming the 19 NCBs of the eurosystem into a glorified currency board.
It’s a policy that also stands to bring needless uncertainty and volatility into the system. Making NCBs accountable for their own assets in his opinion only delays risk-sharing. If Europe is to defend its currency union there’s no way out of risk sharing in the long run. In fact, risk-sharing is precisely the point of a currency union. It’s what makes a currency union work. Read more
Citi’s Chief Economist Willem Buiter spent some time with FT Alphaville explaining why he believes Draghi’s concession on profit and loss sharing among ECB member national central banks turns, in all likelihood, the single monetary unit into nothing more than a glorified currency board.
Quick background: The ECB’s profit-and-loss sharing mechanism became a key negotiating point ahead of European QE. For the Bundesbank, QE was only viable if NCBs assumed most of the responsibility for losses on assets they brought into the consolidated balance sheet. In the end Draghi acquiesced by reducing risk-sharing to only 20 per cent of assets.
A currency board works by pegging liabilities (central bank reserves and currency) to an exchange rate target, rather than a CPI or employment target. The monetary authority managing the board achieves the target by ensuring all commercial entities served by the system can convert the authority’s liabilities into foreign currency at any point. In short, there’s a guaranteed FX convertibility promise at the central bank. Read more
Willem Buiter, Citi’s global chief economist, believes global growth will come in at somewhere between “moderate and modest” in 2015, with his team shaving their growth target from 3 per cent last month (and 3.3 per cent six months ago) to 2.9 per cent.
As Buiter noted in a meeting in London on Friday, it’s also unlikely that in the long run currency wars, which wash each other out, will help to drive demand: Read more
From an “indefinitely sustainable” regime to a” dirty/ managed float”… Citi’s Buiter is not a fan of the Swiss National Bank’s quashing of its own floor last week.
We know what the immediate consequences looked like and it’d be no surprise if there are more aggressive swings in the franc over the next while, even if the SNB will be in the mix trying to keep things somewhat orderly.
We also know, after a weekend of reading everything SNB, that the reason for the move (coming ECB QE and the prospect of increased speculative inflows are still top of the pile) is asked only slightly less than the question in first place: was this a mistake? Read more
Some further, further reading on Friday — a new paper from Citi’s Willem Buiter, on why helicopter drops of money always work. From the abstract (our emphasis):
Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable – viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists – even in a permanent liquidity trap – a combined monetary and fiscal policy action that boosts private demand – in principle without limit. Deflation, ‘lowflation’ and secular stagnation are therefore unnecessary. They are policy choices.
The Cyprus bail-in is qualified good news, in the eyes of Citi’s chief economist Willem Buiter.
Sure, it would be better if insured depositors on the island had been spared and it would have been nice if losses of uninsured depositors had reflected the recapitalisation needs of each individual bank. But first and foremost Buiter sees this as a decisive step in restructuring excessive debt across Europe, which is a necessity if the euro area wants to grow again. Read more
Ok, this is pretty excruciating, but it’s an important (albeit emotional) debate…
Is the Eurosystem’s Target2 payment system toxic for the people of Germany? Should they be worrying like hell about this (click to expand):
Citi’s Willem Buiter has gone all good idea/bad idea on us.
= the introduction of the ECB’s Outright Monetary Transactions (OMT) facility, the decision of the German Constitutional Court to allow German participation in the ESM with small additional conditions, and the strong performance of centrist, pro-European parties in the Dutch election. Read more
Citi’s iconoclastic chief economist Willem Buiter and team are seeing a very high likelihood of a Greek eurozone exit in the not-too-distant future, and a sovereign bailout likely for both Spain and Italy this year.
From their latest global update (our emphasis): Read more
Here is a lengthy and ambitious shopping list from Willem Buiter and Ebrahim Rahbari at Citi. Essentially, they want central banks to do more…. much, much more, including (with our emphasis):
(i) reducing rates, first by lowering them all the way to zero (UK and euro area), then by eliminating the effective lower bound on nominal interest rates (all four currency areas) [essentially: go negative, my friends] Read more
Next up in the eurozone drama - Citi chief economist Willem Buiter, with colleague Ebrahim Rahbari, have contributed their 2012 outlook on the European crisis.
They believe the ECB is likely to come to the rescue. It may need one or two actual auction failures from Italy or Spain to do so, they write, but their base scenario is not a euro breakup. The ECB will ring-fence Italy, Spain, Belgium, France and Austria — either by being the lender of last resort, or via lending to the IMF. Governments are likely to recapitalise banks, either directly or through the EU, the EFSF/ESM or EIB (European Investment Bank). Read more
Bobby Robson, the former England football coach, once described a player as being so truculent he could have an argument with himself.
Willem Buiter has gone one better. In his latest note, the Citigroup chief economist has invented someone so he can have an argument. Read more
Where would financiers be without metaphors? Let’s take Citi as an example — although we are sure there are worse offenders.
In Tuesday’s FT, Citi’s chief economist, Willem Buiter, called for a bigger ‘bazooka’ to boost the firepower of the EFSF. This comes just days after he predicted the bazooka would turn out to be a ‘peashooter’ and his colleague Michael Hampden-Turner compared the EU’s two-pronged approach to providing investors with sufficient confidence to buy European bonds (CDS- style guarantees on bonds and a plan to create an SPV) as like a ‘Swiss cheese’. Read more
For Tuesday, the market received a jolt higher in the final hour of trading after the Guardian reported France and Germany agreed to increase the size of Europe’s rescue package to more than €2 trillion ($2.7 trillion). The Dow rose as high as 255.74 points on an intraday basis – WSJ Read more
UPDATE: As a commenter pointed out, Willem Buiter didn’t write some of the sections we quoted from below, and we’ve updated accordingly. His name is at the top of the Citi note that we’re excerpting, but the actual passages were written by other economists. Apologies.
As in, the quarter that starts next week. Read more
As rumours (scurrilous, nonsense – Ed.) swirl in the market of a French rating downgrade, Citigroup’s chief economist Willem Buiter is considering a much bigger issue – a world without any AAA G7 sovereigns.
The criteria applied by the rating agencies to the G7 sovereigns in the past have been, in our view, far too lenient. As argued in Buiter (2010) and Buiter et. al. (2011), the post World War II period has seen a combination of gradually eroding tax administration capacity, diminishing tax compliance in the private sector, and the evolution of political decision-making institutions, processes and practices that make it possible to mandate public spending without ensuring sustainable funding for these expenditures. This is bringing to end the period during which for a number of advanced industrial and post-industrial countries, the sovereign automatically represented the best credit risk in its jurisdiction and an AAA rating for these sovereigns was considered natural – almost a right. Only a few small countries with a surviving culture of tax compliance and political institutions that effectively impose the government’s intertemporal budget constraint may have AAA ratings in the not too distant future. Read more
We know, we know: there should be a weekly quota for US debt posts. But Wednesday’s note from Citigroup’s Willem Buiter and Ebrahim Rahbari is not your average debt ceiling report.
They suggest the debt ceiling impasse is a vaudeville compared to the tragedy that could await. The US faces five scenarios and a downgrade is all but guaranteed, say the authors: Read more
On Thursday, the highly esteemed Willem Buiter, chief economist at Citigroup, declared boldly in a research note that water would soon become the next big thing when it comes to commodity asset classes.
As he envisioned: Read more
FT Alphaville reports that Citigroup’s global strategists are recommending investors play the urbanisation trend by buying into water companies, arguing that the concentration of the world’s population and increasing standards of life will drive up demand for the liquid commodity. Even Willem Buiter, Citigroup’s chief economist, a man most often seen railing at the vagaries of central banks, has got stuck in with a 4,000-word essay on the subject. “I see fleets of water tankers (single-hulled!) and storage facilities that will dwarf those we currently have for oil, natural gas and LNG,” he writes. Read more
Citigroup strategist and erstwhile FT blogger, Willem Buiter made headlines last week.
The former Monetary Policy Committee member, it was reported, took to the stand at a special hearing into ‘accountability at the Bank of England’ held by the UK Treasury Select Committee, which saw some hefty criticism of the Bank. “Buiter … was especially violent in his remarks,” the Independent reported. Read more
In a whopping report out Monday, Citi’s Willem Buiter and Ebrahim Rahbari call time on ‘Emerging Markets’ and ‘BRIC’ labels.
And not a moment too soon, we reckon. Read more
Willem Buiter wants you to familiarise yourself with the ELA.
That’s the Emergency Liquidity Assistance that the eurozone’s national central banks (NCBs) are able to provide their local banks under some legal fuzziness in the eurozone. The acronym has managed to grab a few headlines over in Ireland, but for the most part ELAs remains relatively unknown. Soo too, do the details of them. Read more
The latest (and as usual, substantial) note from Willem Buiter, chief economist at Citigroup, has landed in the FT Alphaville inbox.
The bulk of its 84 pages can be summarized in one line though: “no sovereign is really safe” and there are “likely to be several sovereign debt restructurings in the euro area in the next few years”. Read more
Just as New York turns cold, our old friend Willem Buiter goes and warms us right back up.
We posted some fairly bombastic extracts from Buiter’s sovereign debt crisis essay on November 30. And at a Citi roundtable event on Wednesday, he further elucidated his avuncular apocalypticisms. Read more
Former FT blogger Willem, ‘Maverecon’, Buiter has lost none of his power to shock.
He may be the chief economist of Citigroup but that doesn’t mean he can’t speak his mind as his latest essay for the bank’s clients proves. Read more
As documented by FT Alphaville, Willem Buiter has a thing for negative interest rates.
Most recently he’s been touting the idea again, this time in an opinion piece for the Wall Street Journal. Read more
It’s no secret that we on FT Alphaville ♥ Willem Buiter.
But we really really ♥ the Citi economist and former FT blogger‘s most recent European missive — from the Wall Street Journal’s eye-catchingly titled “How gangsters are saving the eurozone“: Read more