Tag Archives: central banking

The Bank of England's incredible stress tests

Source: Cobden Centre
by Prof Kevin Dowd

"The Bank of England’s 2016 stress tests are literally incredible. Of the seven big financial institutions covered in the exercise, only one (RBS) failed and that only by a narrow margin. So what is wrong with the stress tests? Well, one problem is that the Bank used book values instead of market values. … if one uses market values instead of book values, then four of the biggest five banks fail the test. … Another problem is the existence of a lot of hidden leverage associated with positions that do not appear on banks’ balance sheets, such as derivatives positions. The result is that no one can tell from banks’ published financial statements how leveraged the banks really are." (08/14/17)


Can Switzerland survive today's assault on cash and sound money?

Source: Ludwig von Mises Institute
by Marcia Christoff-Kurapovna

"'Switzerland will have the last word,' wrote Victor Hugo in the late 19th century. 'It possesses one of the most perfect forms of government in the world.' A contemporary of his, Frederick Kuenzli, a scholar of the Swiss Army, boasted: 'No purer type of Republican ideals, no more fixed and devoted adherence to those ideals can be found in all the world than in Switzerland.' On many levels, there is reason to believe that, indeed, Switzerland remains a unique oasis of rationality and intelligence in the ocean-wide bloodbath that is contemporary Western fiscal and social self-sabotage. On the other hand, there is the Swiss National Bank — the central bank — that oddly appears to be encouraging the same monetary policy dance-with-death that has tripped up the country’s masochistic neighbors." (08/07/17)


Another reason not to believe the Bank of England's stress tests

Source: Cobden Center
by Prof Kevin Dowd

"The Bank of England repeatedly reassures us that its stress tests demonstrate the resilience of the UK banking system. Well, let's put the stress tests to a stress test. We have the performance measure, the leverage ratio at the peak of the stress scenario, and we have the pass standard. A bank passes the stress test if its leverage ratio at the peak of the stress at least as high as the pass standard, and it fails the test if the leverage ratio at the peak of the stress falls short of the pass standard. Let's consider the five biggest banks: Barclays, HSBC, Lloyds, RBS and Standard Chartered." (08/07/17)


The Fed remains on course — to trouble

Source: Ludwig von Mises Institute
by Thorsten Polleit

"According to mainstream economic wisdom, the time has come for the US economy to return to a more normal level of interest rates. Industrial output is expanding at a decent clip, official unemployment has declined markedly, and prices in the stock and housing market show a sustained upward drift. Considering these circumstances, the US economy can now shoulder a tighter monetary policy, it is said. It should be understood, however, that there will be side-effects, even unintended consequences, if and when the Fed hikes interest rates further." (07/27/17)


The fiction of the "Great Capital Rebuild"

Source: Cobden Centre
by Prof Kevin Dowd

"The central element of the Bank of England’s narrative on the UK banking system is the 'Great Capital Rebuild.' To paraphrase Governor Carney’s comments when the 2015 stress tests were released: the post-Global Financial Crisis (GFC) period and the long march to higher capital are over. The message — which he has repeated since — is that UK banks are now more or less fully capitalised. Unfortunately, the 'Great Capital Rebuild' is a fiction. Let’s look at the evidence." (07/24/17)


The incredible lost history of how "civil rights plus full employment equals freedom"

Source: The Intercept
by Jon Schwarz

"Ask yourself this: When was the last time you sat around with your family and friends talking about the Federal Reserve? By far the most likely answer is never, because you are normal human beings. But when was the last time you all hashed over one of you needing a job, or your health care coverage, or your asshole boss, or the chances you’ll get laid off? The answer to that is, you never stop talking about it. The combination of these two things is truly bizarre, because the Fed has more power than any institution over everything about work in America." (07/17/17)


Can Japan end its easy money addiction?

Source: Ludwig von Mises Institute
by Brendan Brown

"The perception in currency markets is that Japan will not be embarking on monetary normalization this year or next, in contrast to Europe where ECB Chief Draghi has hinted that the train (to monetary normalization) will start next year, even though the journey promises to be very slow. The US train to normalization continues at a glacially slow pace including some periods of reverse movement. Moreover the monetary climate prior to the journey commencing is even more extreme in the case of Japan than in Europe or the US. It was possible to imagine that the shock election setback for the LDP could have caused Shinzo Abe to withdraw support from his money-printer in chief, Bank of Japan governor Haruhiko Kuroda (whose term ends in April 2008), thereby signaling an early end to negative interest rates and quantitative easing. But markets in their wisdom have concluded this is not to be." (07/17/17)


Fed might start balance sheet drawdown in September, FOMC minutes hint

Source: Market Watch

"The Federal Reserve could trigger a long-awaited move to reduce its massive $4.5 trillion in debt holdings by September, a summary of the central bank’s last meeting suggest. The Fed said last month it would begin to whittle down its hoard of U.S. Treasury bonds and mortgage-backed securities some time this year. At a gathering of senior bank officials in mid-June, 'several preferred to announce the start of the process within a couple of months,' according to minutes of the June 13-14 Federal Open Market Committee meeting released Wednesday." (07/05/17)


Why sound money does not need a central bank, only rule of law

Source: Mises Canada
by Patrick Barron

"The money that all nations use today is composed either of reserves created by a central bank and/or credit money created by banks via fractional reserve banking. In the first case, a central bank can create reserve money via open market operations, whereby the central bank buys an asset — any asset — with reserves that it creates out of thin air. These reserves land in a bank and allow the banking system to create credit money in multiples of the new reserves via the fractional reserve lending process. Both methods of money creation are fraudulent, if done by any entity other than a central bank, in the case of open market operations, or a bank member of that central bank system, in the case of fractional reserve lending. All nations have thrown the rule of law out the window for these monetary counterfeiters." (06/26/17)


The Fed rate hike and gold

Source: Cobden Centre
by Keith Weiner

"The big news this week comes from the Fed, which announced two things. One, it hiked the Fed Funds rate another 25 basis points. The target is now 1.00 to 1.25%, and there will be further increases this year. Two, the Fed plans to reduce its balance sheet, its portfolio of bonds. It won’t do this by actually selling, but by not reinvesting some of the principle repaid as the Treasury rolls over each bond at maturity. This is like reducing the workforce by a hiring freeze and attrition, rather than by layoffs. We are no Fed insiders, but if we were to take an educated guess, we would read the last part as a shuffle between the Fed and the banks. No one can afford rising long-term bond yields, as the banks hold plenty of them and this would be a capital loss. Also, if bond prices drop then all other asset prices would drop too. Banks would take another hit." (06/27/17)