Tag Archives: central banking

European bonds — warning knell or cause for celebration?

Source: Cobden Centre
by Colin Lloyd

“Was I simply wrong or just horribly premature, only time will tell? The December end of the asset purchase programme is growing inexorably closer. So far, however, despite a rise in the popularity of AfD in Germany, the Eurozone seems to have maintained its equanimity. The Euro has not weakened but strengthened, European growth has improved (to +2.3% in Q2) and European stock markets have risen. But, perhaps, the most interesting development has occurred in European bond markets. Even as the Federal Reserve has raised short term interest rates, announcing the beginning of balance sheet reduction, and the ECB has continued to prepare the markets for an end to QE, peripheral bonds in Europe have seen a substantial decline in yields: and their respective spreads against the core German Bund have narrowed even further. Is this a sign of a more cohesive Europe and can the trend continue?” (10/18/17)


Yellen calls inflation the “biggest surprise” in the US economy

Source: Bloomberg

“Federal Reserve Chair Janet Yellen said that the U.S. central bank expects to continue to raise interest rates gradually as solid growth, a strong labor market and a healthy global economy lift prices even as she recognized that inflation has been surprisingly low. ‘My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year,’ Yellen said Sunday at the Group of Thirty’s Annual International Banking Seminar in Washington. Yellen’s term expires in February and she is said to be among the candidates President Donald Trump is considering to be his pick to lead the central bank.” (10/15/17)


Can a modern central bank still be a “banker’s bank?”

Source: Ludwig von Mises Institute
by Marcia Christoff-Kurapovna

“Answer: No. And not for reasons of policy or politics, but of national character — that is, what remains of such.” (10/12/17)


How much do central banks cost us?

Source: Ludwig von Mises Institute
by Karl-Friedrich Israel

“A classic argument for central bank controlled fiat money goes like this: a commodity such as gold is very costly to produce. All the resources, capital, and labor devoted to mining gold for monetary purposes could be employed elsewhere in the economy, to the benefit of society, if only we had a fiat standard. This argument is by no means conclusive. We would not stop producing Champagne either, just because sparkling water is cheaper. However, there is an undeniable grain of truth in it. At first glance it seems we could save a lot of resources under a fiat standard. But do we really?” (10/11/17)


The forthcoming global crisis

Source: The Cobden Centre
by Alasdair MacLeod

“If there is a lesson for us all since the great financial crisis, it is that central banks, even though dealt an appalling hand, are very good at managing local systemic problems, real or imagined. Bearish hedge fund managers, those masters of the universe, are throwing in the towel. Valuations, according to their models, cannot be explained, let alone justified. In truth, these investors have made the same mistake every cycle. They see the bubbles, but fail to fully understand their source. They think bubbles are solely the result of the madness of crowds, irrational bullishness ignoring fundamentals. They fail to dig a little deeper and understand the source is a repeating credit cycle. Only when you understand that financial bubbles are merely visible symptoms, can you begin to understand the underlying disease.” (09/26/17)


Fed to shrink assets next month, boost rates by year-end

Source: Bloomberg

“Federal Reserve officials set an October start for shrinking their $4.5 trillion stockpile of assets, moving to unwind a pillar of their crisis-era support for the economy. They continued to forecast one more interest-rate hike later this year, saying storm damage will have only a temporary impact on the economy. … U.S. central bankers are counting on steady growth and low unemployment to raise inflation closer to their goal, which would support their policy of gradual tightening through interest-rate increases and a reversal of quantitative easing.” (09/20/17)


How we know eurozone monetary policy is working again

Source: Cobden Centre
by Benn Steil

“In 2013, I showed that the ECB’s monetary transmission mechanism had broken down in the crisis-hit periphery countries. ECB rate cuts were not being passed on to rate cuts on new loans to businesses. Perhaps the strongest sign that the crisis has ended is that this mechanism has now been restored in the periphery countries. In fact, the link between ECB rates and the rates banks charge on new business loans is now, on average, considerably stronger in the periphery than in the core …. The turning point was the ECB’s June 2014 announcement of a negative deposit rate and cheap long-term loans to banks—known as targeted longer-term refinancing operations, or TLTROs. This is because these new measures have disproportionately benefited periphery banks.” (09/19/17)


Money multiplier is really about credit out of “thin air”

Source: Cobden Centre
by Dr. Frank Shostak

“According to traditional economics textbooks, the current monetary system amplifies the initial monetary injections of money. The popular story goes as follows: if the central bank injects $1 billion into the economy and banks have to hold 10% in reserve against their deposits the initial injection of $1 billion will become $10 billion i.e. money supply will expand by a multiple of 10. Note that in this example the central bank has actively initiated monetary pumping of $1 billion, which in turn banks have amplified to $10 billion. Economists from the post-Keynesian school of economics (PK) have expressed doubt about the validity of this popular framework of thinking.” (09/13/17)


See no evil, speak no evil …

Source: Cobden Centre
by Alasdair MacLeod

“The Jackson Hole speeches of Janet Yellen and Mario Draghi last week were notable for the omission of any comment about the burning issues of the day: Where do the Fed and the ECB respectively think America and the Eurozone are in the central bank induced credit cycle, and therefore, what are the Fed and the ECB going to do with interest rates? And why is it still appropriate for the ECB to be injecting raw money into the Eurozone banks to the tune of $60bn per month, if the great financial crisis is over? Instead, they stuck firmly to their topics, the Jackson Hole theme for 2017 being Fostering a dynamic global economy. Both central bankers told us how good they have been at controlling events since the last financial crisis.” (09/08/17)


White House list for Fed chair lengthens to six

Source: Financial Review [Australia]

“The White House is considering at least a half-dozen candidates to be the next head of the Federal Reserve, including economists, executives with banking experience and other business people, according to three people familiar with the matter. The breadth of the search goes against the narrative that has taken hold in Washington and on Wall Street that the Fed chair nomination is a two-horse race between National Economic Council Director Gary Cohn and current Fed chair Janet Yellen, whose term expires in February.” (09/07/17)