Wednesday, 26 June 2013

Financial dislocation

My latest post at Pieria considers, among other things, the recent BIS report on the global economy and comments from the Archbishop of Canterbury on the future of banking:

"The conventional view of the financial system is that it acts as an intermediary function, converting the money created by central banks into a form that can be used in the wider economy and circulating it through lending and deposit-taking. The unconventional monetary policy instruments that have been used by central banks to reflate economies since the financial crisis (and in the case of Japan, for much longer) make use of this model. One way or another, the additional money created by central banks was supposed to find its way out into the wider economy, stimulating new investment, creating jobs and generally increasing economic activity.

But this isn't happening. Economies in the developed world remain flat, while the additional money created by QE has gone to inflate asset bubbles and increase inflation in emerging markets. Why has the additional money not gone where it was intended to go?"

The remainder of this post can be read here.

4 comments:

  1. Am putting this comment here because Pieria site's comments box is inaccessible, scrolling upwards wildly as soon as you touch it.
    On there Ticky W remarks that big infrastructure projects are not self -financing: they are if backed by LVT. Where the Jubilee Line put up property prices by many multiples of the cost of building a simple Land Value Tax ,like that proposed by JS Mill which only taxed upward movements in land values, would have rendered the scheme self financing.
    Pieria has discussed the problems caused by bank lending into the property market which, reliant on the inelastic supply of land simply converts into house-price inflation instead of stimulating growth in the more elastic supply of (non-landed) goods and services.
    As a socialist I am in favour of bank nationalisation but even this happy outcome would be liable to pump money into land so creating another house price bubble, or rather would pump money into house prices so creating another land price bubble.
    Even the present banking system might work if landed property was not seen as the safest of assets. At this juncture the present generation of discredited bankers and economists should be campaigning for Millite LVT to save their sorry skins: lending into a property market with an inbuilt, but remediable, tendency to bubble is barking madness, when the stark lessons of the Credit Crunch so obvious.

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  2. Dave Cartwright12 July 2013 at 12:22

    The pound continues to plunge, and finds itself below the 1.49 line. British Service and Manufacturing PMIs looked good, but the pound still took a hit as the BOE released a statement that the markets should not expect any rate increases in the near future. As well, solid US Non-Farm Payrolls gave a boost to the dollar against the major currencies - Dave Cartwright from Devonshire Holdings.

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