Showing posts from January, 2016

Japan's negative rates: the China connection

Japan has just introduced negative rates on reserves, following the example of the Riksbank, the Danish National Bank, the ECB and the Swiss National Bank. The Bank of Japan has of course been doing QE in very large amounts for quite some time now, and interest rates have been close to zero for a long time. But this is its first experiment with negative rates.
The new negative rate framework is complicated, to say the least. The Bank of Japan has helpfully produced a pretty picture to explain it:
The bottom tier is a "basic balance" which is the existing reserve level in the banking system: The average outstanding balance of current account, which each financial institution held during benchmark reserve maintenance periods from January 2015 to December 2015, corresponds to the existing balance and will be regarded as the basic balance to which a positive interest rate of 0.1 percent will be applied. So existing reserves will (overall) continue to bear positive interest. Eve…

I am not insane

I have to straighten something out.

On 7th January, I made a remark on Twitter which with hindsight was - unwise. Well, ok, it was worse than unwise, it was stupid. I did not think about the consequences. It never occurred to me that issuing that tweet would lead to three weeks of sustained and vicious personal abuse.

For obvious reasons, I'm not going to repeat it here. All I will say about it is that it concerned the sex attacks in Cologne and other German cities at New Year, and it was part of a long Twitter conversation with several people.

And yes, I know the difference between criticism and abuse. I am not afraid of disagreement. On the contrary, I welcome it. I am known for having heated arguments with people on Twitter. It can be uncomfortable for the onlookers, but I learn from those arguments and I almost always finish on good terms with the person I am arguing with. But obscene comments ("she likes Muslim dick") and disparaging remarks about my appearance (ugl…

Much Ado About (Almost) Nothing

President Juncker's European Fund for Strategic Investments (EFSI) has produced an update on its progress to date. The update is a lovely piece of work, with elegant graphics and breakdowns of projects and investments by country and by sector. Really impressive. Kudos to the content management team.

But the content - oh dear, the content. The triumph of image over substance. From the EU-wide State of Play document, here is the total amount invested so far - projects and SME financing - and the countries benefiting from this investment;

However, exactly how much is being invested in each country, and on what, is buried in country-specific documents. So I've tabulated it here.

Obviously, it's incomplete. For about half the countries in this list, there is NO information. Well, this is awkward.

Fortunately, help is at hand. A calculator, in fact. The totals show that the EFSI has actually invested more than this, so the remainder is presumably going into cross-country project…

A countercyclical credit bubble?

Over at VoxEU, Philippe Bachetta and Ouarda Merrouche have a surprising take on "countercyclical" lending. They show that lending by US and European banks in US dollars to European non-financial corporates massively increased from 2007-2009, and that this helped to soften the effect of the European credit crunch on employment:
Over the period 2004 to 2009, we find that foreign credit denominated in dollar to non-financial corporates is countercyclical – it increased sharply (relative to domestic credit) in response to the sudden tightening of credit policies at domestic banks (Figure 1) Here is their Figure 1 chart showing the growth of US$-denominated syndicated lending:

Well, ok. US$-denominated syndicated loan issuance did indeed increase massively from 2007q1 onwards. And European banks did indeed tighten credit standards from late 2007 onwards, in response to the failures of IKB and Northern Rock due to the market freeze in August 2007. The chart appears to show correla…

The untimely end of a flamboyant dictator

At Forbes, I have posted the latest episode in the long-running saga of the failure of Hypo Alpe Adria:
The story of the failed Austrian bank Hypo Alpe Adria (HAA), and its transformation into the world’s worst “bad bank” – the insolvent HETA – resembles a Hollywood blockbuster. Complete with a cast of thousands, colorful principal characters, an extraordinary range of special (legal) effects and a reach far beyond its national borders, the HETA saga is long, staggeringly expensive, mind-numbingly complex and at times unintentionally hilarious.HETA’s liabilities are mostly guaranteed by the government of the province of Carinthia. Under its flamboyant far-right governor Joerg Haider, Carinthia provided deficiency guarantees for over 11bn EUR of bonds and subordinated debt issued by HAA. These would be triggered when HETA is wound up, forcing HETA’s losses on to Carinthia and – by extension – on to the Austrian sovereign. But Carinthia’s current government – now bereft of Haider and his…

The changing nature of banks, post-crisis edition

Courtesy of Dr. George Selgin comes this chart from FRED:

Dr. Selgin has added a vertical line to indicate when the Fed imposed interest on excess reserves. I don't propose to discuss that here, since I have engaged in an interesting and spirited discussion with Dr. Selgin and others about it on both Forbes and Twitter. I am more interested in what else this chart shows. It is truly fascinating.

The first thing to note is the fast rise in bank reserves from the latter part of 2008 onwards (blue line). This is due to emergency liquidity support and distressed asset purchases in the immediate aftermath of the 2008 financial crisis, and of course to QE.

Unsurprisingly, there was a sharp fall in interbank lending at the time of the crisis. It recovered somewhat early in 2009, but then interbank lending fell again during the main phase of QE1. This is not surprising, since QE1 gave banks more than enough reserves to settle deposit withdrawals. They had no need to borrow from each other…

Germany's Sparkassen: banking on capital exports

My latest post at Forbes takes a close look at Germany's much-praised Sparkassen and their odd relationship with other German banks. It's not quite as it seems....
The German Sparkassen (public savings banks) are widely praised for their stability and their service to German savers and small businesses. They survived the 2008 crisis largely unscathed; the few failures were handled within the network, and depositors were compensated from a fully-funded deposit insurance scheme, with no public funds involved.Other countries, especially those with more concentrated banking systems, look enviously at the Sparkassen. In October 2015, the Demos thinktank produced a report arguing that the UK should create a similar network of not-for-profit banks. But are the Sparkassen really such paragons? Read the rest of the post here

Pensions and stuff

I'm collecting here all the pieces I have written on the UK state pension and its problems. What a shambles. Here are my recent posts, in disaster order.

As I explain in these posts, I would be supportive of WASPI if they were only concerned with addressing the blatant injustice of the 2011 acceleration of the pension age rise for women. But they aren't, and what they are actually after is seriously unfair to other groups. So I can't support them. And I don't like the way they and their supporters behave towards people who don't agree with them. 
But the 2011 change IS unfair. Kudos to Mhairi Black of the SNP for getting the 2011 acceleration debated in Parliament, and a very impressive result - 158 to ZERO in favour of rethinking it. 
The angry WASPIs Here I stand, I can do no other (Position paper on WASPI) Dylan Thomas and the Furies
The new State Pension
The new State Pension is an unutterably inadequate response to the pensions timebomb. It enshrines expectat…

In the bleak midwinter

In the latest of his excellent reports for the BBC on the refugee crisis in Europe, Feargal Keene focuses on the plight of children. A baby, only a month old, makes the hazardous crossing from Turkey to the Greek island of Lesbos. Little children, freezing cold and wet through, climb the muddy path up from the beach. Volunteers from many nations provide food, blankets and medical care for these tiny lives.

But Lesbos is only the start of their journey, And in Europe, it is winter. Across the continent, refugees - including many children and babies - huddle round camp fires at the borders, waiting to be admitted. But the signs are up everywhere. "No room....."

At this time of year, Christians sing carols about a baby born in a stable, because there was no room in the inn. A baby born to a migrant mother, in freezing conditions in the middle of winter. "Behold a silly tender babe, in freezing winter night, in homely manger trembling lies. Alas, a piteous sight", wro…

Dylan Thomas and the Furies

Do not go gentle into that good night,Old age should burn and rave at close of day;Rage, rage against the dying of the light. I have reluctantly decided to withdraw from engagement with the WASPI campaigners and their supporters, and to end my public discussion of their cause. Near-constant public commentary, much of it ill-tempered, on this subject is upsetting my followers and damaging my reputation. More importantly, the stress caused by sustained and deliberate misrepresentation and personal abuse from WASPI supporters, now including a high-profile blogger, is affecting my health. Stress triggers my asthma. I am now having to use inhalers for the first time in months. Clearly, this must stop.

But I do not go willingly. I started writing in 2010 because I believed my voice could make a difference. I did not want to be one of those who - in the words of Dylan Thomas - rage about death because they have never made their mark:
Though wise men at their end know dark is right,Because the…

Dear Anthony

This is my response to the Slog's takedown of my Forbes post on the UK state pension system. I am addressing it directly to Anthony Ward, the author of the Slog blog. For obvious reasons, I have not provided a link to Anthony's post. 

I can't begin to tell you how upset and horrified I was by the post you wrote today. It was factually incorrect (I shall explain the factual errors below). But more importantly, it was an unfair and brutal attack on me, for no reason that I can see other than you wanted to find an "opponent" to knock down and I was an easy target. Given that you know there have been sustained and very unpleasant attacks on me from WASPI supporters in the last few weeks, what you wrote could hardly have been more hurtful or damaging to me. It amounted to pouring a large amount of petrol on an already raging fire.

As I pointed out on Twitter, you misrepresented my Forbes post in order to justify your support of the WASPI cause. When I explained that i…