Coppola Comment

Ever since the secured overnight repo rate (SOFR) spiked to 10% in September, there have been dire warnings that these exceptional movements show the financial system is fundamentally broken. The story goes that the post-crisis financial system is so dysfunctional that it is unable to operate without continual injections of money from central banks. The Fed's attempt to reduce the $4.2tn of reserves it added to the financial system in three rounds of QE has dangerously destabilised the financial system, so it has now had to re-start asset purchases to restore the lost reserves and refloat tottering banks.

It's fair to say that much has changed since the financial crisis. Prior to 2008, banks maintained far lower levels of reserves than they do now, typically at or just above their reserve requirement. They borrowed reserves from each other in the unsecured interbank market to settle customer deposit withdrawals and securities transactions. The Federal Reserve intervened in th…

It is 2.30 am, and I can't sleep. Today I must file my final piece for American Express's FXIP blog, which is being mothballed. Writing for that blog has been my main source of income for the last four years. Once it is gone, my income will once again become precarious and inadequate, as it has been all too often in the past. Hence my sleeplessness.

To be perfectly honest, I'm not sorry that the blog is closing. I've done some interesting work for it, and learned a lot. And it has been a reliable source of income during the difficult times of the last three years. For that, I am grateful. But I don't enjoy writing for it. The house style is dry to the point of desiccation, devoid of all opinion, emotion and metaphor. It is also SEO-driven, so I am constantly trying to find ways of including key words assigned by someone else. True, the key words are set from the brief, but it means there is no flexibility. I can't simply go where my mind leads, as I do when wr…

When even anti-EU tabloids say the Government's official position on Brexit is insincere, it is time to take it seriously. On Tuesday last week, The Sunreported that the European heads of government had concluded that Johnson's latest genius plan to create a "double border" on the island of Ireland wasn't a serious attempt to negotiate a Brexit deal. "They believe his insistence the dossier be kept secret is an effort to disguise the fact it is designed to set up a “blame game” with Brussels," it said.

An hour after The Sun published its article, Sky News released a briefing from an unnamed "No. 10 source" on a phone call between Boris Johnson and the German Chancellor, Angela Merkel:
"The call with Merkel shows the EU has adopted a new position. She made clear a deal is overwhelmingly unlikely and she thinks the EU has a veto on us leaving the Customs Union. Merkel said that if Germany wanted to leave the EU they could do it no problem …

The world is saving like crazy. Corporations are building up cash mountains that they can’t or won’t invest in expanding their businesses. Individuals are building up pensions and precautionary savings. Governments, especially in developing countries, are building up FX reserves. The “savings glut,” as former Fed chairman Ben Bernanke dubbed it, shows no signs of dissipating. It is sloshing around the world looking for a productive home. But there isn’t one - or at least, not one that offers the safety that fearful investors desperately crave. That, fundamentally, is what is driving down the returns on assets.

It is also the primary cause of the wide US trade deficit. The President likes to think that the reason for the US’s persistent trade deficits is unfair trade practices and currency manipulation. And for some countries, these are undoubtedly contributing factors. But the biggest reason by far is the global dominance of the dollar, and above all, the pre-eminence of dollar-deno…

This post was first published on Pieria in July 2013. I have re-posted it here on Coppola Comment because it now seems terribly, terribly timely. 

I have been reading James Rickards' book Currency Wars. In this, Rickards reviews the use of fiat currency over the course of the last century, and concludes that the present global fiat currency system is inherently unstable and on the point of collapse. He calls for return of the gold standard to stabilise firstly the US dollar and, following on from that, international trade currency.

I am no historian, but the first thing that struck me about this book was its partial view of history. Rickards does not discuss the reasons for the classical gold standard being abandoned in 1914. Indeed since he writes almost entirely from an American perspective throughout this book, the European historical dimension is seriously neglected. There are two major omissions:

 - the background to World War I and its consequences
 - the collapse of the S…

So the Lord God said to the serpent, 
“Because you have done this, cursed are you above all livestock and all wild animals!
You will crawl on your belly and you will eat dust all the days of your life.
And I will put enmity between you and the woman, and between your offspring and hers; he will crush your head, and you will strike his heel.”

To the woman he said,
“I will make your pains in childbearing very severe; with painful labor you will give birth to children. Your desire will be for your husband, and he will rule over you.”

To Adam he said,
“Because you listened to your wife and ate fruit from the tree about which I commanded you, ‘You must not eat from it,’ cursed is the ground because of you; through painful toil you will eat food from it all the days of your life. It will produce thorns and thistles for you, and you will eat the plants of the field. By the sweat of your brow you will eat your food until you return to the ground,…