Showing posts from September, 2014

Debt hysteria

I have been reading the Geneva 16 report , which came out yesterday. It's scary stuff. If you thought the world was reducing its debt pile - forget it: The debt is still growing, but the world's GDP growth is slowing. Indeed as aggregate debt figures are usually quoted versus GDP, the two are connected. The debt pile grows faster as growth slows, simply because the denominator is falling. The report looks at total debt/GDP - not just sovereign debt. This is refreshing: unrelenting media focus on sovereign debt as the principal problem misses the fact that in many countries the bigger burden is PRIVATE debt. However, it makes the figures even worse. Global debt, it seems, is a terrible problem. None of this will come as a surprise to anyone, except perhaps the news that the world as a whole is actually accumulating debt rather than deleveraging. The deleveraging efforts by developed countries are being more than offset by the increasing debt of emerging markets, particu

George Osborne's message to UK business: Pay People More!

Though I'm not sure that's quite what he meant. And I don't think his audience understood it either. But it's the implication of his latest freeze on working-age benefits....... "The UK's Conservative Party, like its Labour Party and most of the media, is obsessed with deficit and – ultimately – public debt reduction. Never mind dreadful productivity, falling real incomes, high private sector debt burdens, under-employment and inadequate investment: public sector borrowing is THE economic problem of our time. The deficit is TOO HIGH. Public spending MUST BE CUT. And George is the man to do it. "Osborne informed the Conservative Party Conference that, if re-elected, he would freeze working-age benefits for two years. Assuming inflation remains positive, this means a real-terms cut in benefits not only for the unemployed, but also for those in work who are receiving a range of benefits including earned-income tax credits, housing benefit and child

The economics of Ed

Ah, but which Ed? You'll have to read the post to find out..... it's at Pieria . All I will say here is that whichever Ed it is, the economics are woeful. Enjoy. (I did!) (you don't really want to know who is responsible for these photos, do you?)

Eastern European risks for Austrian banks

Austrian banks have developed extensive lending networks in Central and Eastern Europe since the fall of the Iron Curtain. Most of them face deteriorating loan books and falling profits due to difficult economic conditions in Central and Eastern Europe, exacerbated by the Ukraine crisis. But none is more exposed than Raffeisenbank.... Read about Raffeisenbank's Eastern European woes here . There's an update on Erste Bank's Hungarian problem, too.

Delinquent Banks: Barclays and UBS

By "Delinquent Banks", I mean banks that have been fined and/or prosecuted for regulatory breaches and financial crimes. Today's Delinquent Banks are Barclays. They are is of course seasoned delinquents, having been fined numerous times for various crimes and regulatory misdemeanors. But then so are all banks of any size. So what exactly have they done this time? Read on here . Financial Conduct Authority building, London. Photo credit: FCA

The Scottish independence saga

  I've collected here all my posts in various places on Scotland's quest for independence and related issues. It's quite a story - not least because my own views changed during that time. To start with, I was personally uninvolved: I didn't care whether Scotland stayed or went (though I wanted Nat West back). But as time went on, I became more convinced by the emotional arguments for independence - and less convinced by the economic case. In the end, head ruled heart and I came out in favour of "No". But it's not over yet..... Scotland's currency conundrum I was one of the first people to look at the currency question in some detail, in January 2012.  I realised that the currency could not be considered in isolation from other matters such as EU membership and even what "independence" really means in our globally interconnected world. All of those are therefore discussed in this post. Scotland and the Banks After the UK political par

The English question

I've just been listening with increasing annoyance to Angela Eagle, deputy leader of the Labour Party, speaking on devolution. She wants to drive down devolution "to the regions and to our major cities". This would of course only apply to England. Scotland already has its own Parliament and Wales and Northern Ireland have Assemblies: further devolution would give these country-level governments more power to manage their own affairs. But if the Labour Party get their way, England will be denied this. England, the largest country in the "group of four" that is the United Kingdom, would be the only country with no government of its own. England is not just a name, and it certainly isn't just a "collection of regions". I get a little tired of people (mostly Americans, or Celts with chips on their shoulders) telling me that England has no culture and no history except an inglorious one as a failed colonial power. England has well over a thousand year

Splitting the Bank

Faisal Islam reports that Alex Salmond has demanded “Scotland's share” of the assets of the Bank of England, namely its gold, FX reserves and its holdings of UK debt built up through two rounds of QE: ... @alexsalmond says he wants Scotland's share of the @bankofengland gold reserves and the "gilts that have been built up" ie via QE — Faisal Islam (@faisalislam) September 16, 2014 Salmond didn't mention the liabilities, which is unfortunate since if you take a share of an institution you must take both the assets and the liabilities. The liabilities of the Bank of England are the monetary base of the United Kingdom – sterling notes & coins and sterling bank reserves. There is a very good reason why Salmond didn't mention the liabilities. He wants to use Scotland's share of the Bank of England's assets to write off Scotland's share of UK debt, leaving Scotland with a debt-free balance sheet at independence: There is an idea th

Independence and union

I have been very reluctant to write more about the Scottish independence question. Earlier this year I wrote a couple of pieces about the currency question, and one about the implications for the rest of the UK. But since then I have become very aware of how painful this is for many people, including me. This piece is not easy for me to write: I have strong personal and family ties to Scotland, and have always seen my Scottish friends as part of my British "family". My own identity is more British than English, and I am deeply hurt by people who say "the United Kingdom is not a country" or "there is no such thing as British". That may be how they feel, but it is not how I see myself. For me, I am British first. I am also concerned that anything I write now would be inevitably seen as taking a political stance. The economics of what is being called "independence" are horrible , at least in the short term: but if I write a piece explaining that,

The Co-Op story: a tale of two banks

Over at Pieria, I've posted the text and some of the images from the presentation I gave at the UK Society of Co-operatives conference on September 7th 2014 at the University of Essex. It's the full story of the decline and fall of the Co-Op Bank. Well, not just the Co-Op Bank.....we often forget that there were two banks involved in the Co-Op disaster. One of them was a mutual, but perhaps not the one that you might expect. The post can be found here .

United Queendom

Oh, this is fun. Bob Denham of EconFilms has turned the economics of Scottish independence (and, let's be honest, the politics too) into what he describes as a "romantic comedy". Cue Rachmaninoff, please... The mini-series ‘United Queendom’ tells the story of a gay couple on the verge of separation. The couple argue over oils (for the bath), who controls the credit card, membership of ‘The Club’ and whether they should aspire to be like their neighbour, the Scandinavian Model. With 10 days to go to the referendum and polls showing it will go to the wire, the series is an attempt to get more people engaged in the debate – particularly those who can’t vote but are affected, such as people in the rest of the UK. Here's what Bob has to say about it: ‘The more people can relate to the debate, the better – and nowhere is that more true than on the economics of a possible break up.’   He adds: ‘This series is universal. I want everyone in the world to be able to

Don't pin all your hopes on SME asset-backed securities

Here's a neat chart from JP Morgan (h/t @debtnerd) (larger version here ) What it says, essentially, is that although the total amount of Euro SME loans currently in issue looks sizeable, by the time you have removed all the loans that would be ineligible for securitisation and purchase by the ECB for one reason or another, there is not much left. Securitising and purchasing 10.3bn Euros worth of SME loans is not going to make a great deal of difference to the distressed periphery. So the idea must be that the presence of the ECB in the SME ABS market would spur loan issuance. To make a significant difference to credit conditions in the periphery and repair the broken monetary policy transmission mechanism, that loan issuance would have to be simply huge and concentrated in periphery countries. There are several problems with this, to my mind. Firstly,it makes a huge assumption about the scale of potential demand for credit in the periphery from creditworthy SMEs. Is d

Without German support, QE in the Eurozone remains a distant dream

Q . What further monetary easing measures do I expect the ECB to announce? A . Maybe a few basis points off interest rates. Q . Will they announce QE? A . No. Q . Why not? A . Because the ECB needs the Germans to co-operate, and at the moment they aren't co-operating. There's a fuller explanation at Forbes here . And the deeper story behind Draghi's Jackson Hole speech at Pieria here . Depressing.

Draghi's Jackson Hole speech has been misunderstood.

At Pieria, I dissect what Draghi actually said at Jackson Hole on 22nd August, and conclude that he has not called for short-term monetary and fiscal stimulus to kickstart growth, as some have argued: "Some analysts have claimed that this speech was Draghi's “Abenomics” moment. Nouriel Roubini   argues that   Draghi has outlined a similar “three arrows” approach: structural reforms in periphery countries fiscal easing focused on investment and on demand stimulus in the core quantitative and credit easing But Roubini, like others, ignores the context of this speech. It is not fundamentally about restoring growth in the short term. Nor is it about the balance of monetary and fiscal policy, or about the responsibilities of core versus periphery. In fact it is not about short-run economic policy at all. It is about unemployment." Specifically, it's about cyclical unemployment becoming structural, and the prospect of permanently elevat

Fiscal pessimism

At Pieria, I discuss the inadequacy of monetary policy and the implications of the Fiscal Theory of the Price Level for the conduct of government policy. There needs to be a greater role for fiscal policy, and an end to the fear of debt and inflation that is preventing governments from taking the actions required to restore growth. But this means reversing the prevailing direction of economic thought for the last 30 years: "In the present situation - what Sims calls “fiscal pessimism” - FTPL predicts disinflation. Fiscal pessimism means that people look with horror at rising government debt burdens and future fiscal commitments such as those arising from an ageing population, and think “how on earth are we going to afford this”? They expect much higher taxes in the future and/or serious cuts to spending programmes. If this is also combined with very low interest rates, so they make little or nothing on their growing holdings of government debt, they feel poorer even though