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Showing posts from 2020

The Cummings Show

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Monday afternoon, 25th May 2020. A beautiful, warm day on which to watch our new overlord make his first speech to the nation. I refer, of course, to Dominic Cummings's press conference.
The Daily Mirror and the Guardian had revealed that Cummings had gone to stay in a family cottage near Durham at the end of March, and that he had also been seen in Barnard Castle, about 30 miles from Durham. The country was under full lockdown at the time, with non-essential travel completely banned, so both trips appeared to break the law.

Furthermore, his wife, Mary Wakefield, had published an article in the Spectator magazine towards the end of April which said that she had developed CV-19 symptoms on 27th March and he became ill with suspected CV-19 the following day. Wakefield described him as "lying doggo" for 10 days, too ill to move. Yet on 31st March, Cummings's father had confirmed to the police that his son was self-isolating in a property on his estate. So Cummings appear…

Coronavirus's priceless gift

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The freesias that my daughter sent me are long dead, but the clematis in my garden is in full flower, and the flowers smell of vanilla. It has taken over six weeks for my sense of smell to return. But I was only mildly ill. For many people, the road to recovery is much longer.

Initially, coronavirus was thought to be a respiratory illness causing cough, fever and breathing difficulties. But the range of symptoms that the virus produces is now known to be much wider. Headache, muscle pains, fatigue, nausea, diarrhoea are all now recognised as symptoms of coronavirus infection. There is growing evidence that it disturbs the blood clotting mechanism and can trigger heart attacks or strokes. It also seems to have caused renal or liver failure in some patients. And there are worrying reports of long-term problems such as a weakened heart or immune system.

It's also difficult to diagnose. Some very sick people don't have a cough or fever, or obvious breathing difficulties. Some peo…

Doing "Whatever It Takes"

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The economy slumbers in its induced coma. Businesses are closed, workers furloughed or laid off. But the astonishing headline falls in economic indicaters such as GDP and PMI conceal a grim reality. Businesses are closing not just because they have been ordered to do so, but because they are running out of money. And people who have lost their jobs or become ill are also running out of money. If businesses fail instead of being mothballed, the eventual economic recovery will be slow. And if people die of starvation or untreated disease, what is the point of the lockdown?

Everyone agrees that there is an urgent need to get money to people and businesses so they can stay alive. But the waters are being muddied by terms such as "helicopter money" and "people's QE" being bandied about with little thought as to what they are, or whether they really would meet the current need. So I want to start by clarifying what, in my view, these terms mean.

In my book, I define…

The scent of flowers

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A few days ago, the vicar of my church helpfully sent me a booklet of daily meditations for Holy Week and a palm cross. Inevitably, coronavirus is a theme, and it seems appropriate: after all, the virus is so named because it resembles a "crown of thorns".  The meditation for Palm Sunday highlights Pilate's symbolic washing of his hands, absolving himself of any responsibility for the death of another, and asks how we feel about our own virus-induced hand washing ritual:
How do you feel when you wash your hands, in the present time?
Do you pray, sing or count as you wash?
How does this influence the way you feel, as a Christian?
How can this simple act, often done in our homes in isolation, be seen as an act of service? As I read these questions, I thought of the men I saw on Twitter moaning about their ravaged hands, unaccustomed to water and detergents. I wanted to remind them of the famous washing up liquid advert: "For hands that do dishes to be soft as you…

Shut down the ratings agencies

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Remember Friday Night Is Downgrade Night, from the Eurozone crisis? It's back. Last night, Fitch Ratings downgraded the UK to AA-, negative outlook. Here's their rationale:
The downgrade reflects a significant weakening of the UK's public finances caused by the impact of the COVID-19 outbreak and a fiscal loosening stance that was instigated before the scale of the crisis became apparent. The downgrade also reflects the deep near-term damage to the UK economy caused by the coronavirus outbreak and the lingering uncertainty regarding the post-Brexit UK-EU trade relationship. The commensurate and necessary policy response to contain the COVID-19 outbreak will result in a sharp rise in general government deficit and debt ratios, leading to an acceleration in the deterioration of public finance metrics over the medium term.

The Negative Outlook reflects our view that reversing the deterioration in the fiscal metrics beyond 2020 will not be a political priority for the UK go…

When is the right time for UBI and helicopter money?

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“Give me chastity and continence, but not yet,” sighed St. Augustine in his Confessions. Today, as the world reels under the impact of coronavirus, policymakers are at last reaching for tools I have long advocated: helicopter money and Universal Basic Income. And yet, like St. Augustine, I find myself sighing, “Lord, grant us helicopter money and Universal Basic Income, but not yet.”

I have spent much of the last decade advocating giving people money. Helicopter money in recessions, to boost spending and kickstart recovery: and Universal Basic Income (UBI), to set a floor under incomes and ensure that no-one is ever left without the means to live. Now, because of the coronavirus, both are for the first time being widely, and seriously, considered. The US Government is about to give payments directly to every American adult: strictly speaking this is fiscal policy, not helicopter money, since it isn’t directly financed by the central bank, but as the Fed is buying Treasuries as if the…

Too Good To Be True

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"USD-backed stablecoin is 10x better than your savings account," runs the headline on an unsolicited press release in my inbox yesterday. And it goes on to explain:
The average interest rate for savings accounts in the US currently stands at 0.09%, with some German banks even charging negative interest rates. Universal Protocol, a coalition of leading blockchain organizations, including Uphold, Cred, Blockchain at Berkeley, and Bittrex Global, has recently introduced interest rates of 10% p.a. for its USD-backed stablecoin UPUSD.  Ok, so they are issuing an altcoin at high interest rates. Why are they comparing this with FDIC-insured savings accounts?
The UPUSD is a fully-transparent digital asset that is collateralized 1-to-1 with US dollars and held at US-domiciled, FDIC-insured banks.  FDIC-insured banks don't hold digital assets. They hold US dollars. So this should read "collateralized 1-to-1 with US dollars held at US-domiciled, FDIC-insured banks." Perh…

Central banks and Coronavirus

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Coronavirus is scaring the world. Last weeks' stock market crash was the worst since 2008. And yields on safe assets, especially U.S. Treasuries, are crashing as investors dump anything they see as remotely risky. I suppose if you fear sudden death, you want your assets to be safe - though I sometimes wonder if investors understand that you can't take them with you.

Anyway, central banks are of course responding to the market panic. The Fed has just announced a 50 basis points cut in interest rates. Here's the FOMC's mercifully brief statement in full (my emphasis):
The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring de…

A tale of two halves

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When the banks fell over, they knocked the stuffing out of the British economy. The UK’s productivity has been dismal ever since. Unemployment has fallen to historic lows and wages are rising, but productivity growth remains near zero. This “productivity puzzle,” as it is known, has had economists scratching their heads for best part of a decade.

But UK productivity is a tale of two halves. Experimental statistics recently released by the Office for National Statistics (ONS) reveal widely varying productivity levels across the UK. “Productivity grew in half of the 12 regions and countries of the UK in 2018,” says the ONS, “with output per hour increasing in both Scotland and the East Midlands by more than 2%; in contrast, output per hour fell in Yorkshire and The Humber and in Northern Ireland by at least 2%.”



 It would be easy to ascribe this stark divergence in productivity growth to the dominance of financial services and decline of manufacturing. Financial services are centred on …

Much Ado About Nothing

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The Fed's interventions in the repo market are attracting considerable comment. A lot of people seem to think the Fed has embarked on another QE program without Congressional approval. And the usual suspects are complaining that the Fed is pumping up stock prices and debasing the dollar.  Stocks are indeed heading for the moon - though so is the dollar, which rather undermines those who think it is being debauched. But the Fed's interventions in the repo markets have nothing to do with stock prices. They are all about banks.

Last September, sudden spikes in the Fed Funds Rate (FFR) and its repo market equivalent, the Secured Overnight Funding Rate (SOFR), caught the Fed off guard. It  acted quickly, injecting copious quantities of reserves to bring the rates down. But this was by any standards a seat-of-the-pants operation. The Fed simply hadn't expected banks to run out of reserves. After all, despite the Fed's balance sheet reduction, total reserves were still far m…