Coppola Comment

Below are the slides from my presentation at Beyond Covid on 12th June. The whole webinar can ve viewed here . The pandemic seems to me to resemble the "nuclear disaster" scenarios of my youth: hide in the bunker, then creep out when the immediate danger is over, only to find a world that is still dangerous and has fundamentally changed in unforeseeable ways.  Rabbits hiding from a hawk is perhaps a kinder image, though hawks don't usually leave devastation in their wake. And I like rabbits. So this presentation is illustrated with rabbits, not nuclear bombs.  This is where we were in March/April/May. Hiding in our homes, waiting for the danger to pass: And this is what central banks should have been doing then: To their credit, this is exactly what they did. By supporting sovereign finances and warding off a financial crisis, they enabled fiscal authorities to take the extraordinary measures needed to keep people and businesses alive in their burrows.  Some economists mi...

S&P forecasts a serious shortage of safe assets by 2050 if the developed nations, in particular, do nothing to adjust their fiscal finances in the light of ageing populations. This has serious implications for government and investor behaviour - and the future of the ratings agency that issued it. Here is S&P's hypothetical sovereign ratings chart out to 2050. Yes, ratings - although as we shall see, ratings will become largely irrelevant in the weird world of the future. Clearly the price of sovereign bonds will rise significantly, particularly for those in the three "A" categories. S&P doesn't indicate which nations would be the issuers of these rare breeds, but it is a fair bet that their sovereign bonds are already trading at negative rates for some distance along the yield curve. So we are looking at fully negative yields for certain countries in the not too distant future. The "A" team These countries will be paid to borrow. Of co...

The ever-optimistic OBR has some encouraging forecasts for interest rates and global government bond yields: Well, ok, they were rather more encouraging in November than they are now. The uplift was supposed to start ANY DAY NOW, but there has been an interruption to normal service. Leaves on the line, perhaps. Or the wrong sort of snow. The trouble is, the OBR has a long record of hockey-stick forecasting. Not that it is unique in having a noticeable bias to the upside: If ever there were evidence that economic forecasting owes more to magic than science, it is this pair of charts. Markets expected that interest rates would start rising in 2010, 2011, 2012, 2013, 2014......it is now 2016 and markets are beginning to wonder if they will ever rise. There is a feeble uplift pencilled in for 2018, and the ghost of a suggestion that there could even be a rate cut this year. The runes have failed, not once but repeatedly. Sack the shamans. Why the runes have failed is not at all ...

It's not often I disagree with David Glasner. Or, for that matter, with Ralph Hawtrey. But I fear I have to take issue with both of them over competitive devaluation. " Bring it on ", says David. No, please don't. It's a terrible idea. Hawtrey's pictorial explanation of why competitive devaluation is a good idea seems both charming and plausible: This competitive depreciation is an entirely imaginary danger. The benefit that a country derives from the depreciation of its currency is in the rise of its price level relative to its wage level, and does not depend on its competitive advantage. If other countries depreciate their currencies, its competitive advantage is destroyed, but the advantage of the price level remains both to it and to them. They in turn may carry the depreciation further, and gain a competitive advantage. But this race in depreciation reaches a natural limit when the fall in wages and in the prices of manufactured goods in terms ...

Guest post by Tom Streithorst The Basic Income Guarantee (BIG) is back in the news.  The Finns are considering implementing it, as are the Swiss , replacing all means tested benefits with a simple grant to every citizen, giving everyone enough money to survive. Unlike most current benefits programmes, it is not contingent on being worthy or deserving or even poor.  Everybody gets it, you, me, Rupert Murdoch, the homeless man sleeping under a bridge. Last seriously proposed by Richard Nixon in 1969, more and more economists and bloggers are suggesting that the Basic Income Guarantee may ultimately be the salvation of capitalism.  The BIG will eliminate poverty, lessen inequality, and vastly improve the lives of the most vulnerable among us. But that is not why we need it. It may seem impractical, even utopian: but I am convinced the BIG will be instituted within the next few decades because it solves modern capitalism’s most fundamental problem, lack of d...