Coppola Comment

In the U.S., we are told, the post-World War II period was a golden age of full employment. High wartime government spending had brought to an end the double-digit unemployment and misery of the Depression, and as war gave way to peace, unemployment settled at a non-inflationary level of 3-5%. It's known as the post-war "economic miracle". But it's a myth. There was never full employment. The low unemployment of the post-war years is a massive statistical fudge. In fact, over five million people lost their jobs immediately after the end of the war, most of whom never worked again. But they were never listed as unemployed - because they were women.  The Great Unemployment Fudge started in the "Depression of 1946", described by the Cato Institute as "one of the most widely predicted events that never happened in American history". During the war, there was full employment, GDP was roaring and industrial production was at an all-time high. But much o...

"Britain nearly went bust in March, says Bank of England", reads a headline in the Guardian . In similar vein, the Telegraph's Business section reports "UK finances were close to collapse, says Governor": Eh, what? The Governor of the Bank of England says the UK nearly turned into Venezuela? Well, that's what the Telegraph seems to think:  The Bank of England was forced to save the Government from potential financial collapse as markets seized up at the height of the coronavirus crisis, Governor Andrew Bailey has said. In his most explicit comments yet on the country's precarious position in mid-March, Mr Bailey said 'serious disorder' broke out after panicking investors sold UK government bonds in a desperate hunt for cash. It left Britain at risk of failing to auction off the gilts needed to fund crucial spending - and Threadneedle Street had to pump £200bn into markets to restore a semblance of order. Reading this, you would think that the UK...

Is the U.S. in recession? If so, when did the recession start, and what caused it?  The usual economic definition of "recession" is two successive quarters of negative GDP growth. But in Q1 2020, growth was positive, though it was apparently slowing sharply (more on this shortly): So using the standard economic definition, the U.S. is not yet in recession. But according to the Business Cycle Dating Committee of the National Bureau for Economic Research (NBER), the U.S. entered recession in February:  The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession.  February? The  New York Fed's nowcasting report  for February showed no sign of recession. The most recent nowcast shows the economy dropping off a cliff at the beginning of April:  Of course, even nowcasts have lagging data. The date of the collap...

Yield curves have gone mad. Negative yields are everywhere, from AAA-rated government bonds to corporate junk . Most developed countries have inverted yield curves, and a fair few developing countries do too: (chart from worldgovernmentbonds.com) Negative yields and widespread yield curve inversion, particularly though not exclusively on safe assets. To (mis)quote a famous pink blog , this is nuts, but everyone is pretending there will be no crash. Here, for your enjoyment, is an à la carte selection of the most lunatic government yield curves. You can find lots more here . Exhibit 1: Switzerland. Negative yield already extends beyond 30 years, and markets are pricing in further interest rate cuts and/or QE, or indeed anything to stop the Swiss franc appreciating as scared investors pile into CHF-denominated assets. Hence the curve inversion. Exhibit 2: Denmark. Every Danish government bond currently circulating in the market is trading at a negative yield. And the in...

The result of the EU referendum was a considerable shock - not just to the UK, but to the EU and indeed to the whole world. Just how big a shock it was is evident from the fact that the OECD has suspended its forecasts until September. It usually only does this for "significant unforeseen or unexpected events", such as a major earthquake or a tsunami. Brexit is a shock to the global economy of a similar order. And it has permanently changed the world. Whatever the future holds, we can be pretty sure that it will be very different from the dominant paradigm of the last forty years. The vote was highly disruptive. It created chaos in the UK, anger and confusion in the EU, and puzzlement and concern further afield. But as the fog clears, markets return to some kind of normality and a new UK government takes the reins, we can perhaps begin to discern what the future might hold. To everyone's relief, the UK's banking sector appears resilient: bank share prices hav...

The Governor of the Bank of England's opening remarks at the release of today's Financial Stability Report were stark: At its March meeting, the FPC judged that “the risks around the referendum [were] the most significant near-term domestic risks to financial stability.” Some of those risks have begun to crystallise. The Governor was admirably calm and balanced in his  press conference . But nevertheless there was a degree of schadenfreude about his remarks. Prior to the referendum, the Bank of England was severely criticised by the Leave campaign for scaremongering. It was accused of overstating the economic risk in order to support the Remain campaign. But it is already clear that the Bank's analysis was accurate, as least as far as the near-term risks are concerned. The principal risks identified by the Bank of England are threefold. Firstly, the financing of the UK's current account deficit is coming under pressure as inward investment flows slow down or...