Coppola Comment

Scott Sumner, on a recent post , asked me to explain what I meant by "loan demand". This got me thinking. Exactly what DO we mean by "loan demand"? Who is demanding, and what do they really want? By "loan demand", we usually mean the demand from households and corporations for the credit provided by banks. But actually this makes no sense. What households and corporations actually want is not loans. It is money. Households that have money generally do not borrow. They buy their houses, cars, yachts, holidays to Bermuda with money they already have. It is households that DON'T have money that borrow. They do so in order to buy the houses, cars, holidays to Ibiza (perhaps not yachts so much) that they don't have the money to afford. They would really like to buy these things from money they already have, but there isn't enough of it right now, and in the case of houses there won't be for at least 25 years even if they save assiduously. ...

Or anywhere else, for that matter - but that's another story. At Forbes, I look into the real reason why the ECB is considering negative interest rates on bank reserves. Despite what the papers say, it's not about bank lending..... Read the article here .

US regulators are about to throw the book at the French bank BNP Paribas: BNP Paribas is facing a potential fine of up to $10bn for breaking sanctions imposed by the US government on Iran. This would be by far the largest fine ever imposed on a bank by US regulators for sanctions-breaking, and one of the largest regulatory fines in history. BNP is by no means the first bank to be fined by the US for sanctions-breaking.... Indeed it is not. The list is long and expensive. But BNP's penalty is an order of magnitude greater than any other bank's, and it faces other penalties too. French politicians are none too happy about this, and European central bankers and regulators are concerned. Is this fine really such a good idea? Read the whole post on Forbes .  

At Forbes, I explain how monetary policy and the control of the US dollar is actually shared between the Fed and the People's Bank of China: There has been a sort of trade war going on between the US and China for a long time. It surfaces briefly during election campaigns – remember  Mitt Romney promising  to end China’s “currency manipulation”? But the rest of the time it simmers coldly under the surface. The chief protagonists in this war are the two central banks – the Federal Reserve and the People’s  Bank of China  (PBOC). And the principal weapons are US dollars and US Treasuries (USTs). Read the whole post here .

The Independent  reports that  the UK Government is using debt collection agencies to recover overpaid tax credits from some of Britain's poorest families. In many cases the debts are due to errors by HMRC. And in many more cases they are due to fundamental flaws in the design of the system. Some are due to errors on the part of the claimants. Few, if any, are due to fraud. The tax credits system is complex. But the fundamental problem is simple. The design of the system does not match the reality of people's lives..... Read on here .

Isn't this interesting? (lines and QE annotations mine) Every time QE is announced, yields rise: when it ends, they fall. And no, this doesn't just affect the 10-year yield. The same basic shape can be observed on just about any maturity over 1 year (short-term rates are propped up by the positive IOER policy). I've written about this before , and concluded on that occasion that the rise in yields was due to the closed-end nature of previous rounds of QE bringing forward sales that would not otherwise have happened and encouraging carry capture strategies due to raised inflation expectations. I expected therefore that if QE was continued for long enough, or announced in a way that indicated no definite end, yields would fall as expected rather than rising. But it seems this is not the case. The current round of QE was announced in September 2012 with no end date for purchases. But yields started to rise soon after it was announced: admittedly ...

My latest post at Pieria traces the history of welfare from the fourteenth century and finds the same two mistakes being made again and again - right up to the present day. We try, and fail, to distinguish between those who deserve support and those who do not. And we try, and fail, to compel people to work. The consequences of both failures are terrible, both for those directly affected and for society as a whole. It's time for a completely new approach. Read the post here .