The Unbearable Contradictions Of Monetary Policy

An interesting little note from Ambrose Evans Pritchard. There are two different things we’re trying to achieve at present. We’d like to have loose monetary policy, thus quantitative easing. We’d also like the banks to not fall over, thus higher capital requirements and restrictions upon lending. Yet, as we all know, 97% of wide money – credit that is – is created by the banking system itself. Thus, if we restrict the ability of banks to issue credit through capital requirements and the rest we do rather restrict our ability to have loose monetary policy through QE:

Europe’s banks will have to raise up to €400bn (£343bn) of fresh capital or slash lending to meet the draconian demands of Basel III regulations, risking an investment crunch across the region and a second decade of economic stagnation.

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Blimey, Banks Close Branches In Poor Places, Not Rich Ones

The Guardian seems to have a certain difficulty in understanding what a bank is, what a bank is for, here. It’s a mechanism by which the shareholders hope to enrich themselves. Sure, things can go wrong with that desire but that is the function of such an organisation. Once we’ve understood that then the rest here makes sense:

Banks are closing branches in deprived communities in England four times faster than in wealthy areas. High street banks have collectively closed 990 branches in the most deprived areas of the country since 2010, compared with 230 in the richest local authorities.

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Companies Borrow Lots Because Central Banks Want Them To

The Observer has one of those woe is us, how dreadful capitalism is oh dearie me pieces. Well, what do you think the paper’s for if not that? The complaint today being that companies are borrowing a lot.

Well, yes, that was the point of quantitative easing, wasn’t it? So that people would go and borrow a lot? That’s why interest rates were driven down through QE:

They wonder why corporates have refused to follow ordinary consumers and rein in their borrowing.

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What You Thought You Knew About Bank Stress Tests Is Wrong

There are indeed things in this world which need regulation. One of them being the capital adequacy of the banking system, given the inherent fragility of anything based upon fractional reserve banking. However, when regulating it does aid if you start from a recognition of reality. Within banking capital structures and thus stress tests this means using real and market tests of value and liquidity. Not assuming, but studying. Which is, of course, exactly what wasn’t done:

How stress tests fail
Jeremy Bulow 08 May 2019

Bank stress tests in the US were an important tool for bailing out banks in the Great Recession.…

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Brexit Passporting – RBS Applies For German Banking Licence

We’ve been regaled for many a month now with stories about how Brexit is going to entirely devastate, kill off, Britain’s financial companies unless we backtrack, stay in and retain those passporting rules. Instead, as Royal Bank of Scotland is showing with its application for a German banking licence, all that’s required is that such firms do a little paperwork and everything carries on as before. And no, it doesn’t mean that the banks and the stockbrokers and the accountants and the lawyers and all the rest leave the country.…

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The Problem With Modern Monetary Theory

Much of Modern Monetary Theory is, as its proponents insist, simply true. Governments can create more of their own fiat currency at will. How much tax there is at the Treasury isn’t, unless in extremis, a limitation on how much government can spend. There are parts that aren’t quite and wholly true. It isn’t so that fiat money only gains its value from the willingness of a government to accept it as tax payments. Bitcoin has value, however absurdly, it’s a fiat currency and you can’t pay tax in it.…

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Consumer Autonomy, Pressure, Works! As It Should Do In A Market System

One underappreciated part of a market based economic system is that you really should, ought to, make your decisions based upon what you perceive to be your wider interests. This is how you tame suppliers to your will. And wondrously, it does actually work:

Depositors disciplining banks: The impact of scandals
Mikael Homanen 15 October 2018

Bank creditors have non-financial preferences too, and may withdraw deposits as a form of discipline. This column shows that protests against the Dakota Access Pipeline that targeted investor banks caused significant decreases in deposit growth, and global data suggest that this type of reaction to bank-specific scandals is widespread.…

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Stock Markets Reduce CO2 Emissions, Bank Finance Increases Them

This is an interesting finding. Sure, we know about the curve, developing countries get dirtier then cleaner as they get richer. But there is a connection between how that is all financed. A more Anglo Saxon economy, relying more upon equity ans stock markets, appears to produce fewer such emissions, a more continental one largely financed by bank loans create more emissions. Huzzah for Anglo Saxon capitalism then, eh?

Finance and pollution
Ralph De Haas, Alexander Popov 05 October 2018

The environmental Kuznets hypothesis predicts that pollution will increase at early stages of development but then decline once a country surpasses a certain income level.…

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IMF Warns That Regulation’s Great – As Long As Banks Don’t Escape It

It does rather depend upon who you read here over the IMF’s latest warnings about debt, the next downturn and the final crumbling of capitalism. It’s entirely true that debt is now higher than it was in 2008 – maybe not the problem some think – and that there will be another downturn at some point. The question is, well, will the next one be as bad as the last? There it’s not so certain, thus the warnings.…

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Consumers Are Not Protected

The U.S. Treasury regulates banks. There are also agencies to regulate all those non-bank things — savings-and-loans (building societies) and depositor-owned credit unions — which sprang up not just to market to niches but to escape bank regulation, until the regulators caught up. Separate agencies guarantee pensions and insure deposits. Mishaps are rendered physically impossible.

Damned if the mother of all mishaps didn’t happen anyway. Political regulators of loans naturally demanded that loans be issued politically, notably adding to ability-to-repay the criterion of disadvantaged skin color.…

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