For all the supposed and assumed disparities between US monetary policy direction and that in Europe, credit markets in both locations seem to be far too much in lock-step agreement. That would suggest a few implications, the first of which is that the global financial system does not really consist of many closed systems with only minor connections as assumed [...]
Perhaps the most animating aspect of bubble complaints is how much the highest risk pieces are exhibiting the lowest risk tendencies. Nowhere is that more evident than leveraged lending, the bank-led syndication of what would otherwise be termed junk. In this repressed environment, anything offering the slightest elevation in return is prized by those starved for it – which is [...]
What happens at the quarterly window dressing periods for the domestic banking system (which includes foreign subsidiaries chartered for US business) is essentially a gaming of the leverage ratios. As with everything inside the Basel paradigm, banks make themselves look less risky for their reporting periods. In terms of funding markets, that means massaging short-term liabilities, particularly repo. To do [...]
I have said this on many prior occasions, and it bears stressing and focused repetition, that there is an ongoing and troubling change blowing in the academic winds of economic orthodoxy. It is troubling because there seems to be no challenge to these “best and brightest” that are essentially trying to excuse their own systemic failure. The lack of recovery [...]
For orthodox monetary theory, debt (or money) is interchangeable with the idea of economy. A good part of this goes back to the equation of exchange, which still resides deep in the bowels of current theory, where increasing M leads to an increase in Q [or y] or P (with the expectation of more Q than P). To see an [...]
There was more bad news for real estate recently beyond the consistent declines in housing stats. The one factor that housing bulls have been awaiting is household formation, though so far that one has remained a drag. And that was supposed to be the catalyst, in that eventually Americans had to begin moving out once more. After so many years [...]
The foregone conclusions regarding currency devaluation in orthodox policy prescriptions are being turned inside out in Japan, where trade is behaving exactly contrary to all policy expectations. Getting from A to B sounds so tantalizingly easy and simple, but financial complexities (arising out of constant and persistent appeals to financialism itself) go beyond muddying the waters. The same holds true [...]
Normally the lack of volatility in "markets" would be a welcome event. Stability is something to be courted not disbarred and exiled. Sure, the big banks will make noise about how they can't "make money" in such an environment (as they are right now about credit markets) but that will only force them to find something more productive to do [...]
We have had an ongoing discussion of the “wealth effect” here, spurred by my colleague Margie Fernandez, including some good outside discussion. Current orthodox thinking is that there is significant downstream economic benefits from inducing rising “wealth”, such as can be done. Van Hoisington and Lacy Hunt, PhD from Hoisington Investment Management summarize it as: FOMC leaders may feel justified [...]
The latest money growth figures from China seemed to have brought back worries over more disorder in finance. Tomorrow the Chinese government will release GDP figures for the first quarter and current expectations (I know) are for 7.3% Y/Y growth. That would be the slowest rate of expansion in memory. The two are inextricably linked as slowing growth, including the [...]
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