One of the defining characteristics of the 2011 crisis was dollar swaps. Almost all attention was paid to PIIGS and focus on the European banks holding their debt, as well as the very real possibility that all would break up the euro. Behind all that was the same dollar troubles as in 2008, and for the very same reasons. The [...]
The textbook says that whenever the central bank raises its policy rate that means tightening. Actual experience over more than just this last lost decade demonstrates that at the very least it is much more complicated than that. There is far more evidence of monetary policy being nothing more than a response, as that reverse condition can absolutely be established [...]
On July 20, 2007, the much discussed slow-walk implementation of the Basel II framework was finally taking its form. The Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the Federal Reserve Board of Governors, all government agencies dealing in bank supervisory powers, issued a joint statement that day announcing an [...]
We are at the stage ten years later where it is still necessary to define terms. In every finance and economics textbook, the chapter on monetary policy defines “tight” money as when the Federal Reserve (or whatever central bank) raises its policy rate(s). Conversely, “accommodative” money is where it lowers the rate(s). In the US system, the technical reason given [...]
November 2008 was an extremely busy month for authorities in the US. The financial markets had just undergone panic the month before, but rather than dissipate there were lingering indications that all was not yet over. On November 23, 2008, the Treasury Department, the FDIC, and the Federal Reserve issued a joint statement on Citigroup. The first two had agreed [...]
On February 23, the equivalent yield for the 4-week US Treasury bill was just 39 bps. That was almost 11 bps (counting full pips) below the so-called money rate floor, to which T-bills are a near enough equivalent to count in that view. It was also 36 bps below IOER, which at one time was thought to be a huge [...]
The most basic link in finance is that between risk and reward. Just like alchemists who once sought a path to gold from lead, a great deal of modern finance was built around finding a shortcut between them. Discovering the great asymmetry where risks would be low but rewards sky high was the Holy Grail of later 20th century mathematics. [...]
The release of the 2011 FOMC transcripts has provided some useful clarity on the thinking of Federal Reserve officials. Unlike in 2008, policymakers were a little better acquainted with wholesale money and its possible points of failure. They never did solve or even identify all of them, of course, but the repo market in particular seems to have finally been [...]
The biggest problem with “reflation” is that it doesn’t live up to what the word is supposed to mean. That has been true in each of the past attempts at it, but is even more the case in this latest one. Yet, to hear it described is as if we are the verge of an explosion in growth unparalleled at [...]
The FOMC minutes published today for the December 2016 policy meeting are being shopped around in much of the mainstream as “hawkish”, or at least a continuation of the “reflation” impulse. The commentary related to the more detailed window into the last monetary policy decision is being framed as if more so to that upside. Policymakers were clear that the [...]
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