Keynesian vs. Monetarism

There have been two schools of thought in the history of economics; Keynesian and Monetarism. The former rests on the belief that government actions can determine growth in the economy, spending money on say infrastructure projects when demand is slack and reining back once the economy picks up. Monetarism on the other hand believes the … Continue reading “Keynesian vs. Monetarism”

Where do you find a good yield?

Part of the big idea of Central Banks creating money and buying bonds is to drive other investors to buy riskier assets. They want to stimulate more activity. They hope that by taking interest rates down to very low levels some people will spend more instead of saving, and others will be more adventurous with … Continue reading “Where do you find a good yield?”

The Chinese liquidity trap

It is not just in developed markets that corporates are finding little productive use for easy money. Monetary easing in China, too, is having little apparent impact on the real economy. The M1-M21 gap in China, shown in the chart below, has historically functioned well as an indicator of GDP growth. Typically, if M1 growth … Continue reading “The Chinese liquidity trap”

Return-free risk

Bonds are at the epicentre of what is a highly fragile environment. “Brexit brought forward the size, scale, scope and speed of more monetary policy. No wonder markets are up!” – Former Federal Reserve (Fed) Governor, Kevin Warsh, July 2016 It is often stated that markets hate uncertainty. Like many things this cycle, this notion has been … Continue reading “Return-free risk”

The US Federal Reserve – Birds of a Feather

What do you get when you cross a hawk with a dove? A fair amount of confusion, if the US Federal Reserve (the Fed) is anything to go by. At this year’s Jackson Hole gathering of the world’s central bankers, Fed Chair Janet Yellen declared that ‘the case for an increase in the federal funds … Continue reading “The US Federal Reserve – Birds of a Feather”

Expect a slow burn in Jackson Hole

Jackson Hole won’t reveal when the US Federal Reserve (Fed) will hike rates again. But it might reveal what the Fed is thinking about where the US is going over the long term. Things have moved on a lot since Jackson Hole started out as a small conference about agricultural economics. It’s now a major … Continue reading “Expect a slow burn in Jackson Hole”

Worries should rise when complacency builds

A new Bank of England index measuring uncertainty shows investors are remarkably complacent about Brexit. The Bank’s Quarterly Inflation Report now contains an uncertainty index. It pulls together a range of market, survey and forecast variables to show how much uncertainty there is during a particular month compared to the historical average (or what you … Continue reading “Worries should rise when complacency builds”

Monetary policy: a bridge over troubled waters?

“The European Central Bank’s actions can only build a bridge to the future. The project must be completed through decisive actions by governments – both individually and collectively – to address the underlying causes of our current challenges.” – European Central Bank President, Mario Draghi, September 2012. Eurozone:  And friends just can’t be found Mr … Continue reading “Monetary policy: a bridge over troubled waters?”

Does the world need more quantitative easing?

Should central bankers be contemplating more quantitative easing? It is clear that many still are: even though the Bank of England kept rates on hold at this month’s policy meeting, many are anticipating further stimulus in August. The ECB and Bank of Japan continue to print money, while the Federal Reserve shows itself reluctant to … Continue reading “Does the world need more quantitative easing?”