J. L. M. Campuzano (Spanish Banking Association) | Debt is essential for growth. And in fact, the Big Recession, which was sparked by the US subprime crisis, lies in the high level of debt generated during the previous decade known as the Great Moderation. So just as periods of expansion are favourable for building up debt, this has to be adjusted during periods of recession (and depression).
Central bankers deserve praise for salvaging the economy when it was navegating rough waters. The massive liquidity glut they provided undoubtedly saved the day. Yet this funding bonanza seems unable to boost growth. We know that money doesn’t necessarily bring happiness. But now we discover, much to our dismay, that neither does it guarantee a full- steam recovery.
J.L.M. Campuzano (Spanish Banking Association) | You will agree that the messages we are getting from the main central banks fuel more distrust than certainty. The scenario is complex. And part of this complexity comes precisely from the current uncertainty which translates into a greater correlation between the financial markets and assets at a global level.
BoAML | Central banks have learned the power of global spillovers the hard way in recent years. This is particularly true for the Federal Reserve, which paused planned policy tightening after the taper tantrum in 2013 and again after the sharp US dollar appreciation in 2014 and early 2015. In both cases US financial conditions deteriorated appreciably and the Fed responded by signalling a more gradual normalization.
Money in circulation (M2 in the US, M3 in the Eurozone) is not created by the central bank, but by the private banks when they lend. These loans are the fundamental countepart of M2 and M3. Loans are converted into deposits which provide the liquidity for us to function.
J.L.M. Campuzano (Spanish Banking Association) | Investors believe that the decision to cut UK interest rates again has only really been postponed. They also believe that it is only a matter of time before the ECB cuts the deposit rate again at the same time as it extends the deadline for asset purchases which is initially set for March 2017.
J.L.M. Campuzano (Spanish Banking Association) | The central banks really need some new arguments for extending their current expansionary monetary policy. As well as for not withdrawing some of the existing measures. The alternative is to get carried away.
James Alexander via Historinhas | Brexit is an irrelevance. So say US equities. In fact, if US equities say anything, they seem to think Brexit is a good thing if it means the Fed holds off from rate rises for longer. Bring it on!
J.L.M. Campuzano (AEB) | Little by little the markets are stabilising. Liquidity is improving and trading volumes are normalising (although they are still low…what is normal?)
Larry Summers has written a perceptive analysis about the Fed’s confusion (and that of all the central banks, by the way) over what they are doing. Last Wednesday he made a brief reference to the FOMC’s decision not to raise rates, with the Fed once again being forced to withdraw from its previous plan of action. The total failure of ‘forward guidance,’ which has only served to make the Fed’s prose even more tedious to hide their misgivings.