|
Saturday 5th December 2020
Hi Friend,
More Talk of Negative Rates ...
|
| And Monetary Financing ...
"Going Negative Could Be Positive" writes Philip Aldrick in the Times today. The economics editor has been talking with Michael Saunders, an external member of the Monetary Policy Committee at the Bank of England.
Rates could be cut a little below zero, the former Citigroup economist explained, as long as "appropriate mitigations" are in place.
The Bank has asked commercial lenders to ensure they are systems ready for a move below the line. Bankers have warned, negative rates could hit profits and create operational problems. Not so argues Saunders, "studies have shown, the net effect of negative rates on bank profitability is small and may be slightly positive."
Negative rates rates could increase economic growth and reduce the impact of bad debts as the economy expands, it is said. "Studies which allow for these indirect effects suggest the net effect on bank profitability is small and may even be slightly positive."
Well of course it is. The model used is a tautology. Model in sufficient growth with a fall in defaults and bank profitability will rise. No wonder Andrew Bailey Governor of the Bank if England is slow to make the move. Stuck on Planet ZIRP, we should avoid the drift towards the NIRP crevasse.
The Governor has already abandoned the pretense of QE. The minutes of the MPC committee in June, reveal the committee voted to increase the stock of UK government bonds "financed by the creation of central bank reserves.
Last month Andy Haldane Chief Economist at the Bank of England, delivered a speech entitled “What Has Central Bank Independence Ever Done For Us?
An appropriate attribution to Monty Python, with a hint of satire, he explained, the Bank of England creates a high level of central bank reserves to acquire government gilts.
“This is process is not a monetary financing of government deficits. It is a reflection of both policies [monetary and fiscal] responding counter-cyclically, as they should, in the face of a very large cyclical shock to aggregate activity.” Ah ...
Central Bank Reserves have now increased to almost 50% of GDP. This is not officially “Monetary Financing of Fiscal Deficits” or “Fiscal Dominance”. It sure looks like it. We call it Dire Straits Economics, that’s “Money For Nothing, Gilts For Free”. No need to compound the challenge and take the risk of a move to negative rates ...
Note
Fiscal dominance is an *economic condition that occurs when a country has a large government debt and deficit* such that monetary policy targets keeping the government from bankruptcy rather than macro-economic targets such as inflation, growth and jobs.
|
|  |
Still Talking About Fish ...
Less than four weeks to go to the new deal deadline and we are still talking about fish. "France derails Brexit talks", the headline in the Times today.
Macron has thrown a mackerel into the net demanding access to UK waters for up to a decade after the transition period. He may have well sent a gunboat up the Thames, the impact.
Discussions were suspended, Bernier went back to Paris. Boris Johnson will hold emergency talks with Ursula Van Der Leyen, President of the European Commission.
A spokesman said "Time is in very short supply" We even have a video which explains the clock is ticking, that's "Les heures tournent et pas doucement" in French. "We are at a difficult point in the talks. We will not be able to agree a deal which does not respect the fundamental principles on sovereignty, fishing and control".
Yes taking back control always included the fish. Matthew Flynn writing in the Telegraph today, suggests there is something fishy about the French threat to veto the trade bill. President Macron may well have calculated that a no deal may be bad for the EU but could be a very good outcome for France.
The trade surplus with the UK is quite small at around £ 5 billion a year. Paris would be the main beneficiary of disruption to London as the financial services capital of Europe. The UK and France are close competitors in the race for inward investment.
Sitting in the Elysee Palace Macron may well think France would be a winner from a no deal. But then again he would lose the fish and would have a tremendous problem with cheese. Let's hope the Prime Minister can smile and work his charm on the President of the Commission.
All sides need an agreement, time for a common language, time is running out, the hours are turning ...
That's all for this week! Have a great, safe, week-end ... Hands, Face and Space ...
John |
| | |
| © 2020 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
______________________________________________________________________________________________________________
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.
______________________________________________________________________________________________________________
If you do not wish to receive any further Saturday Economist updates, you can unsubscribe or update your details, using the buttons below or drop me an email at jkaonline@me.com. If you enjoy the content, why not forward to a friend, they can sign up here ...
_______________________________________________________________________________________
We have updated our privacy policy to address Europe's General Data Protection Regulation (GDPR). The policy changes include explaining in more detail how we use your information, including your choices, rights, and controls. We have published a GDPR compliance page about the regulation and the steps we have taken as part of our compliance process. Your privacy is important to us.
For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com
_______________________________________________________________________________________________________________
Copyright © 2020 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List or the Dimensions of Strategy List. You may have joined the list from Linkedin, Facebook, Google+ or one of the related web sites. You may have attended one of our economics presentations. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.
|
| |
|
|
