Tag Archives: asset purchases

A recession would threaten central banks’ independence

Central banks are again under the limelight. With Mark Carney’s departure as governor of the Bank of England next month, Boris Johnson could try to seize the opportunity to curtail the central bank’s independence.

This should not come as a surprise. Already, Johnson’s soulmate from across the ocean, Donald Trump, has been making noises about the Federal Reserve being too independent (or rather: insubordinate) for his liking.

So, if these two authoritarian populists go for central banks, what are their chances of bringing them under their rule?

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Central banks enabled populism; they will soon pay the price

It is becoming increasingly difficult for central banks to surprise the markets with good news. No matter how dovish they are, investors expect them to be even more dovish still. This financial repression has facilitated the rise of populist politicians, who threaten to bring the end of central banks’ independence.

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Central banks cannot paper over the cracks of populism

Central banks are trying to prolong the decade-old bull market, but it looks like instead of reassuring investors, this makes them nervous.

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What’s behind the Fed’s ‘whatever it takes’ moment

January was an extraordinarily positive month in the markets for virtually all assets, after a horrible 2018 — and it’s all due to the Fed. The US central bank executed a massive U-turn in its monetary policy and, while many observers like to point to low inflation as the reason for the Fed’s aborted effort to normalise monetary policy, something more sinister is behind it.

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Capitulation is near, and so is the Buy signal

If this is not yet capitulation, it sure feels like it. Money has been fleeing stock markets at record speed, and despite dovish signals from the Federal Reserve, investors are still not taking advantage of the buying opportunities the panic in the markets are throwing at them.

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Zombies will prevent interest rates from rising too high

For those who are afraid of zombies, the Bank for International Settlements (BIS) has some bad news: they’re on the rise. What’s more, many people may be working for zombies.

But on the flip side, zombies may spook central banks enough that they don’t raise interest rates too high.

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Low interest rates threaten financial stability

When the bank of central banks warns about financial stability, you have to take notice — even if the warning comes in the Bank for International Settlements usually dry, academic style.

The BIS recently published a paper about the effect of prolonged interest rates on financial stability, and it makes worrying reading. (However, as most people are on holidays in August, unless they are reading it on the beach it will largely go unnoticed).

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The great Fed unwind could cause market turmoil

A recent working paper published by the International Monetary Fund looks at the impact of unconventional monetary policy on an open economy, taking Canada’s case as an example.

The paper’s main finding is that unconventional monetary policy by the Canadian central bank has had expansionary effects on the Canadian economy. Continue reading →

The first half of the year was full of humbling lessons

What a spectacular lesson the first half of the year delivered for investors. At the beginning of the year, it looked like the UK’s vote to leave the European Union was a great idea: the eurozone seemed on the brink of disintegration.

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Will there be a post-Brexit Armageddon?

“Happiness is a candle. In fact, don’t laugh too loud, you risk putting it out.”

— Christophe Maé – Il est où le bonheur

“Brexit Armageddon simply hasn’t happened,” writes with delight the Guardian’s economics editor, Larry Elliot.

“The 1.4% jump in retail sales in July showed that consumers have not stopped spending, and seem to be more influenced by the weather than they are by fear of the consequences of what happened on 23 June. Retailers are licking their lips in anticipation of an Olympics feelgood factor.

The financial markets are serene. Share prices are close to a record high, and fears that companies would find it difficult and expensive to borrow have proved wide of the mark. Far from dumping UK government gilts, pension funds and insurance companies have been keen to hold on to them,” writes Elliot.

Perhaps this optimism is partly justified. After all, confidence goes a long way in financial markets, as any observer of emerging markets can testify. As long as you can project confidence, the battle is, if not won, at least not entirely lost. In most cases, anyway.

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