Tag Archives: debt

Modern Monetary Theory is neither modern, nor new

If after the great financial crisis of 2007-2009 the word “extraordinary” characterised monetary policy, the Covid-19 pandemic calls for a much stronger adjective: “unprecedented”.

As the world has never before been faced with an instance when virtually all economic activity stopped for a certain period of time, this is an appropriate word. However, in monetary policy really very little can be said to be truly “unprecedented”.

For example, take modern monetary theory (MMT) — a theory about how to have your (monetary) cake and eat it, which (simplistically) states that if a country can print its own currency, that country will never default on its debt because it can create as much currency as it wants to and use it to pay back the debt.

Major central banks, to a certain degree, have already begun versions of MMT.

Continue reading →

Inflation is no answer to a potential Covid-19 debt crisis

As governments and central banks around the world throw money at their economies trying to mitigate the pernicious effects of the Covid-19 outbreak, debt is mounting at an alarming pace.

Once the first, acute phase of the pandemic-induced economic crisis ends, something will need to be done about this debt.

Continue reading →

When panic selling is over, stocks could benefit more than bonds

The panic buying of essential items around the globe – from food to, fittingly, toilet paper – sparked by the spread of the COVID-19 coronavirus has been mirrored by panic selling in capital markets. It’s almost as if investors were taking cash out of stocks and bonds to buy whatever food, hand sanitiser and toilet paper they could get their hands on.

Pessimism in global financial markets has reached heights not seen since the dark days of the great financial crisis of 2007-2009, which this current crisis threatens to overtake in depth and significance. But, as news about rapid tests for COVID-19 and resilience to deal with the virus begin to multiply, could investors hope for a bottom in the capital markets’ selloff?

Continue reading →

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?

Continue reading →

Corporate debt is too high, and markets are mispricing this

Of all the fears sweeping the markets right now, perhaps the most worrying is the fear of a debt crisis in the corporate sector.

Warnings about corporate debt rising to unsustainable levels are intensifying, at a time when interest rates are at record lows and even Greece joined the club of negative-yield sovereign debt issuers.

Continue reading →

Growth or stability? Central banks face dilemma

It must be a strange experience, being a central banker these days. Ever since the financial crisis of more than a decade ago, central banks have had to reconcile two opposing goals — both of them self-imposed.

Continue reading →

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.

Continue reading →

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.

Continue reading →

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.

Continue reading →

The end of the debt bias is nigh

Corporate bondholders, beware. The wave of enthusiasm for this asset class, which has helped it to reach new heights, is now ebbing. A research paper recently published by the IMF illustrates the reasons behind this – although it must be said the paper does not represent the official position of the IMF.

Continue reading →