Daniel H. Neilson's blog

Liquidity, Down the Drain

China released quarterly GDP figures this week. Wen Jiabao emphasized the parts of the release that pointed toward stabilization, and one can certainly find some logic to that view. Stabilized or not, China's target of 7.5% growth marks a steep slowdown over recent growth rates. Read more


Last Thursday, the Fed announced its anticipated third round of balance-sheet expansion, at a fixed rate of about $40B per month "until [substantial] improvement [in unemployment] is achieved in a context of price stability". A relief, perhaps, to see some attempt at boosting the economy. But in a column that appears to praise Bernanke for doing something—anything—Martin Wolf still suspects the policy will fail to live up to hopes, and I am inclined to agree. Read more

The fix was in

In Friday's FT, former Morgan Stanley trader Douglas Keenan traces banks' LIBOR manipulations back to 1991, when he observed, from the futures desk, LIBOR fixings come in at levels different from where he new the market to be. "My naivety seemed to be humorous to my colleagues," he writes. Read more

Swexit - When will Switzerland exit the euro?

Since September 2011, the Swiss National Bank has held a floor of 1.20 francs per euro. This floor has in practice been a peg, as the pressure has been in only one direction, downward (that is, in the direction of CHF appreciation).

Image via FT Alphaville Read more

Banks as creators of money

In conversation recently, I was called upon to defend the claim that banks are in the business of creating and destroying private money. This has been for me a working hypothesis for so long that I was unable to respond effectively or cogently to the argument. My interlocutor followed up in e-mail with a Cowles Foundation paper by Tobin in support of her case. Here is my response to Tobin, hopefully better articulated than I managed on the fly. In this post, I'll stick to the theoretical claim (the practical context was bank capital requirements).

I agree wholeheartedly with Tobin's dismissal of the Read more

Renminbi Swap Lines

Last week the central banks of China and Australia announced the creation of a $31bn currency swap line. Like every such agreement, it was hailed as another step towards the renminbi's displacement of the dollar as the world's reserve currency. Are the renminbi swap lines in fact a genuine step forward for the internationalization of the RMB? Read more

Liquidity: Not Like Water (part 1 of many)

Discussion of the results of the ECB's LTRO2 has revolved around the question of hoarding, specifically whether banks are using the newly-created reserves to fund new lending. Answers to this question usually make reference to the amount of overnight deposits held by eurozone banks at the ECB. Read more

Fed, ECB balance sheet update

Perry and I extend our apologies for the unplanned hiatus. By way of breaking radio silence, it seems appropriate to check in on our two favorite banks. Here's the Fed's balance sheet, asset side first:

Read more

Bank or no bank?

A money view of SDRs

In a market economy, when you need something, you go out and buy it. Liquidity is no different, in that respect at least. If it is market liquidity that you need, you go to a dealer, who stands ready to buy what you are selling. You pay for the convenience, though—the dealer is getting more for the same asset than you are. If it is funding liquidity that you need, you go to your bank, who stands ready to lend. You pay for the convenience, though—the bank is paying less for its funds than you are. Read more

Delicate balance

The current account still matters, but other things do too, and maybe more. In light of recent focus on gross flows, here and elsewhere, I want to argue for the language of the balance of payments. This language has a quaint feel to it, and my sense is that economists view it as archaic and outmoded. I am certain, at least, that one can get through grad school with no fluency in it. Read more