October 2011

Euro Summit Statement Explained

Okay, so here is the statement, but what does it mean?  Felix Salmon offers an unnamed advisor's flowchart.  Let's see if Money View thinking can do better.

Words are of limited help here (unless perhaps you are a Munchau!).  What is important is to understand the balance sheet relationships, and that takes a video.

Read more

NGDP target, in practice

By Daniel H. Neilson

Last week Goldman Sachs published a note in favor of the Fed's adopting a formal nominal GDP target, while Fed-watchers caught a whiff of a possible change in policy in the works. The proposal, specifically, is for the Fed to announce a target level for nominal GDP over the next 12 months, and to commit to undertaking asset purchases if it seemed that NGDP would come in too low. Scott Sumner, who has long advocated such a policy, felt vindicated, and other market monetarists also voiced their support. Even Paul Krugman seemed to think it might do some good. Read more

Margin Call--"Mama there's wolves in the house"

Jack Bauer comes to Wall Street, in the person of Sam Rogers, played by Kevin Spacey.  The thriller frame is achieved by compressing the slow motion train wreck of 2008 into only 24 hours.  (The time acceleration of the opening Manhattan shot foreshadows this compression, even as it pays homage to the opening shot of Inside Job.)  See reviews here and here. Read more

Making Markets

Plumbing Matters

The last few days have brought a remarkable, but as of yet unremarked, convergence of attention to the matter of making markets.   

We hear about the difficulty of implementing the so-called Volcker Rule, which requires drawing a bright line of some kind between proprietary trading (not allowed) and market making (allowed).  

We hear about banks getting out of the market making business, leading to unusually large spreads in corporate bond markets, large enough possibly to tempt others into the business. Read more

The price is wrong

Focus on quantities

By Daniel H. Neilson

Debate continues over what is the right level for the dollar–renminbi exchange rate. I find it hard to see how focusing on this one price will lead to a productive outcome, politically or economically. Debating the exchange rate focuses the attention on the metric that guides policy. A better approach is to focus on the other side of the coin, namely reserve accumulation.

China's accumulation of US dollar reserves, mainly Treasury debt these days, is not a by-product of its exchange-rate policy. It is the exchange-rate policy. Read more

First Liquidity, then Solvency

First ECB, then EFSF

Tightening money market conditions in Europe have now claimed their first victim, Dexia, and in so doing shifted the focus of policymakers from sovereign debt to banking recapitalization.  But it is just a change in approach; the underlying problem remains the same.

The demise of Dexia should remind everyone that liquidity kills you quick.  In this regard, Trichet's reminder that no European bank should worry about liquidity is reassuring, or should be anyway.

Read more

Lords of Finance Redux

Forget the G7, Watch the C5

Martin Wolf endorses Adam Posen's call for quantitative easing at the Bank of England, and then goes one better, calling for direct monetary finance of government spending, i.e. helicopter money. Read more