Tag: finance

Central Banker Admits Faith In "Monetary Policy 'Safeguard'" Leads To "Even Less Stable World"

While the idea of the interventionist suppression of short-term 'normal' volatility leading to extreme volatility scenarios is not new, hearing it explained so transparently by a current (and practicing) central banker is still somewhat shocking. As Buba's Jens Weidmann recent speech at Harvard attests, "The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before."

 

Excerpts from Jens Weidmann – Europe's Monetary Union

Harvard, 11/25/13 (Full speech here)

In the eyes of many politicians, economists, at least if they are central bankers, cannot have enough arms now – arms with which they are to pull all the levers to simultaneously deliver price stability, lower unemployment, supervise banks, deal with sovereign credit troubles, shape the yield curve, resolve balance sheet problems, and manage exchange rates.

 

It is probably safe to say that this change in attitude is not just due to a sudden surge in the popularity of economists and central bankers. Rather, it reflects the widespread view that central banking has come to be the only game in town. And quite a few economists seem to agree with this notion.

 

To some, the notion that the primary goal of central banks is to keep prices stable has become old-fashioned. Against the backdrop of the financial crisis, they argue that financial stability has become just as important, if not more so, than price stability.

 

…

 

By tearing down the walls between monetary, fiscal and financial policy, the freedom of central banks to achieve different ends will diminish rather than flourish. Put in economic terms: Monetary policy runs the risk of becoming subject to financial and fiscal dominance.

 

Let me explain these mechanisms a bit more in detail, starting with financial dominance.

 

The financial crisis has provided a vivid example of how financial instability can force the hand of monetary policy. When the burst of an asset bubble threatens a collapse of the financial system, the meltdown will in all likelihood have severe consequences for the real economy, with corresponding downside risks to price stability.

 

In that case, monetary policy is forced to mop up the damage after a bubble has burst. And, confronted with a financial system that is still in a fragile state, monetary policy might be reluctant to embrace policies that could aggravate financial instability.

 

…

 

Public debt and inflation are related on account of monetary policy's power to accommodate high levels of public debt. Thus, the higher public debt becomes, the greater the pressure that might be applied to monetary policy to respond accordingly.

 

Suddenly it might be fiscal policy that calls the shots – monetary policy no longer follows the objective of price stability but rather the concerns of fiscal policy. A state of fiscal dominance has been reached.

 

Technically, fiscal dominance refers to a regime where monetary policy ensures the solvency of the government. Practically, this could take the form of central banks buying government debt or keeping interest rates low for a longer period of time than it would be necessary to ensure price stability. Then, traditional roles are reversed: monetary policy stabilises real government debt while inflation is determined by the needs of fiscal policy.

 

…

 

A lender-of-last-resort role would violate this principle of self-responsibility – in that same way as Eurobonds in this setting are at odds with it. Therefore, it would aggravate, rather than alleviate, the problems besetting the euro area.

 

…

 

The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before. This holds true especially for the euro area, where a Eurosystem acting as a lender-of-last-resort role for governments would upend the delicate institutional balance.

 

To disentangle the euro area's fiscal and financial conundrums, we should practice the art of separation – especially with regard to the sovereign-bank doom loop. Or let me put it this way: Rather than for monetary policy to waltz with fiscal and financial policy, we need to erect walls between banks and sovereigns.

 

Of course, Taleb's somewhat seminal piece on vol suppression remains a concerning glimpse of the inevitable.

ForeignAffairs


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KZS_1FIN8MI/story01.htm Tyler Durden

Central Banker Admits Faith In “Monetary Policy ‘Safeguard'” Leads To “Even Less Stable World”

While the idea of the interventionist suppression of short-term 'normal' volatility leading to extreme volatility scenarios is not new, hearing it explained so transparently by a current (and practicing) central banker is still somewhat shocking. As Buba's Jens Weidmann recent speech at Harvard attests, "The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before."

 

Excerpts from Jens Weidmann – Europe's Monetary Union

Harvard, 11/25/13 (Full speech here)

In the eyes of many politicians, economists, at least if they are central bankers, cannot have enough arms now – arms with which they are to pull all the levers to simultaneously deliver price stability, lower unemployment, supervise banks, deal with sovereign credit troubles, shape the yield curve, resolve balance sheet problems, and manage exchange rates.

 

It is probably safe to say that this change in attitude is not just due to a sudden surge in the popularity of economists and central bankers. Rather, it reflects the widespread view that central banking has come to be the only game in town. And quite a few economists seem to agree with this notion.

 

To some, the notion that the primary goal of central banks is to keep prices stable has become old-fashioned. Against the backdrop of the financial crisis, they argue that financial stability has become just as important, if not more so, than price stability.

 

…

 

By tearing down the walls between monetary, fiscal and financial policy, the freedom of central banks to achieve different ends will diminish rather than flourish. Put in economic terms: Monetary policy runs the risk of becoming subject to financial and fiscal dominance.

 

Let me explain these mechanisms a bit more in detail, starting with financial dominance.

 

The financial crisis has provided a vivid example of how financial instability can force the hand of monetary policy. When the burst of an asset bubble threatens a collapse of the financial system, the meltdown will in all likelihood have severe consequences for the real economy, with corresponding downside risks to price stability.

 

In that case, monetary policy is forced to mop up the damage after a bubble has burst. And, confronted with a financial system that is still in a fragile state, monetary policy might be reluctant to embrace policies that could aggravate financial instability.

 

…

 

Public debt and inflation are related on account of monetary policy's power to accommodate high levels of public debt. Thus, the higher public debt becomes, the greater the pressure that might be applied to monetary policy to respond accordingly.

 

Suddenly it might be fiscal policy that calls the shots – monetary policy no longer follows the objective of price stability but rather the concerns of fiscal policy. A state of fiscal dominance has been reached.

 

Technically, fiscal dominance refers to a regime where monetary policy ensures the solvency of the government. Practically, this could take the form of central banks buying government debt or keeping interest rates low for a longer period of time than it would be necessary to ensure price stability. Then, traditional roles are reversed: monetary policy stabilises real government debt while inflation is determined by the needs of fiscal policy.

 

…

 

A lender-of-last-resort role would violate this principle of self-responsibility – in that same way as Eurobonds in this setting are at odds with it. Therefore, it would aggravate, rather than alleviate, the problems besetting the euro area.

 

…

 

The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before. This holds true especially for the euro area, where a Eurosystem acting as a lender-of-last-resort role for governments would upend the delicate institutional balance.

 

To disentangle the euro area's fiscal and financial conundrums, we should practice the art of separation – especially with regard to the sovereign-bank doom loop. Or let me put it this way: Rather than for monetary policy to waltz with fiscal and financial policy, we need to erect walls between banks and sovereigns.

 

Of course, Taleb's somewhat seminal piece on vol suppression remains a concerning glimpse of the inevitable.

ForeignAffairs


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KZS_1FIN8MI/story01.htm Tyler Durden

Jeff Bezos Unveils Amazon PrimeAir – Drone Delivery

While the fundamentals continue to deteriorate, we are sure the idea of drone-based delivery (which fits with the 7500 drones the FAA expects within the next few years) will add a few multiple points to Amazon’s share price valuation. On a side note, with increasing awareness of the government’s surveillance, what better way for the NSA to keep an eye on everyone up close and personal (and to get an occasional invoice by the company that has made burning cash from operations into an art form).

 

The Amazon PrimeAir Drone…

 

 

 

In Action…

 

We suggest not buying fine glassware…

 

The flying machine already has its own twitter account – @AmazonDrone


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Rk2d1VDibDU/story01.htm Tyler Durden

Ukraine On The Edge: The 7 Minute Video Summary

The following seven minutes of mayhem look eerily reminiscent of the violent pre-ambles to the middle-east’s recent coups or non-coups. As anti-government protesters demonstrated against the shunning of a European trade agreement (President Yanukovych – “I will not allow any serious economic losses and decline of living standards”); the clashes became ever more violent as the police cracked down. Following heavyweight boxing champion (and opposition leader) Vitali Klitschko’s call for a new government – “our main task is Yanukovych’s resignation. But the first step is the resignation of Azarov’s government” – the clashes left at least 265 people injured. The crackdown followed Interior Minister comments that they “won’t allow Ukraine to become another Libya or Tunisia, where uprisings toppled governments in recent years.” Of course, the main difference is the Ukraine is now squarely under Putin’s sphere of influence.

 

0:20 Initial fireworks followed by police flash-bangs and tear gas…

1:45 Some standard police beatings

3:00 Ubiquitous projectile exchange

3:30 Police charge…

4:30 Serious police beatings handed out

5:30 The two fronts stare each other down

6:00 Serious police reinforcements

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vYMMKOhmTDk/story01.htm Tyler Durden

UK Royal Mint Working On Plans To Issue Gold-Backed Physical Bitcoins

The implicit, and ever more explicit, institutional acceptance of the dominant cryptocurrency Bitcoin (we say dominant because as we pointed out last week, there has been an unprecedented spike of digital currencies one can pick and choose from) continues when following the surge in vendors willing to transact in BTC over Thanksgiving, the latest news comes from the birthplace of the modern central bank, the UK, where we learn that none other than the UK Royal Mint has been working on plans since this summer to issue physical Bitcoins in collaboration with the Channel Island of Alderney.

But where the story gets downright surreal is that as the FT reports, the same symbolic Bitcoin token issued by the Royal Mint “would have a gold content – a figure of £500-worth has been proposed – so that holders could conceivably melt and sell the metal if the exchange value of the currency were to collapse.” In brief: a perfect, and utterly incomprehensible, fusion of (opposing) hard, soft and digital currencies all rolled into one…

From the FT:

The tiny Channel Island of Alderney is launching an audacious bid to become the first jurisdiction to mint physical Bitcoins, amid a global race to capitalise on the booming virtual currency.

 

The three-mile long British crown dependency has been working on plans to issue physical Bitcoins in partnership with the UK’s Royal Mint since the summer, according to documents seen by the Financial Times.

 

It wants to launch itself as the first international centre for Bitcoin transactions by setting up a cluster of services that are compliant with anti-money laundering rules, including exchanges, payment services and a Bitcoin storage vault.

So, convert a digital currency into fiat, issue plastic (or some other material) tokens (appropriately covered in some goldish color) representing “value” because suddenly the currency (supposedly) has the blessing of central banks, and then store them in some basement? Brilliant.

Just how is the UK Royal Mint involved?

The special Bitcoin would be part of the Royal Mint’s commemorative collection, which includes limited edition coins and stamps that are normally bought by collectors. It would have a gold content – a figure of £500-worth has been proposed – so that holders could conceivably melt and sell the metal if the exchange value of the currency were to collapse.

Wait, what: gold-backed Bitcoins? If so, that would be truly revolutionary because for the first time central banks are effectively hinting that not only are they willing to fiat-ize Bitcoin, but also have the symbolic BTC token (after all Bitcoin is a digital currency by definition) serve as a commodity trap. Because once enough gold-backed physical Bitcoins are locked up in some basement in the UK, who has the master key? That’s a rhetorical question by the way.

Naturally, the UK Mint is not quite eager to disclose full details while the plan is still being finalized:

David Janczewski, head of new business at the Royal Mint confirmed it had been approached by the finance minister of Alderney to “explore the possibility of manufacturing a physical commemorative coin with a Bitcoin theme”.

 

“Discussions have not progressed further and at this stage it remains nothing more than a concept,” he added.

 

But the controversy around Bitcoin has made the Alderney plan a sensitive subject. The Treasury, which owns the Royal Mint, declined to comment on the plans. George Osborne, the British chancellor, also holds the title of Master of the Mint.

Since there is understandably much confusion over what the minting process of a physical gold-backed token representing a digital currency, with the backing of an entity that does the bidding of an issuer that only believes in fiat currencies, here is the FT with the blow by blow.

An independent company will provide the Bitcoins. If the price plunged, neither Alderney nor the Royal Mint would lose anything.

 

The company would put the Bitcoins in an escrow account at an agreed price.

 

Meanwhile, the Royal Mint would take customers’ orders for its minted Bitcoins and receive money from those coin sales.

 

The virtual Bitcoins backing the physical coins would be held in digital storage facilities by Alderney.

 

The Mint would issue the commemorative Bitcoin, paying for the value of the gold content itself. Alderney would receive royalties from sales of the coins.

 

Coins could be redeemed for sterling at any point in Alderney for the price of a Bitcoin on that day.

All we can do at this point is sit back in wonder and amusement as we hit the pinnacle of monetary confusion, whereby the UK Royal Mint, willing to take full advantage of retail confusion, will mix hard, soft and digital currency, and produce a product… that is locked away on an island that belongs to the UK.

And all we can say is “brilliant”, because if there is a better plan to meld the sentiment of both hard and digital-currency (and hence, anti-fiat) advocates, and to redirect it in a “fiat” pathway, we have yet to hear it.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cSpY4EpoGk0/story01.htm Tyler Durden

CNN Tests "Fixed" Obamacare Website And… It Crashes

 ‘If you think health care is expensive now, wait until you see what it costs when it’s free.’

       –  P.J. O’Rourke

If CNN was doing its best this morning to prove that the second coming of healthcare.gov is fixed, it… failed.

Transcript:

GEORGE HOWELL, HOST: We know the first thing you have to do when you go to this website you have to select your state. Is that working?

 

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: And what’s funny is I was talking with Matt, and, yeah, that seemed to work, right, when you logged on. But then came the road blocks. So tell me about what happened, because we’re getting another error message here, and it’s supposed to be running smoothly. We’re just not seeing that.

 

MATT SLOANE, CNN MEDICAL PRODUCER: Yeah, so, you know, we’ve been trying to get into the site since October 1 on and off again. I have to say it did work a lot more smoothly this morning. I got through. I picked my state. I put in all of my information and I got through the whole process in eight minutes. And then it said my status was in progress. So I went to refresh it and I got the error message.

But fear not. According to David Plouffe, 2008 campaign manager for Barack Obama, Obamacare “will work reall well”… by 2017. To wit:

This program was designed to be implemented by the states. And in most of the states it is going quite well. You talked about Medicaid expansion. I think it’s just a fact, and it may take until 2017 when this president leaves office, you’re going to see almost every state in this country running their own exchanges eventually and expanding Medicaid. And I think it’ll work really well, then.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vig5SkL432c/story01.htm Tyler Durden

CNN Tests “Fixed” Obamacare Website And… It Crashes

 ‘If you think health care is expensive now, wait until you see what it costs when it’s free.’

       –  P.J. O’Rourke

If CNN was doing its best this morning to prove that the second coming of healthcare.gov is fixed, it… failed.

Transcript:

GEORGE HOWELL, HOST: We know the first thing you have to do when you go to this website you have to select your state. Is that working?

 

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: And what’s funny is I was talking with Matt, and, yeah, that seemed to work, right, when you logged on. But then came the road blocks. So tell me about what happened, because we’re getting another error message here, and it’s supposed to be running smoothly. We’re just not seeing that.

 

MATT SLOANE, CNN MEDICAL PRODUCER: Yeah, so, you know, we’ve been trying to get into the site since October 1 on and off again. I have to say it did work a lot more smoothly this morning. I got through. I picked my state. I put in all of my information and I got through the whole process in eight minutes. And then it said my status was in progress. So I went to refresh it and I got the error message.

But fear not. According to David Plouffe, 2008 campaign manager for Barack Obama, Obamacare “will work reall well”… by 2017. To wit:

This program was designed to be implemented by the states. And in most of the states it is going quite well. You talked about Medicaid expansion. I think it’s just a fact, and it may take until 2017 when this president leaves office, you’re going to see almost every state in this country running their own exchanges eventually and expanding Medicaid. And I think it’ll work really well, then.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vig5SkL432c/story01.htm Tyler Durden