Shadow Banking

From ZIRP To NIRP - Accelerating The End Of Fiat Currencies

In considering NIRP, Central bankers are failing to address an even greater potential problem, which could easily become cataclysmic. By forcing people into paying to maintain cash and bank deposits, central bankers are playing fast-and-loose with the public’s patient acceptance that state-issued money actually has any value at all. There is a tension between this cavalier macroeconomic attitude and what amounts to a prospective tax on personal liquidity. Furthermore, NIRP makes the hidden tax of monetary inflation, of which the public is generally unaware, suddenly very visible. We should be in no doubt that increasing public awareness of the true cost to ordinary people of monetary policies, by way of the debate that would be created by the introduction of NIRP, could have very dangerous consequences for the currency.

Global Markets: It's Getting Ugly Out There

You'd have to be in full denial mode not to see that it's getting ugly out there in global markets: currencies are melting down, trade and shipping are tanking, commodities are swooning and global stock markets are increasingly on central-bank life support.

German FinMin Warns Monetary Policy Is "Moving In A Very Dangerous Direction"

"Monetary policy can’t solve the problems we face," warns German finance minister Wolfgang Schaeuble, daring to admit that monetary policy-makers "are moving in a direction which is very dangerous" with regard to excess global liquidity. Amid fears of fed tightening and demands for BoJ and PBOC easing, it appears Europe's leadership fears the consequences of a "market bubble" as the global economy is awash in more public and private debt relative to GDP than at any time post-WWII.

Krugman Joins Goldman, Summers, World Bank, IMF, & China: Demands No Fed Rate Hike

The growing roar of 'the establishment' crying for help from The Fed should make investors nervous. While your friendly local asset-getherer and TV-talking-head will proclaim how a rate-hike is so positive for the economy and stocks, we wonder why it is that The IMF, The World Bank, Larry Summers (twice), Goldman Sachs, China (twice), and now no lessor nobel-winner than Paul Krugman has demanded that The Fed not hike rates for fear of  - generally speaking - "panic and turmoil," however, as Krugman notes, “I think it would be a terrible mistake to move. But I’m not confident that they won’t make a mistake."

Buiter: Only "Helicopter Money" Can Save The World From The Next Recession

"We believe a global recession scenario has become the most likely global macroeconomic scenario for the next two years or so. Helicopter money drops would be the best instrument to tackle a downturn in all DMs. We expect to see QE #N, where N could become a large integer, as part of the monetary policy response in the US and the UK, and QEE2 in Japan." 

The "Great Unwind" Has Arrived

The world is in the waning days of a historic multi-decade experiment in unfettered finance. International finance has for too long been effectively operating without constraints on either the quantity or the quality of Credit issued. From the perspective of unsound finance on a globalized basis, this period has been unique. History, however, is replete with isolated episodes of booms fueled by bouts of unsound money and Credit – monetary fiascos inevitably ending in disaster. We see discomforting confirmation that the current historic global monetary fiasco’s disaster phase is now unfolding.

When "Virtuous Debt" Turns Ferociously Vicious: The Mother Of All Corporate Margin Calls On Deck

More debt begets higher market value of equites which in turn improves the debt/equity ratio which gives the incentive to issue more debt ad infinitum. Or in a slightly simpler version, debt begets more debt.  We have seen the story before. In the shaded grey areas we highlight episodes when the virtuous relationship turns ferociously vicious. Remember, markets take the escalator up, but the elevator down. And the longer the escalator the further down the elevator goes.

Don't Forget China's "Other" Spinning Plate: Trillions In Hidden Bad Debt

Given the global implications of what’s going on in China’s stock market and the fact that the yuan devaluation is set to accelerate the great EM FX reserve unwind while simultaneously driving a stake through the heart of beleaguered emerging economies from LatAm to AsiaPac it’s wholly understandable that everyone should focus on equities and FX. That said, understanding the scope of the risk posed by China’s many spinning plates means not forgetting about the other problems Beijing faces, not the least of which is a massive collection of debt.

China: Doomed If You Do, Doomed If You Don't

Doomed if you do, doomed if you don't: trash your currency and watch capital gush out of your economy and financial sector, or support your currency and watch your export sector's sales and profitability crater.

Whichever option China chooses, it loses.

Citigroup Chief Economist Thinks Only "Helicopter Money" Can Save The World Now

Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota - who never met an economy he didn't want to throw free money at), we found it fascinating that no lessor purveyor of the status quo's view of the world - Citigroup's chief economist Willem Buiter - that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright "helicopter" money from the central banks will avert the deepening crisis. Faced with China's 'Quantitative Tightening', the economist who proclaimed "gold is a 6000-year old bubble" and cash should be banned, concludes ominously, "everybody will be adversely affected."