Category Archives: Central Banks

(Reuters) Trump reverses course, seeks negative rates from Fed ‘boneheads’


WASHINGTON (Reuters) – U.S. President Donald Trump on Wednesday called on the “boneheads” at the Federal Reserve to push interest rates down into negative territory, a move reluctantly used by other world central banks to battle weak economic growth that risks punishing savers and banks’ earnings in the process.

Trump, in a pair of Twitter posts, said negative rates would save the government money on its debt, which including Social Security accounts has reached a record $22 trillion on Trump’s watch. He did not address the risks or financial market tensions that central banks in Europe and Japan have confronted as a result of their negative rate policy, or the larger issue that negative rates have not secured higher growth or higher inflation for those economies.

“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term,” Trump tweeted. “We have the great currency, power, and balance sheet… The USA should always be paying the … lowest rate. No Inflation!”

“It is only the naïveté of (Fed Chairman) Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing,” added Trump, who has repeatedly noted that rates are negative in Germany, Europe’s trading powerhouse.

The president’s comments precede a week in which the world’s major central banks, including the Fed, are expected to lower rates or otherwise loosen monetary policy in what is widely seen as a move to protect the global economy against risks partly rising from Trump’s trade war with China.

But the quarter of a percentage point cut expected by the Fed is not likely to satisfy Trump, who has called on Powell and the Fed to quickly and dramatically cut rates as a way to boost slowing U.S. economic growth ahead of his re-election bid next year.

Last month, however, Trump told reporters at the White House that he did not want to see negative rates in the United States, and analysts on Wednesday said the still-growing U.S. economy would be put at risk if the Fed pursued them.

While perhaps appropriate in “recessionary” conditions, zero or negative rates in a growing economy with record-low unemployment “may ultimately create the next financial crisis – people taking on more risk than they would otherwise because money is even cheaper,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Trump has bragged about his use of debt as a real estate investor. As far as managing the federal government’s affairs, interest on outstanding U.S. Treasury securities will be nearly $400 billion in the current fiscal year and rise to more than $914 billion by 2028, according to the Pew Research Center. ​

Still, interest accounts for about 8.7% of all federal outlays, down sharply from the mid-1990s when it accounted for more than 15% of spending following an era of ultra-high interest rates in the 1970s and 1980s, the Pew data showed.

A White House official who asked to speak on background said in response to the president’s tweets that “the president is looking at every tool available to lower the national debt and we ask Congress to join us in cutting back on wasteful spending.”


Trump handpicked Powell as head of the U.S. central bank, but quickly soured on his by-the-book approach and insistence on Fed independence.

The president last month referred to him as an “enemy” on par with the head of the communist-led Chinese government and kept up his personal line of attack on Powell and the Fed in his tweets on Wednesday: “A once in a lifetime opportunity that we are missing because of ‘Boneheads.’”

On Friday, Powell said the Fed would act appropriately to help maintain the U.S. economic expansion and that political factors played no role in the central bank’s decision-making process.

He will hold a news conference next Wednesday at the end of the Fed’s two-day policy-setting meeting.

The Fed cut interest rates in July for the first time in more than a decade. Financial markets expect the Fed to again lower its benchmark rate, currently at 2.00-2.25%, when it meets Sept. 17-18.

Despite Trump’s name-calling, U.S. Treasury Secretary Steve Mnuchin told reporters at the White House on Monday he expected Powell’s job was safe, despite months of speculation that the president could seek to oust him.


Fed officials have downplayed the idea of setting their target policy rate below zero as politically untenable and not worth the risks. The policy is meant to account for extremely weak economic conditions by, in effect, charging banks to hold reserve deposits at the Fed.

In theory those banks would put the money to more productive uses. But it raises risks.

Banks might pay less to savers as a result, and it can make it more difficult to operate at a profit. In addition, while the Fed’s policy rate influences other borrowing costs, the interest rate on long-term government bonds Trump alluded to in his Tweet are set by larger market forces and depend mightily on perceptions about economic growth.FILE PHOTO: U.S. President Donald Trump arrives to address the 2019 National Historically Black Colleges and Universities (HBCU) week conference in Washington, U.S., September 10, 2019. REUTERS/Leah Millis

The yield on 10-year Treasury notes has collapsed by half in recent months to a near record low — a reflection of doubts about the global economy and the impact of Trump’s trade war as much as of Fed policy. Trump has cited the negative yield on Germany’s 10-year bond approvingly, but it is a product of an economy nearing or perhaps in recession.

The Washington Post, citing public filings and financial experts, reported last month that Trump could also personally save millions of dollars a year in interest if the Fed lowers rates, given the outstanding loans on his hotels and resorts.

(Economist) Mario Draghi and the ECB confront a slowing euro zone

(Economist) As the risk of recession in Europe rises, the ECB must act

If mario draghi had been hoping for a quiet few months before he retires from the European Central Bank (ecb) at the end of October, he has been disappointed. He has been in charge for eight high-wire years. In 2012 he quelled panic about the break-up of the euro zone by pledging to do “whatever it takes” to save the single currency. In 2015 he introduced quantitative easing (qe, creating money to buy bonds) in the face of fierce opposition from northern member states. Now the euro zone is flirting with recession and governments are not helping by being slow to loosen fiscal policy. At the central bank’s meeting on September 12th, Mr Draghi must dust himself down one last time.

Investors’ jitters about a recession and the impact of the trade war have sent bond yields tumbling. The ecb’s hawks—such as Jens Weidmann, the head of the Bundesbank, and Klaas Knot, of the Dutch central bank—caution against overreacting with a large stimulus. But the economic data are dreadful. Output in Germany shrank in the second quarter, and some economists are pencilling in another contraction in the third. Italy is stagnating. According to a survey of purchasing managers released on September 2nd, Europe’s manufacturing decline shows no sign of abating. The deeper it is and the longer it lasts, the more likely that trouble brims over into the rest of the economy. In Germany retail sales are already slipping and firms are planning to hire fewer workers.PUBLICIDADE

Inflation is dangerously low. Both the headline figure and the “core” measure—which strips away volatile food and energy prices—are stuck at around 1%, below the ecb’s target of inflation below, but close to, 2%. Investors’ medium-term expectations, as measured by swap rates, have drifted down to 1.2%, well below levels in 2014-15, when the bank prepared to launch qe. The views of professional forecasters surveyed by the ecb have fallen to their bleakest since polling began in 1999. In an attempt to bolster its credibility, the bank has tweaked its language to emphasise that it does not want to undershoot the target of 2% consistently. But without action, those words count for little.

Some economists, among them Larry Summers of Harvard University, argue that, with little ammunition left, central banks should refrain from action so as to force governments to step into the breach with fiscal policy. They are right that the root cause of the economic woe is a shortfall of demand. Sovereign borrowing costs in much of the euro area are near zero or below it. In an ideal world governments would leap at the chance to borrow so cheaply in order to invest. And it is also true that monetary policy is likely to be less effective because rates are so low. The ecb’s deposit rate is already -0.4%. At some point the benefits of further cuts will be offset by their costs, for example if customers begin to withdraw funds from banks and thus destabilise them. With financial conditions already much looser, qe will not be as effective as it was in 2015.

But for the ecb to stand back and do nothing would be irresponsible. It is legally obliged to achieve price stability. Germany’s government shows little appetite to borrow to spend, even if its entire bond yield-curve is submerged below zero. There is even less sign of co-ordinated regional fiscal stimulus in the offing. Until governments loosen the purse-strings, the ecb has no choice but to act. It is the only game in town.

Mr Draghi must therefore be bold on September 12th. Although the scope for interest-rate cuts is limited, it still exists. The important thing is to mitigate the impact on financial stability by, say, “tiering” deposit rates—giving banks a rebate on some of the interest they would otherwise have to pay to park spare cash with the central bank. This would signal that the ecb can cut rates further without blowing up the banking system.

He should also restart qe and commit the bank to buying bonds until underlying inflation shows a meaningful recovery. Mr Draghi has said before that he views asset purchases as particularly helpful in reviving inflation expectations. One constraint is the ecb’s self-imposed limit on the share of a country’s government bonds that the bank can buy. This should be lifted from a third to a half, sending a powerful signal that the ecb means business. The legality of qe is still being questioned in Germany’s constitutional court, but a ruling by the European Court of Justice last year appears to give the ecb room to raise those limits in its quest for price stability. The promise of lower borrowing costs for longer might even prompt national treasuries into issuing more debt.

Last, Mr Draghi must use the bully pulpit to urge governments to exercise their fiscal powers to fend off a recession. You might think that he should avoid taking action at the end of his tenure, so as not to bind the hands of his successor, Christine Lagarde. Not so. A determined response now will save her much work later. Mr Draghi is in a unique position. His stature with investors and governments gives him real clout. And since he departs in a few weeks he can be blunter than he has been in putting across the message that governments, not just the ecb, must act. That would cement his legacy as the man who saved the euro.

(ZH) Since 2014, European Banks Have Paid €23 Billion To The ECB… And Now Face Disaster

(ZH) Earlier this morning, there was an added wobble in European bond prices after an unconfirmed MNI report said the ECB could delay the launch of QE on Thursday and make it data dependent. While skeptics quickly slammed the story, saying it was just a clickbait by MarketNews…

About this MNI story on a possible delay in ECB QE announcement:
1) No substance, including from the ECB “sources”
2) Let’s hope the story is as accurate as the previous ones163:51 PM – Sep 10, 2019Twitter Ads info and privacySee Frederik Ducrozet’s other Tweets

… it does highlight just how sensitive the bond market is to an announcement of aggressive easing by the ECB when it meets on Thursday, Sept 12, where consensus generally expects a significant easing package, including a -20bp rate cut (followed by -10bp cut later on), coupled with roughly €30 billion in sovereign debt QE for 9-12 months, coupled with enhanced forward guidance.

The three package expectations (small, medium, large) by Goldman analysts are laid out below:

There is just one problem: while it is unclear if any further easing by the ECB will do anything to stimulate the Eurozone economy, one thing is certain – further easing will only cripple Europe’s banks. In fact, as Goldman writes in its ECB preview, “further rate cuts are a very uncomfortable prospect for the [banking] sector” and estimates that a -20bp cut could lead to an aggregate €5.6bn (-6%) profit cut for 32 €-banks under the bank’s coverage; worse, a further -10bp cut, as per GS macro forecasts, increases the hit to -10% (-€8.3 bn). Overall, 19 banks in Goldman’s coverage face a >10% EPS cut, and 8 banks face as much as a 20% EPS hit.

Then there is Europe’s head on collision with a recession: the weakening rate outlook has been accompanied by >20% fall in €-bank shares (SX7E) since 2H18 and -4% cuts to their consensus Net Interest Incomes (for 2020E). According to Goldman, so far ~40% of the share price decline could be explained by NII cuts; the rest falls into the ‘other’ domain, “where political risk features notably.”

Here is the problem in one sentence, and chart: since negative rates were intorduced in 2014, European Banks have paid €23BN to the ECB!

So to avoid a further banking sector, deterioration Goldman warns that “it’s critical that tiering accompanies further rate cuts if a large profit hit for the sector is to be avoided. A -20bp cut could lower €-banks EPS by ~6%. A tiering with efficiency on par with SNB scheme could offset ~30% of the hit.”

So the big question for Thursday is whether the ECB will also introduce rate tiering at the same time as it eases more.

On this topic, Goldman economists note that the implementation of the ECB’s new scheme is likely to be structured based on a multiple of minimum reserves held by individual banks (SNB model) or on a fraction of their actual excess reserve holdings (BOJ). Their baseline assumption is a two-tiered system, with one tier remunerated at the MRO (currently 0%), similar to minimum reserves, and a second tier charged at the prevailing DFR. They expect c. 50% of excess reserves to be priced at the DFR level.

In Goldman’s view, tiering is a critical part of any incremental easing package. As we have argued before, without it, an extremely challenging operating environment becomes worse, and may push an increased number of banks towards breakeven, or even loss-making territory. However, not all tiering is the same, and the schemes currently in use vary greatly in the extent of the offset/relief they provide to banks.

Key questions for bank investors ahead of the ECB meeting revolve around these following issues:

1. Could ECB’s tiering efficiency be on par with the Swiss or Japanese approach? The Swiss-like approach to tiering is Goldman’s baseline scenario (where c. 60% of deposit balances are exempt from negative rate), but it offers less relief for banks compared to the Japanese approach (>90%).

2. Would tiering be applied to the incremental cut (-20bp) only, or the full -60bp? In other words, would the tiered rate be set at the level of the MRO (0%) or lower. In our view, an offset for the entire -60bp is key. Goldman estimates that a scheme with efficiency on par with a ‘Swiss model’ with a relief applied retrospectively to a full negative rate (-60bps) has scope to shield ~⅓ of a fully-loaded impact of a 20bp rate cut for the Euro area banks under our coverage.

If rates on aggregate fall by -30bp, we calculate that the ‘tiering shield’ would be closer to 25-30% of the aggregate hit. It’s also important to note that even with tiering a 20-30bp rate cut is ultimately profit negative – when fully loaded. The  relief it brings, however, is front-loaded leading to a near-term neutral impact for the aggregate.

In short: with the sellside analysts more focused on what the ECB will do to offset the adverse impact of its additional easing – as Europe inevitably careens to the reversal rate of roughly -1%, beyond which it’s game over for central banks – one wonders: just why is the ECB doing anything at all, if the biggest consideration is what it will do to offset the damage it creates by “fixing” things?

(ZH) EU Bank Bosses Warn Of “Grave Consequences” If ECB Keeps Cutting Rates


The ECB’s imposition of negative interest rates have created an “absurd situation” in which banks don’t want to hold deposits, rages UBS CEO Sergio Ermotti, arguing that this policy is hurting social systems and savings rates.

Ermotti is not alone. As European bank bosses cast their eyes at their share prices, they are fighting back, some have said – biting the hand that feeds, in their attack on ECB policies, warning of severe consequences to asset prices and the broader economy.

As Bloomberg reports, Deutsche Bank CEO Christian Sewing warned that more monetary easing by the ECB, as widely expected next week, will have “grave side effects” for a region that has already lived with negative interest rates for half a decade.

“In the long run, negative rates ruin the financial system,” Sewing said at the event, organized by the Handelsblatt newspaper.

Another cut “may make refinancing cheaper for states, but has grave side effects.”

While incoming ECB head Christine Lagarde has claimed that the benefits of deeply negative rates outweigh the costs (stating just this week that “a highly accommodative policy is warranted for a prolonged period of time;” few economists believe another cut at this level would actually help the economy. According to Sewing, all it would achieve is to further divide society by lifting asset prices while punishing Europe’s savers who are already paying 160 billion euros ($176 billion) a year because of negative interest rates.

“What’s really worrisome: central banks have hardly any tools left to effectively mitigate a real economic crisis,” Sewing said.

“They have already cranked open the money tap – most of all the European Central Bank.”

Who can blame Sewing, as the EU yield curve has collapsed, so has his share price…

Source: Bloomberg

“Banks’ interest margins are under pressure in this environment and that’s not going to change,” Commerzbank CEO Martin Zielke said at the same conference.

I don’t think it is a particularly sustainable or responsible policy. But we have to recognize the facts and the facts are that winning clients in this environment helps work against that pressure.

Bloomberg also notes that Yngve Slyngstad, the chief executive officer of Norges Bank Investment Management, Norway’s $1 trillion wealth fund, has separately said that negative rates are the main worry at the world’s largest wealth fund right now.

So, with Draghi facing push back from an increasingly hawkish group of ECB members, the question is, will he just push off the decision? Starting October 31, how the Eurozone will be destroyed – whether with hyperinflation fire and deflationary ice – will no longer be Draghi’s decision, but instead the final destruction of the Eurozone will be delegated to arguably the most clueless person (see Argentina) in the room.

(Economist) The Fed cuts rates for the first time in over a decade

(Economist) Investors are already hankering for more

INTEREST RATES set by the Federal Reserve have been rising since 2015. The gradual approach, explained the Fed’s chairman, Jerome Powell, last September was intended to leave time to see how well the economy could absorb each hike. “So far the economy has performed very well, and very much in keeping with our expectations,” he said back then.

Now America is being treated to what some are calling “Powell’s pirouette”. On July 31st Mr Powell announced America’s first interest-rate cut in over a decade, of 0.25 percentage points. At the press conference after the announcement he blamed weak global growth, trade policy uncertainty and muted inflation. “We’re trying to sustain the expansion,” he said.

(Economist) America should resist the temptation to weaken the dollar

(Economist) The costs of intervention outweigh the short-term benefits

Usually the pre-eminence of the dollar is a source of pride for whoever occupies the White House. But for weeks President Donald Trump has been grumbling about the consequences of its status and its current strength. He sees other countries’ trade surpluses with America as evidence of a “big currency manipulation game” (see article). He has dropped hints that it is a game that America ought to play, too. If that hurts foreign holders of dollars, so be it.

So far this is mostly a war of words, but it could easily escalate into something worse. If America concludes that its trade partners are using unfair tricks to weaken their currencies, it may claim the right to do the same. There is even speculation that direct intervention to weaken the dollar might be countenanced. A cold-eyed assessment says this would involve lots of trouble for at best a transient benefit. It would also undermine one of America’s key assets—its open capital markets.

Many of the conditions for a currency war are in place. The world economy is sluggish. The imf this week revised down further its forecasts for gdp growth in 2019. Interest rates in the rich world are low and cannot fall much lower. There are real or imagined constraints on the use of fiscal stimulus. As a result, a cheap currency is one of the few ways left to gin up the economy.

The shock of intervention would probably take the dollar lower—for a while, at least. But interventions have a better chance of working in the longer term if the currency is way out of whack. That is not obviously the case. Currencies roughly reflect economies’ relative strengths. America’s has proved the most reliably resilient. Yields on Treasuries are still the highest in the rich world. Global investors look to America’s capital markets as the place to find the digital firms of the future, rather than to Europe, whose bourses are heavy with banks and carmakers.

Without a surge in gdp growth outside America, it would probably take a hefty intervention to keep the dollar down. Standard Chartered, a bank, puts the required commitment at $200bn-400bn. Printing dollars to sell would complicate monetary policy, but that is a trivial objection. The Federal Reserve is set to cut interest rates in any event (which might itself weaken the dollar a bit). A bigger headache is which currencies to buy. It is hard to put a lot of money to work quickly in non-dollar assets. The most liquid markets are in euros and yen, where the safest bonds have negative yields. Of those, the one large market with positive yields is Italy. If America bought Italy’s bonds, it would help cut its borrowing costs—an odd kind of punishment.

An advantage that America has over China, its strategic rival, is its open capital markets. A one-sided intervention to weaken the dollar would undermine that. Foreign investors would think twice about betting on dollar assets if Washington reserved the right to bet against them when it sees fit. Though Mr Trump is an unlikely history student, it may be wise for America to recall Britain’s dilemma in 1967. It had dawned on Britain that having one of the world’s main currencies was at best a mixed blessing. Allowing the pound to weaken would be a salve to an economy that had trailed the rest of Europe, but it would also hurt the many foreign allies who kept their reserves in sterling. When devaluation came, there were feelings of relief but also of regret. These days sterling is a shadow of its former self.

The best remedy for the dollar’s strength is stronger economic growth outside America. Fiscal stimulus across the euro zone would help, of course. But one policy is in the gift of the White House. An end to the trade wars would lift the fog over the world economy. Sue for trade peace, Mr Trump—and watch the yuan and the euro rally against the dollar.

(Reuters) Weak euro zone data backs Draghi’s case for more easing

(Reuters) PARIS/BERLIN (Reuters) – A series of weak economic data from France, Germany and the euro zone as a whole on Tuesday painted a meagre growth outlook for the single currency bloc, lending support to doves among ECB policymakers who favour more rate cuts and bond buys.

French growth slowed unexpectedly in the second quarter on weaker household spending and German consumer morale worsened for the third month in a row heading into August, adding to signs that the euro zone economy as a whole is cooling.

The lacklustre read-out of data from the currency bloc’s two biggest economies backs European Central Bank President Mario Draghi’s assessment that the growth outlook is deteriorating and the bank should inject more monetary stimulus.

In a further sign of economic weakness, German consumer price inflation, harmonized to make it comparable with other euro zone figures, eased to 1.1% in July from 1.5% in the previous month, preliminary data showed.

This undershot a Reuters forecast of 1.3% and was the lowest since November 2016. It also marked the third month in a row that German inflation remained well below the ECB’s target level of close to but below 2% for the euro zone as a whole.

“Consumers cheer, savers cry. Mario Draghi will definitely not raise interest rates during his term of office,” KfW economist Sebastian Wanke said.

Draghi’s term as ECB president is due to end on Oct. 31 and IMF chief Christine Lagarde has been nominated to succeed him.


Adding to the clouded outlook, euro zone economic sentiment deteriorated to hit its lowest level in more than three years in July, European Commission data showed on Tuesday.

“This adds to evidence … that the euro zone economy will expand by a meagre 1% or so this year, strengthening the case for ECB action sooner rather than later,” said Melanie Debono from Capital Economics.

The French economy grew 0.2% in the April-June period, down from 0.3% in the previous three months, according to preliminary data from the INSEE statistics agency.

That was just below a Reuters poll of 28 economists, which had an average estimate of 0.3%.

Until now the French economy has proven more resilient than some neighbours such as Germany because it is less dependent on exports and thus less exposed to global swings.

But household spending, the traditional motor of French growth, grew only 0.2%, the slowest rate in a year despite a more than 10 billion euro (9.2 billion pounds) package of measures launched by President Emmanuel Macron to boost purchasing power.


In Germany, the economy is widely expected to have contracted in the second quarter and sentiment surveys suggest the third quarter might not bring any improvement, raising the spectre of a technical recession in Europe’s largest economy.

The GfK consumer sentiment indicator, based on a survey of about 2,000 Germans, edged down to 9.7 from 9.8 a month earlier. It was the lowest reading since April 2017.

As German exporters are hit by trade disputes and Brexit uncertainty, household spending and construction have become important drivers of growth. Domestic demand is boosted by record-high employment, above-inflation pay increases and low borrowing costs.

But the continued drop in consumer confidence signals that a slump in Germany’s export-dependent manufacturing is now creeping into other sectors of the economy as employees are becoming afraid that they could soon lose their jobs.FILE PHOTO: General view of the skyline of La Defense business district with its Arche behind Paris’ landmark, the Arc de Triomphe and the Champs Elysees Avenue in Paris, France, January 13, 2016. REUTERS/Charles Platiau/File Photo

“The trade war with the United States, ongoing Brexit discussions and the global economic slowdown continue to drive fears of a recession,” GfK researcher Rolf Buerkl said.

Consumers with jobs in export-driven sectors in particular, such as the car industry and their suppliers, are affected the most, he said. The propensity to buy as measured by the GfK also deteriorated to reach its lowest in nearly four years.

“The primary threat to consumer confidence is the persistently increasing fear of job losses,” Buerkl said. He warned that household spending could weaken in coming months if the trend continues.

(EUobserver) Lagarde set to lead ECB


  • France’s Christine Lagarde was nominated to lead the ECB (Photo: Council of the EU)

Christine Lagarde is set to lead the European Central Bank following a breakthrough deal on top EU jobs at a summit in Brussels on Tuesday (2 July).

The French former finance minister and current managing director of the International Monetary Fund (IMF) is now set to succeed Mario Draghi, whose terms comes to an end in October.

(ZH) Draghi ‘Out’ed By ECB Insiders As Liar And Schemer


Authored by Wolf Richter via,

Draghi’s shenanigans get hilarious, months before his term ends.

So here’s ECB President Mario Draghi, whose term ends in October, and he’s at the ECB Forum in Portugal, and in a speech on Tuesday titled innocuously, “Twenty Years of the ECB’s monetary policy” – so this wasn’t a press conference after an ECB policy meeting or anything, but a speech on history at an ECB Forum – he suddenly threw out a whole bunch of stuff…

How, “in the absence of improvement” of inflation, “additional stimulus will be required,” in form of “further cuts in policy interest rates” and additional bond purchases, and how “in the coming weeks, the Governing Council will deliberate how our instruments can be adapted commensurate to the severity of the risk to price stability,” and that “all these options were raised and discussed at our last meeting.”

Whoa! Wait a minute, said the good folks who were part of the ECB’s June meeting. These options were not discussed, they told Reuters on Tuesday.

Draghi had ventured out there on his own – apparently trying to push his colleagues into a corner single-handedly as his last hurrah.

His vision laid out on Tuesday was quite a change from the June 6 post-meeting announcement, which didn’t mention anything about even discussing rate cuts. It said that the ECB expects its policy rates to “remain at their present levels at least through the first half of 2020,” before the ECB would begin to raise them, with the bias still on raising rates, not cutting rates. That was less than two weeks ago, and there had not been another ECB policy meeting since then.

Interviewing six “sources” at the ECB with “direct knowledge of the situation,” Reuters found that these policy makers “had not expected such a strong message and that there was no consensus on the path ahead.”

At the June 6 policy meeting, any possibility of a rate cut or renewed asset purchases had been mentioned “only in passing” and without any substantive discussion. The discussion had instead focused on the new package of loans for the banks, the sources said.

The sources told Reuters that ECB policymakers were worried “Draghi was flagging his measures so strongly to markets as a ‘fait accompli’ that there would be no chance for them to disagree with them in at the next policy meeting on July 25,” Reuters reported.

“But they added that, with a global trade war escalating and financial worries around Italy already high, there was little appetite for a fight in July,” Reuters said.

Several sources told Reuters that, because very little new economic information on the Eurozone will come out before the July 25 meeting, “it would be difficult to justify coming to a different policy conclusion than in June.”

And at the June meeting, the conclusion was to delay rate hikes – and there was no mention of rate cuts.

The sources told Reuters that the debate about which policy measures to implement, when, and in what order was still wide open, with policy makers having very different opinions.

For some the first step should be a change in the ECB’s policy message. Others favor a reinforcement of the pledge not to raise rates for a longer time.

Others favor restarting the asset purchase program to bring borrowing costs down for governments so that they could spend more during a downturn, though that would be handicapped by the “issuer limit” that prevents the ECB from holding more than 30% of a country’s sovereign bonds. But the ECB could dispose or circumvent that limit, “some” sources said.

Some policymakers lean toward rate cuts, the sources said. And other policymakers think the ECB should not make any changes at all unless economic data deteriorated substantially and inflation expectations dropped further below the ECB’s target.

But there was no consensus, and there had been no substantive discussions of these topics at the last meeting that had focused on the modalities of the new bank loan package.

What is hilarious is how Draghi was outed as a fabricator and schemer on the very same day he made his additional-stimulus-will-be-required speech, by people who were surprised by his speech, some of whom felt “powerless,” as Reuters put it, and knew he was trying to box them into a corner with his devious move. This has the smell of a palace revolt at the ECB against the head honcho and his last hurrah.

(ZH) Russian Central Bank Eyes Gold-Backed Crypto


First there was Tether; a controversial dollar-backed cryptocurrency by crypto exchange firm, Bitfinex. Then came Petro, the industry’s first oil-backed crypto issued by the Venezuelan government last year. And now we might be about to see the first gold-backed cryptocurrency—by a central bank, no less. According to Russian news agency, TASS, Russia’s central bank, the Bank of Russia will consider issuing gold-backed cryptocurrencies – a rather strange move considering how cryptocurrencies are generally anathema to central banks.

Shot in the arm

But before crypto bugs can start doing a round of high fives, the head of the Bank of Russia, Elvira Nabiullina, has revealed that the cryptocurrencies are not meant for retail use but rather for conducting big mutual settlements for entities with global jurisdictions.

In other words, only the heavyweights will get to lay their hands on them. Further, she says that she still believes that it’s better for countries to develop international settlement systems such as the Eurasian Economic Union (EAEU) framework that use their own national currencies noting the said framework has demonstrated good dynamics.

Finally, she admonishes that the latest twist should not be interpreted to mean that the bank supports a scenario where cryptocurrencies eventually replace fiat in the monetary system.

The Bank of Russia’s latest move is a belated concession that cryptocurrencies do have a place in the modern monetary system, whether banks and financial institutions like it or not. It’s a big shot in the arm for an industry that has endured so much unmerited criticism, animus and outright rejection.

Last month, the Bank of Russia released a policy brief outlining the potential benefits of CBDCs (central bank digital currencies) including being less risky than existing systems and a more liquid asset that can lower transaction costs.

It’s worth noting that the bank cited anonymity as the only major drawback of CBDCs (and possibly cryptos by extension).

Russia’s largest bank is not the only one to endorse cryptos–though it’s the only central bank to-date to expressly say it’s seriously considering launching one.

A couple of days ago, the European Central Bank (ECB) declared thatcryptocurrencies are not a threat to the region’s financial stability. Closer home, JPMorgan launched JPM Coin in February, a stablecoin meant for clients of its wholesale payments business. Each JPM Coin is pegged to a dollar.

Finally last year, a banking consortium launched We.Trade, a challenger to Ripple, the cryptocurrency that facilitates interbank transfers.

Commodity-backed cryptos survive

Recently, CoinTelegraph reported that Bank of Russia was discussing mutual settlements with Venezuela in Petro and the Russian Ruble. That will certainly mark a major milestone for Maduro’s infantile cryptocurrency.

When President Maduro’s beleaguered government launched Petro last year, we dismissed it arguing it was destined to fail due to lack of trust from the community with commodity-backed cryptos having their fair share of scandals. What we failed to anticipate was the brutal determination by the Venezuelan government in making sure it’s brainchild not only survives but thrives.

Since then, Maduro has elevated Petro to an alternate official currency while using underhand tactics such as converting pensioners’ payments to the cryptocurrency without their consent in a bid to make it go mainstream. Popular crypto blog CCN reported in January that Petro seems to be alive and well despite lack of evidence for the oil stockpiles that are supposed to back it up and also being user-unfriendly.

And now Venezuela’s Petro is about to get a new lease on life after teaming up with another renegade. Both countries eschew the dollar viewing it as being too dominant and hope the new cryptocurrency will help them ditch the American currency.

Yet another stablecoin—the dollar-backed Tether—seems to be doing well, too, despite its share of controversies. A month ago, New York AG charged Bitfinex with dipping into its Tether cash reserves to cover up internal losses.

The fact that many commodity-backed cryptos seem to be surviving major trust issues is almost a validation of the whole idea of having a physical commodity back-stopping a digital currency.  

The new ones by Russia’s central bank will have a much lower hurdle to clear.

(ECO) A ideologia que queria ser teoria – José Maria Brandão de Brito


A tentação de abraçar a Teoria Monetária Moderna vai revelar-se irresistível para muita gente, mas é muito melhor para vender sonhos do que para gerar crescimento económico sustentado.

Volvida uma década desde a Grande Crise Financeira e, não obstante a recuperação económica global, o endividamento mundial, sobretudo dos estados, não parou de crescer. Tal circunstância constitui uma restrição à política económica, pois à medida que os rácios de dívida pública crescem torna-se mais difícil e oneroso financiar os défices nos mercados de capitais. A não ser, claro, que se dispensem os investidores dessa tarefa.

Mas como?

É simples. O Estado gasta. Se os investidores não cederem os seus fundos a baixo custo, o banco central emite moeda e financia a despesa pública.

Mas isso não viola todas as regras de política económica?

Sim, à luz das teorias convencionais. Acontece que para um coro cada vez mais estridente de ativistas o mundo precisa de uma visão moderna da economia que liberte os nobres intentos do estado do jugo dos detentores do capital. A solução é a chamada Teoria Monetária Moderna (TMM).

A TMM parte da ideia de que a moeda é um monopólio do banco central de cada país e, como tal, pode ser produzida nas quantidades suficientes para satisfazer as necessidades financeiras do estado, quaisquer que estas sejam.

Daí decorre o postulado essencial da TMM de que os défices orçamentais são irrelevantes. O facto do desprezo pela sobriedade orçamental poder constituir um risco para os investidores que financiam o estado é um dano colateral de somenos importância que não pode obstar à construção de um futuro mais justo. Resulta como corolário que políticas de consolidação orçamental não só não produzem benefícios para a sociedade, como impedem o estado de prover bens e serviços críticos para a população.

Seria ótimo que a prosperidade dependesse da possibilidade do Estado gastar sem limite. Mas só para as mentes menos versadas nas minudências da economia é que a TMM equivale a um visto para um mundo sem restrições. Na verdade, a TMM é muito melhor para vender sonhos do que para gerar crescimento económico sustentado.

Como tentativa de racionalização de uma ideologia que vê no Estado a solução de todos os problemas económicos, falta muita coisa a esta teoria. Desde logo, falta perceber que a inflação monetária é um imposto que afeta primordialmente os pequenos aforradores, pelo que a presunção de que um elevado nível de despesa pública não implica agravamento da fiscalidade é de uma cândida ingenuidade.

Falta, também, perceber que o abuso da prerrogativa monopolista dos bancos centrais na produção de dinheiro pode destruir a fé dos cidadãos na moeda, que é a quintessência das moedas fiduciárias. Se tal acontecer, as pessoas abandonam o dinheiro oficial em favor de meios de pagamento alternativos (ouro ou a moeda de outro país), num cenário provável de hiperinflação, com consequências económicas e sociais dramáticas. Veja-se a Venezuela.

Na melhor das hipóteses, o financiamento endémico dos défices orçamentais, ao inundar o sistema financeiro de liquidez, impede a regeneração dos tecidos podres do setor empresarial, o que conduz a uma estagnação perene, de que as quase três décadas perdidas do Japão são um eloquente exemplo.

A tentação de abraçar a TMM vai revelar-se irresistível para muita gente, o que promete um incessante crescimento da sua popularidade. Como muitas vezes acontece com estes fenómenos, quem questionar a bondade desta teoria arrisca-se a ser acusado de insensibilidade social, de indiferença para com os mais pobres, de desprezo pelo planeta e de outros pecados na religião do politicamente correto. Mas, demagogia à parte, a TMM não é uma teoria, não é monetária e muito menos moderna.

  • Não é teoria, é um expediente para legitimar uma ideologia, que não sendo economicamente sustentável, é politicamente atrativa num mundo onde os instrumentos convencionais de política económica já foram esgotados.
  • Não é monetária porque postula a total irrelevância da moeda como mecanismo de alocação dos recursos económicos.
  • Não é moderna porque desde tempos imemoriais que reis e príncipes ignoram a restrição orçamental na prossecução dos seus desideratos políticos e militares, incumprindo nas suas obrigações de dívida ou, simplesmente, depreciando a moeda através de emissão ilimitada de moeda.

(ECO) BCE dá dinheiro. Porque é que a banca portuguesa não o quer?

(ECO) Com a fraca procura de crédito pelas empresas, a banca em Portugal deverá passar ao lado do TLTRO III. A CGD, o maior banco nacional, diz que “não tem intenção, à partida, de participar”.

O Banco Central Europeu (BCE) está a preparar o caminho para novos estímulos à economia da Zona Euro através da banca. A terceira ronda de financiamento de longo prazo a baixos custos — Targeted Longer-Term Refinancing Operations (TLTRO III) — vai começar em setembro, com Mario Draghi a dar incentivos para que os bancos concedam crédito às empresas. Para a banca portuguesa, a “borla” não terá grande interesse. Têm liquidez, não têm é a quem a emprestar, tornando mais complicado para o setor gerar rentabilidade num contexto de juros abaixo de zero.

Na última reunião de política monetária, a instituição liderada por Mario Draghi lançou o TLTRO III. Os pormenores ainda serão conhecidos, mas a maturidade de apenas dois anos (face aos três anos das anteriores rondas) e a novidade do juro variável desanimaram os bancos. Desde então, já foram dados alguns sinais mais animadores, nomeadamente que as taxas poderão ser mais favoráveis se a economia desacelerar, mas o mercado ainda espera detalhes que podem ser conhecidos na reunião desta quarta-feira.Após oito anos, Draghi pode sair do BCE sem ter subido juros Ler Mais

“Ainda não são conhecidas as condições na totalidade. De qualquer forma, as sete operações trimestrais que irão decorrer entre setembro de 2019 e março de 2021 (tendo cada uma dois anos de maturidade) podem ser interpretadas como sugerindo que o setor bancário europeu terá acesso a condições favoráveis de liquidez na sua atividade de concessão de crédito até março de 2023, ou seja, ao longo dos próximos quatro anos”, afirma a Patris Corretora. “Apenas após serem conhecidas todas as condições é que poderemos avaliar até que ponto poderá revelar-se significativo o interesse do setor bancário”.

A Caixa Geral de Depósitos afirmou ao ECO que as condições técnicas e financeiras poderão ser “determinantes para avaliar” o interesse, mas por agora afasta a possibilidade de recorrer a estes empréstimos. “A CGD não tem intenção, à partida, de participar nestas novas operações, atendendo à sua sólida e muito confortável posição de liquidez”.

Fonte oficial recordou ainda que o banco público, o maior no país e responsável por um quarto do mercado em termos de clientes, reembolsou antecipada e integralmente o financiamento junto do BCE em junho do ano passado. Contactados pelo ECO sobre se têm interesse neste novo programa de financiamento de baixo custo, Novo Banco, BPI, BCP e Santander Totta não quiseram comentar.

Fraca procura por crédito das empresas portuguesas limita estímulos

Os analistas concordam que os bancos portugueses não deverão mostrar grande interesse por esta nova ronda de financiamento de baixo custo, apesar de fazerem um balanço positivo da medida. Por um lado, estimulam a banca a desempenhar o seu papel de fornecer de crédito à economia e, por outro, equilibram o impacto negativo das taxas de juro em mínimos históricos para a rentabilidade dos bancos.

Filipe Garcia, economista da IMF – Informação de Mercados Financeiros considera que o programa até poderia ser “virtuoso” para a economia portuguesa, no curto prazo, se resultasse num crescimento do crédito. “Porém, o que se tem observado é que, no caso das empresas, não tem sido nem a disponibilidade do crédito nem as taxas de juro a provocar a queda nos empréstimos. Tem sucedido devido a uma fraca procura de crédito por parte das empresas“, diz.

A concessão de novo crédito às empresas atingiu os 2.259 milhões de euros em fevereiro, de acordo com os últimos dados disponíveis do Banco de Portugal. O valor representa uma quebra de 225 milhões face ao primeiro mês do ano e mantém-se ainda longe dos níveis pré-crise. O stock situou-se em 68.878 milhões de euros, em fevereiro. “Se destes TLTRO resultar uma alteração nos critérios de concessão de crédito, então poderemos observar uma aceleração nas operações de financiamento”, acrescentou o economista da IMF.

A expectativa dos bancos sondados pelo BdP aponta para que não ocorram “alterações de relevo” na procura de crédito tanto por parte das empresas como de famílias no segundo trimestre deste ano. Sobre os critérios de disponibilização, também “não antecipam alterações de relevo” depois de no primeiro trimestre de 2019, critérios e termos terem permanecido, “praticamente inalterados” e de, em julho, terem entrado em vigor recomendações do Banco de Portugal para que os bancos tenham em conta três tipos de limites nos critérios para a concessão de crédito à habitação e consumo.

Stock de empréstimos das empresas em queda

Fonte: Banco de Portugal

Bancos mais fracos são os que mais pedem

A nova ronda financiamento pretende exatamente que os bancos mantenham linhas de crédito abertas aos consumidores, mas especialmente às empresas. “É natural que quem peça os empréstimos seja quem mais precisa de liquidez. É uma tendência que deverá continuar e espera-se que o crédito concedido nesses países possa acelerar, mas também que a dívida pública desses países possa beneficiar”, afirmou Garcia, da IMF.

Ao contrário da estratégia expectável de retirada dos estímulos, a desaceleração da economia global obrigou o BCE a reforçá-los e retomar o financiamento de baixo custo à banca. “As economias periféricas da Zona Euro estão ainda muito fracas e sem força para se protegerem de uma recessão global“, alertou Mário Martins, analista da ActivTrades.

“É possível, mas não previsível, que os bancos portugueses procurem aumentar a exposição nesta nova ronda. No panorama económico atual português, não acredito que o setor bancário português tenha possibilidade de competir por estes fundos”, concordou Martins.

Espanha e Itália foram os países que mais recorreram ao TLTRO II, com 250 mil milhões e 200 mil milhões de euros, respetivamente. O montante compara com menos de 25 mil milhões de euros em Portugal. Atualmente, o único banco fora de Itália com mais de 10% de fundos TLTRO II face aos ativos é o Novo Banco e nenhum outro banco português tem uma exposição significativa a este programa.

A forte procura por esta ronda deveu-se às condições mais favoráveis que a primeira, que levou os bancos a substituírem os fundos que tinham ao abrigo do primeiro TLTRO, para alargarem o prazo de pagamento e usufruírem das condições preferenciais. Isto num cenário em que os bancos têm de pagar para ter dinheiro guardado no BCE.

TLTRO não é boia de salvação, mas dá oxigénio em tempos de juros negativos

“Enquanto a nova ronda de empréstimos baratos irá ajudar os bancos mais fracos, o atraso na subida dos juros de referência penaliza a rentabilidade do setor bancário enquanto um todo”, defende Azad Zangana, economista sénior e estrategista da Schroders. A gestora de ativos projeta, desde a última reunião do BCE, que as taxas de juro subam pela primeira vez apenas em março de 2020 e, pela segunda vez, em dezembro desse ano.

Juros negativos têm sido desastrosos para muitos bancos, especialmente em Itália, Espanha e Portugal”, diz sobre a taxa de depósitos em -0,40%, enquanto a aplicável às operações principais de refinanciamento está em 0% e a aplicável à facilidade permanente de cedência de liquidez em 0,25%. “O BCE reconhece que há bancos que estão a ser negativamente influenciados e que, em consequência, os empréstimos poderão ser mais baixos. Ainda assim, continua a manter os juros negativos, apesar de ser um claro erro”, critica ainda Zangana.

Mário Martins alerta, no entanto, que é “redutor” considerar este tipo de opção como uma “boia de salvação” para bancos problemáticos, já que a eficácia da última ronda foi menor em países mais vulneráveis. “O que se pode constatar é que os empréstimos concedidos nos países vulneráveis caíram, tanto nos bancos que acederam ao TLTRO II, como nos que não acederam“, sublinhou o analista da ActivTrades.

Dados do último relatório económico do BCE indicam que, nos países vulneráveis (grupo em que Portugal se inclui), o TLTRO II foi utilizado para fortalecer o balanço dos bancos em dificuldades ou como financiamento de baixo custo. Em sentido contrário, nos países menos vulneráveis, os empréstimos concedidos por bancos que acederam ao TLTRO II subiram consideravelmente, ou seja, teve o efeito desejado pelo BCE de fomentar o investimento na economia.

Objetivo do BCE não foi conseguido em países vulneráveis

Fonte: Banco Central Europeu

(ECO) Portugal paga taxa mais baixa de sempre por dívida a 10 anos. Juro caiu para 1,143%

(ECO) Portugal continua a tirar partido da descida dos juros nos mercados. Num duplo leilão, com títulos a 10 e 18 anos, viu as taxas caírem, conseguindo mesmo o custo mais baixo de sempre a 10 anos.

Portugal conseguiu mil milhões de euros num duplo leilão de dívida. Colocou a maior “fatia” dos títulos no prazo mais curto, a dez anos, prazo no qual registou a taxa mais baixa de sempre. Os investidores aceitaram financiar o país com um juro de apenas 1,143%abaixo dos 1,298% registados na operação realizada em março.IGCP quer emitir até 4.000 milhões em dívida de curto prazo Ler Mais

Com as taxas de juro da dívida a renovarem mínimos nos mercados de dívida internacionais, à boleia do Banco Central Europeu mas também da melhoria da perspetiva do rating de Portugal por parte da DBRS, o IGCP aproveitou para emitir 600 milhões de euros no prazo a dez anos. A procura elevada registada (2,28 vezes a oferta) ajudou a taxa a descer para novo recorde.

Ao mesmo tempo que colocou dívida a dez anos, a agência liderada por Cristina Casalinho avançou com um leilão com um prazo mais longo, a 18 anos, linha na qual acabou por colocar os restantes 400 milhões de euros. Nesta maturidade, o IGCP conseguiu uma taxa de juro de 1,896%.

“A título comparativo em novembro de 2018 Portugal fez emissão a dez anos a pagar 1,9%, hoje consegue emitir para 18 anos com uma taxa mais baixa 1,896%”, diz Filipe Silva, do Banco Carregosa. “Face ao último leilão comparativo de 10 anos, que se realizou em março, a taxa baixou dos 1,298% para os 1,143%”, acrescenta, salientando que o país continua “a tirar partido da política que tem vindo a ser levada pelo BCE”.

Este duplo leilão, que tinha sido anunciado ao mercado no final da semana passada, marcou a primeira emissão de dívida de longo prazo deste segundo trimestre do ano. Não existe uma meta em termos de obrigações do Tesouro, mas com bilhetes do Tesouro o IGCP pretende obter até 4.000 milhões de euros, num contexto de queda das taxas.

“Estes leilões são bastante importantes para conseguirmos ir reduzindo o custo médio da nossa dívida”, nota Filipe Silva. A descida dos juros da dívida permitiu ao Estado poupar 1.270 milhões de euros com as emissões de dívida desde setembro de 2017, altura em que Portugal voltou a ter uma notação de investimento, notou recentemente Mário Centeno, ministro das Finanças. Os analistas consideram a margem para a redução nos juros está a ficar limitada, mas ainda veem espaço para melhorias no prémio de risco.

A redução das taxas está a levar o prémio de risco da dívida nacional para mínimos. Portugal conta já há algum tempo com taxas inferiores às de Itália nos mercados, apresentando um prémio de apenas 9,5 pontos percentuais face à dívida espanhola.No caso da dívida alemã, o spread é de 116 pontos.

(ZH) “It Belongs To The People, Not The Bankers” – Italy Moves To Seize Gold From Central Bank


Two weeks ago, somewhat out of the blue, ECB President Mario Draghi issued an odd statement confirming that the European Central Bank needs to approve any operation in the foreign reserves of euro zone countries, including gold and large foreign currency holdings.

“The ECB shall approve both the operations in foreign reserve assets remaining with the NCBs (national central banks)…and Member States’ transactions with their foreign exchange working balances above a certain threshold,”

“The purpose of this competence is to ensure consistency with the exchange rate and monetary policy of the Union.”

Specifically, Draghi made this statement to two Italian members of the European Parliament.

At the time it did not seem notable for any reason other than its peculiar timing, but now things are starting to make more sense as The Wall Street Journal reports that Italy’s ruling populists pushed ahead this week with efforts to seize control of the central bank and its gold reserves.

Complaining that hundreds of thousands of small individual investors lost billions of dollars after several Italian banks failed in recent years, the anti-establishment ‘5 Star Movement’ and the nationalist ‘League’, depict the central bank as a symbol of a technocratic elite aloof from the needs of ordinary Italians

“We need a change of course at the Bank of Italy if we think about what happened in the last years,”said Deputy Prime Minister Luigi Di Maio, leader of the 5 Star Movement.

Five Star and the League have repeatedly attacked the Bank of Italy for not preventing the banking crises, and blamed it for the losses suffered by mom-and-pop savers who had bought bank shares and bonds.

“If you are here with your current account in the red, it’s because the people who were supposed to control things didn’t do so,” League’s leader, Interior Minister Matteo Salvini, told a group of former investors in Banca Popolare di Vicenza, which was liquidated in 2017.

And this week saw Italian lawmakers from 5 Star asking Parliament to pass two draft laws:

One law would instruct the central bank’s owners, most of them private banks, to sell their shares to the Italian Treasury at prices from the 1930s.

The other law would declare the Italian people to be the owners of the Bank of Italy’s reserve of 2451.8 metric tons of gold, worth around $102 billion at current prices.

As The Wall Street Journal notes, such a move could in theory widen the scope for selling the gold and reduce the bank’s reserves, which help underpin the financial system

“The gold belongs to the Italians, not to the bankers,” said Giorgia Meloni, leader of the Brothers of Italy, a far-right opposition party that supports both bills. “We are ready to battle everywhere in Italy and to bring Italians to the streets if necessary.”

The establishment sees it differently, warning that their actions are an attempt to undermine the Bank of Italy’s independence, and to spend the nation’s gold reserves on populist policies.

“Gold is part of the assets of the Bank of Italy and can’t be used for monetary financing of the Treasury,” said Bank of Italy Governor Ignazio Visco.

“This looks like revolutionary expropriation,” said Gianluca Garbi, chief executive of Banca Sistema SpA.

But as The Wall Street Journal concludes, the 5 Star Movement and the League support public ownership of the gold reserves, and with backing from parties comprising 60% of lawmakers, the draft law has enough support to pass. Lawmakers from 5 Star also support nationalizing the central bank, while the League hasn’t decided yet, leaving the bill short of a majority with around 40% support.

As of last week they had forced the creation of a parliamentary commission to look into the failure of Italian banks, launching what could be months of tense scrutiny.

Is it any wonder, Russia (and China) have started to horde gold?

(BBG) The Era of Cheap Money Shows No One Knows How Monetary Policy Works


  •  Low rates haven’t lured indebted households and businesses
  •  Central banks face questions as divide from politics blurs

Monetary policy is supposed to work like this: cut interest rates, and you’ll encourage businesses and households to borrow, invest and spend. It’s not really playing out that way.

In the cheap-money era, now into its second decade in most of the developed world (and third in Japan), there’s been plenty of borrowing. But it’s been governments doing it.

The numbers help explain a growing sense that central banks, which took emergency action to pull economies out of the 2008 slump, may not be able to repeat the trick in another downturn.

They’re even facing broader questions about their independence from politics, a cornerstone of economic management in rich countries. In the past decade, still-indebted private actors were mostly unwilling to dive back into the red, even at ultra-low rates engineered by the central banks — while governments could and did. The dividing line is starting to look fuzzy.

‘Fat Tail’

Some analysts say it’s time to redraw it.

The arms-length relationship between politicians and central bankers “was built when the fat tail was excessively high inflation,” said Paul McCulley, the former Pimco chief economist. “Now the fat tail is excessively low inflation, call it deflation. We need to update our thinking on a more cooperative stance between the fiscal and monetary authorities.”

Most economists see that as a slippery slope that could lead to prices spiraling out of control. That’s one reason they’re dismissive of Modern Monetary Theory, a school of thought which supports bigger deficits, and is relaxed about central banks financing them. MMT economists say public debt is generally safer than the private kind, which snowballed in the age of monetary policy dominance before disaster struck.

The question is a live one, and not just in academia. It gets bumped up the agenda every time President Donald Trump snipes at the Federal Reserve. There are similar political pressures in other countries.

‘Somewhat Sluggish’

Also growing are calls for governments to boost economies if central banks can’t.

The European Central Bank has just been forced to postpone any effort to shift monetary policy back toward normal. The region’s growth prospects “are somewhat sluggish,” Isabelle Mateos y Lago, chief multi-asset strategist at BlackRock Investment Institute, told Bloomberg TV this week. “We could use some fiscal stimulus.”

Read more: ECB near end of road seeks government backup

What Our Economists Say

Should governments a) run larger deficits because low rates allow them to or b) because central banks can buy their debt and keep rates low? In a sense it doesn’t matter. In both cases, the answer is that governments should run larger deficits.

Tom Orlik, chief economist, Bloomberg Economics

In Japan, there’s been more cooperation between the people in charge of budgets and those who manage interest rates than pretty much anywhere else.

When the government and central bank work in tandem, “synergy effects from both sides can produce stronger economic stimulus,” former BoJ deputy governor Kikuo Iwata, a key architect of the plan, said at the Bank for International Settlements last year. He’s argued that monetary policy has done what it can, and that Japan — which already has the world’s biggest public-debt burden — needs even more fiscal stimulus to complete its escape from deflation.

Tag Team

In the heat of crisis, collaboration between governments and central banks has been fairly explicit almost everywhere. In 2008 in the U.S., for example, the Fed’s Ben Bernanke and Treasury’s Henry Paulson rapidly formed a tag-team. In Europe a few years later, Mario Draghi’s pledge to do “whatever it takes” to preserve the single currency gave Italian government debt a backstop, and brought yields down from the brink.

Public borrowing at low rates proved to be an effective way of putting a floor under the Great Recession. The U.S. and Japan did more of it than Europe, where there’s no central authority able to tap credit markets and spend on the continent’s behalf — and they’ve had better recoveries.

The problem for policy makers is that what once looked like a short-term crisis stopgap has in fact stretched out for years — making it increasingly likely that the next downturn will arrive with interest rates still low.

In the U.S., a plurality of economists expect a recession in 2020, a presidential election year. The Fed will have some room to cut, though less than the 500 basis points reckoned to be its typical response to a shrinking economy. Its peers have much less, if any.

Read more: ECB, BoJ have ‘very little’ ammunition left

And even if they had, recent history says it would likely be governments that took advantage of the lower rates.

The worst recessions to hit developed countries lately (and some emerging markets too) have followed rapid buildups in private credit — one reason why central banks have found it hard to inject stimulus. And today, households and businesses are still highly indebted by past standards.

Unlike governments, they haven’t been eager to borrow more money, however cheap it is.

(CNBC) ECB in panic mode? Experts warn it’ll take more than a central bank to help Europe recover


  • The Frankfurt-based institution surprised markets with a renewed dovish tone.
  • ECB President Mario Draghi said that interest rates would remain at record lows at least until December.

Silvia Amaro@Silvia_AmaroPublished 8 Hours

ECB's Draghi: Near term growth weaker than expected

ECB’s Draghi: Near term growth weaker than expected  9:08 AM ET Thu, 7 March 2019 | 02:30

New monetary stimulus from the European Central Bank (ECB) will do “little” to boost the region’s sluggish economy and tackle its biggest risks, analysts told CNBC.

“(The ECB’s) announcements have some flavor of panic as the ECB’s base case scenario still foresees a gradual recovery and the 2020 and 2021 forecasts were hardly revised downwards,” Carsten Brzeski, chief economist at ING Germany, said in a note Thursday.

The Frankfurt-based institution surprised markets with a renewed dovish tone. ECB President Mario Draghi said that interest rates would remain at record lows at least until December. Growth forecasts for the euro zone were slashed for this year and new loans to euro zone banks were announced.

“The measures as such are not such a big surprise but the timing of the announcement is,” Brzeski added. “(The announcements) are also a bit of a gamble as they will do very little to tackle the biggest risks for the euro zone economy, which according to the ECB stem from external sources.”

Draghi even acknowledged this fact in a press conference following the ECB’s formal rate decision on Thursday. “We are aware that our decisions (new stimulus) certainly increase the resilience of the euro zone economy, but actually can they address these factors that are weighing on the euro zone economy in the rest of the world? They cannot,” Draghi told reporters, adding that protectionism and geopolitics were among those outside risks.

“I wonder if the ECB will ever increase rates in this economic cycle.”-Christoph Schon, Executive director at Axioma

The euro zone economy saw its lowest pace of growth in four years during the final three months of 2018, data showed in January. More recently, manufacturing data have shown a slowdown in activity. This comes amid concerns over global growth, tariffs between the U.S and China, and weakness in emerging markets.

“With few domestic catalysts for a turnaround, it may take a rebound in demand from the emerging world to improve prospects for the (euro zone) region,” Tilmann Galler, a global market strategist at J.P. Morgan Asset Management, said in a note Tuesday.

The ECB slashed its growth forecast for 2019 to 1.1 percent from an earlier forecast of 1.7 percent made in December. The bank also lowered its inflation forecasts for 2019. Annual inflation is set to hit 1.2 percent this year, when December forecasts had pointed to a headline inflation target of 1.6 percent. The ECB’s inflation target is “close but below 2 percent.”

“I wonder if the ECB will ever increase rates in this economic cycle,” Christoph Schon, executive director at Axioma, told CNBC Friday, given the prolonged moribund state of the economy.

(ECO) Novo Banco, mentiras e um video – António Costa


Os prejuízos do Novo Banco em 2018 exigem mais do que auditorias passadas, exigem explicações presentes e medidas novas para o futuro.

Vem aí uma auditoria aos créditos do BES e que levaram cinco (!?) anos a serem assumidos nas contas como o que eram, financiamentos sem risco… de serem recuperados. Uma auditoria ao Novo Banco que é em tudo igual à realizada pelo EY à Caixa Geral de Depósitos, que serve os propósitos políticos de Mário Centeno e, em simultâneo, a exigência de transparência sobre os buracos que os fundos públicos estão a tapar. Mas os prejuízos do Novo Banco em 2018, de 1.412 milhões de euros, e o pedido de capital de 1.149 milhões ao Fundo de Resolução (que é financiado pelos bancos, mas precisa de empréstimos dos contribuintes e pesa nas contas públicas) exigem mais do que auditorias passadas, exigem explicações presentes e medidas novas para o futuro.

  1. Quando, em outubro 2017, o Governo assumiu a responsabilidade de decidir a venda do Novo Banco ao único comprador na corrida, o fundo Lone Star, assinou um acordo que previa a existência de um mecanismo de capital contingente – uma garantia pública de 3,89 mil milhões de euros, com um prazo de validade de oito anos, que servia para cobrir os riscos de determinados ativos maus, isto é, financiamentos sem garantias ou com um risco de se transformarem em malparado. Entre a nacionalização e a venda com uma garantia, o que era preferível? Esta venda. Mas, portanto, se este montante foi inscrito no contrato, qual é a dúvida? Esperava-se que o Lone Star não usasse aquele montante? Das duas, uma: Ou há uma grande hipocrisia nos discursos surpreendidos, por exemplo nos que decorrem da decisão de Mário Centene de pedir uma auditoria, ou o ministro das Finanças foi enganado. E por quem?
  2. Como alguns se lembrarão, a Comissão Europeia considerava que os 3,89 mil milhões de euros não chegariam para tapar os buracos do Novo Banco e no contrato de venda à Lone Star, exigiu que o Estado assumisse, no contrato, os custos de uma liquidação se o banco não fosse viável.
  3. Há mecanismos de controlo nos pedidos do Novo Banco ao Fundo de Resolução. Em primeiro lugar, os ativos que estão debaixo da proteção daquela garantia são conhecidos e identificados. Depois, há pelo menos três etapas que o Lone Star e a gestão do Novo Banco têm de passar até aquele pedido ser aceite. Da Oliver Whyman, de três personalidades independentes (José Rodrigues Jesus, Athayde Marques e Bracinha Vieira) e do próprio Fundo de Resolução, presidido por Máximo dos Santos, que tem o poder de dizer ‘sim’ ou não’. Estas três entidades têm de (se) explicar publicamente sobre o processo da validação das contas que justificam mais 1.149 milhões de euros de fundos públicos.
  4. Há um conflito de interesses insanável no modelo de supervisão, que também se reflete aqui. O BCE e o Banco de Portugal estão a pressionar os bancos portugueses a venderem os seus ativos, a venderem as carteiras de malparado, e elas estão a ser vendidas a um ritmo acelerado. Com perdas relevantes, apesar do bom momento da economia. O Novo Banco fez, aliás, as maiores operações de sempre em Portugal, por exemplo com o projeto ‘Nata’, com a venda de mais de dois mil milhões de euros de créditos por um valor de desconto. Qual foi esse desconto? E qual será a rendibilidade dos fundos que compraram estes ativos a desconto? Provavelmente acima dos dois dígitos, portanto, são mesmo os contribuintes a financiarem os lucros daqueles fundos. Mas se o Banco de Portugal manda vender, e há uma garantia pública a cobrir as perdas… Qual é o conflito de interesse? O Banco de Portugal, enquanto entidade de resolução, valida os pedidos de capital do Novo Banco, portanto, dificilmente dirá ‘não’ num dia ao que está a exigir no outro.
  5. ‘O BES mau’ criado no quadro da resolução e do nascimento do Novo Banco era o banco da família, os negócios familiares. Agora, temos um ‘Novo Banco mau’, uma espécie de banco que financiava os amigos. E finalmente temos um Novo Banco (vamos ver se é desta). Só que há outra explicação a dar por parte da gestão. Estes créditos, que são classificados de ‘legacy’, portanto, contratados quando Ricardo Salgado era presidente, foram renovados? Em que condições? E quantas vezes? Não há bancos que estejam a contratualizar contratos de financiamento a dois/três ou quatro anos. O Novo Banco tem cinco anos, portanto, só agora, em 2018, se percebeu que aqueles créditos seriam irrecuperáveis?
  6. A gestão do Novo Banco está a fazer o que o acionista lhe exige e o que o banco precisa para ter alguma possibilidade de ser viável a prazo (com outro dono, como é evidente, porque o Lone Star vai realizar as respetivas mais valias e vai embora). Qual seria o gestor que, nas mesmas circunstâncias, faria de forma diferente daquela que António Ramalho está a fazer? Está a limpar um banco, e até já antecipa que vai voltar a pedir mais dinheiro ao Fundo de Resolução em 2020. Já pediu metade do que está previsto, podemos antecipar que vai usar a totalidade dos 3,89 mil milhões de euros e, por este andar, não vai precisar dos oito anos. Por isso…
  7. …é um vídeo que todos devem ver (incluindo os deputados que querem ouvir Mário Centeno). Com as garantias do ministro das Finanças e do primeiro-ministro no dia em que anunciaram ao país a venda do Novo Banco. Repetiram, ambos, que os contribuintes não seriam chamados nem direta nem indiretamente, e que as “necessidades eventuais” seriam cobertas pelas contribuições dos bancos para o Fundo de Resolução. Tendo em conta a prontidão com que o governo anunciou a auditoria, já terão, ambos, mudado de opinião.