Trickle-Down Dog Food

23. September 2013

The whole family took their seats around the breakfast table. It didn’t take long before our little pug scurried beneath the table and began chomping on some non-existent morsel.

“What’s he making so much noise about?” I asked.”

“He’s hoping that something tasty comes his way,” my daughter replied.

Indeed, the chances of a crumb or two were quite good this morning as the table was more generously laden than normal: eggs, smoked salmon, cheese, and fresh bread, more than enough for everyone.

“If one day there is less food on the table, those underneath would likely go hungry,” I thought out loud.

read more

The Fed Has the Final Word

8. July 2013
Microphone and analyzer

I guess there were not many central bank watchers who expected the latest declaration by ECB chief Mario Draghi. At last week’s press conference, one inattentive journalist was so engrossed in his pre-prepared question as to why the ECB did NOT engage in the kind of forward guidance recently adopted by the new Bank of England governor, he had completed the missed the part where Draghi did precisely that.

read more

Camp Anticapitalista

5. June 2013
Camp anticapitalista

The Occupy movement was out in full force in Frankfurt again last week. From an impromptu camp near the city‘s exhibition centre, a sizeable and surprisingly well-organised crowd embarked on two days of protest and disruption around Germany’s financial capital.

read more

Has the Fed No Better Ideas?

3. June 2013

There has been so much talk recently about the possibility of the Fed reining in its policy monthly asset purchases, the so-called ‘tapering’ (Word of the Year?). Yet, it shouldn’t have escaped investors’ attention that any official mention of the policy shift is invariably wrapped in pre-conditions: if employment continues to improve; if economic activity is sustained; if inflation doesn’t fall. It should also not have escaped attention that in recent months the improvements in all of those measures appears to have stalled.

read more

Bank of Japan Has Everything Under Control

29. May 2013
Yen Note

Whenever a Japanese finance minister chooses to remind investors and consumers that his department is “watching [x, y or z] market very closely”, we know an early step has been taken in an escalating rhetoric that typically ends with massive intervention in the financial markets. Formerly, such fighting words were reserved for the foreign exchange markets. The Bank of Japan, bankrolled by the Finance Ministry, has waged a multi-year battle to reverse the direction of a supposedly overvalued yen.

read more

Gold: Panacea or Placebo

6. May 2013

This is not the first time that central bank gold reserves have been evoked as a partial solution to public debt problems. In the depths of the Greek crisis, the sale of nation’s bullion reserves was briefly discussed as a means to bring down the debt burden, but the holdings were too small to make any difference. In Cyprus, a proposal to sell the bulk of the island’s gold reserves was endorsed, at least by EU finance ministers. So, it was not shocking to hear about a proposal to put Italy’s ample bullion holdings – the second highest in the EU after Germany’s – to use in tackling its massive debt overhang.

read more

Are We Doing Well with the Euro?

13. February 2013

The title of this post was one of the questions an economist from a major French banking group asked the audience during a lecture to Franco-German business group yesterday evening. His answer was a resounding “no” On two measures, he argued, employment and consumption, eurozone citizens have fared far worse than their counterparts in the US, UK or Japan.

read more

Bernanke’s Balancing Act

24. October 2012

As is usual in the days preceding a Federal Reserve rate-setting meeting, analysts are busy trying to double-guess what changes policymakers’ are likely to make to their monetary policy stance. This is no simple task as the month-to-month change in recent years has sometimes been limited to a single adjective in the post-meeting statement. This time around though, possibly because the central bank surprised at the last meeting with an announcement of open-ended monthly purchases of $40bn of mortgage-backed securities, Fed-watchers are far more ambitious.

read more

Apple is (Also) Doing God’s Work

17. September 2012

A blogger railed against Apple’s decision to change the docking connector on its latest iPhone because it rendered his beloved internet radio obsolete. This blogger does not yet own an iPhone 5, nor is he under any obligation to buy one. Yet the notion that he absolutely must have one as soon as it goes on sale is so self-evident that it simply did not occur to him that he could just as easily keep his existing iPhone 4S and keep on docking it to the internet radio.

read more

The Draghi Coup That Wasn’t

3. August 2012
Draghi auge mini

‘Draghi disappoints markets’ is the headline on many front pages today. Yet, if we were to go back one year – or even one month – we would recognise the ECB’s position today is light-years away from where it was then. The Bank has just announced its willingness to buy short-dated paper from crisis-struck countries in a volume adequate to achieve its goals (in other words, ‘unlimited’). It is the pre-conditions attached to this help that markets found so distasteful: the beneficiary countries must first apply for a formal bailout to the eurozone rescue vehicles, EFSF/ESM.

read more

Return to Sender

6. July 2012

There was an unexpected letter in the mail this morning[1]: an open letter, signed by 172 economists, calling on all German-speaking citizens to make their opposition to the decisions taken at the recent EU summit known to their elected representatives.

read more

Is a Sapling a Flawed Tree?

26. June 2012

One of the most commonly heard justifications for a break-up of the eurozone is that the ‘project’ was flawed from the outset. A currency union – or any union for that matter – that cannot countenance a situation where transfers would be necessary, or even bans them outright, has obviously been badly thought out. However, the euro-was-flawed argument is only valid if one assumes that its pre-crisis condition was ever intended to be the end state. If the currency union was only ever intended to be a stepping stone to a fiscal and then a political union, it is not the idea that was flawed, just the execution.

read more

Eurobills – A Foot in the Door

20. June 2012
Fuß in der Tür edit

Even beggars are getting wise to behavioural economics these days. Instead of asking whether you have any spare change, they ask instead for the time of day. Who can refuse a simple request for the time? However, once you have stopped and pushed back your cuff to look at your watch, it becomes more difficult to refuse a subsequent request for spare change.

read more

A Well-Spun Bailout

11. June 2012
Black swan

The Spanish government’s decision to seek EU help for its stricken banks should not have come as a surprise to anyone. The only eye-opener that there might have been was the amount of the proposed rescue sum: €100bn. This figure easily overtook  earlier estimations which seemed to be in the order of €40bn to €80bn. Officials announced the higher figure without fanfare, but with the vaguely expressed desire to cover all imaginable risks. The decision to round the amount upwards is praiseworthy, given the history of the crisis. One still has to hope though that no black swans will be flying over the Bay of Biscay in the near future.

read more

A Crisis in Concrete Terms

4. June 2012

An observation made in a study by Kenneth Rogoff and Carmen Reinhart[1] is often cited in connection with the eurozone debt crisis: when a country’s debt burden surpasses 90 percent of its GDP, economic growth suffers. Many European nations overtook this threshold a long time ago.  Even though the study has amassed a fair amount of criticism, it is undeniable that growth in Europe has been very weak. In order get the debt back down to levels where they no longer represent a threat to growth, governments have had to pull their budgetary belts ever tighter.

read more

Tardy Revolt

11. May 2012

In a column in the FT recently[1] Martin Taylor, the former Barclays CEO, expressed great surprise that shareholders had not revolted against excessive banker pay much sooner. Of course, the shareholder discontent is a product of the Zeitgeist

read more

Deflation in the Eurozone? Never

22. November 2011

Isn’t it funny that the European Central Bank hardly talks about money supply anymore? There was a time, before the crisis of course, that the Bank held it up as the shiniest pillar of its monetary policy. Jean-Claude Trichet even had to defend it early in his mandate after the US Federal Reserve decided to stop collecting some data on monetary aggregates, citing its cost-ineffectiveness.

read more

Mental Accounting Errors

31. October 2011

Just before the weekend started, a €55.5bn accounting error was discovered in the balance sheets of the ‘bad bank’ of Hypo Real Estate (HRE). One could say that a €55.5bn gain materialized out of thin air for the taxpayer. This amount will shrink Germany’s deficit by

read more

Obituary by Obituary

12. October 2011

In the middle of a crisis that was spawned by so many bad decisions, it seems odd that two economists best known for their work on rational expectations modelling in the 70s should be honoured with a Nobel Prize. If nothing else, the crisis has confirmed that people are economically myopic, poorly-calibrated, insensitive to base rate probabilities, and do not learn. One can consider our expectations rational only in the sense that they are optimised to reflect ourselves, here and now, in the best possible light: I am the one to whom good things will happen, soon, and with near certainty.

read more

The ‘Lord of the Flies’ Tries QE

7. October 2011

I´m not sure why, but I recently recalled my first earnest experience with money. I was just nine years old. One of my primary school classmates – a rather shy and unassuming youth, if my memory serves me well – asked all the kids in the class to bring in their Monopoly money from home. He wanted us all to take part in a new game, but for this he needed money, lots of money.

read more

Floating a Scottish Test Balloon

13. September 2011

Yesterday’s blog used the prospect of a British entry into the eurozone to illustrate the problems that arise when one samples public opinion on such hot topics. While writing, I got to thinking that, were it to be desired, now wouldn’t be such a bad time to tie the knot. European economies may be in something of a rut, but at least they are all in a rut together. The degree of economic convergence, growth, interest rates, etc., has probably never been closer.

read more

Wrong Question, Wrong Time

12. September 2011

A clear majority of Germans (58 percent) would be in favour of Greece being ejected from the eurozone, according to a mid-August survey. I suppose, one shouldn’t be too surprised; even without a media monster that feeds on crisis escalation, it would be difficult to imagine any public tolerance for the problems of the eurozone peripheral states when there is little among political leaders.

read more

The Demise of the Swiss Franc

6. September 2011

The rise in the Swiss National Bank’s currency reserves in August by the equivalent of CHF70bn, or 40 percent, left me with an unsettling feeling when the news was published this morning, especially given the renewed decline in the value of these reserves since the start of September. But the announcement now that the central bank intends to defend an exchange rate of 1.20 versus the euro using unlimited resources, confirms that this feeling is here to stay. The SNB is going to stand alone versus the rest of the world?

read more

Fatal Free Lunch

22. August 2011

Japan and Switzerland presently suffer from massive capital inflows, and their respective currencies have appreciated significantly over the past 18 months. Interestingly, commentators have highlighted the rally in the Swiss franc as an indicator of capital outflows from the funding-plagued eurozone, while ignoring the fact that

read more

Panic Foretold

8. August 2011


Global stock markets shed some $2.5 trillion in value last week, prompting a spate of news entries under the headline ‘Panic’.  However, the development should not have come as a surprise to most commentators, whether they were experienced financial market observers or not. Indeed, the majority of market participants have been asking themselves how the equities have maintained such levels for so long. In other words, what happened last week should have taken place over the past few months, but the direction of the move was correct.

read more

Greenspan: Gamekeeper Turned Poacher

7. July 2011

Why does an interview with former Fed Chairman Alan Greenspan attract so much attention? Sure, Sir Alan is not short of experience: he was the longest-serving head of the most important central bank in the world. But he is not the Fed chief any more. Nor can he continue to lay claim to the ‘maestro’ moniker that wore during his time at the Federal Reserve. By his own admission, the economic philosophy that guided him over a 40-year career was flawed

read more

Warning with a Time Lag

28. June 2011

Producing a 119-page annual report is a lot of work, regardless of which organisation has to do it. It involves much collaboration, coordination and cost. The 81st Annual Report of the Bank for International Settlements (BIS) is such an opus. It contains among other things, an analysis of global inflation trends.

read more

How Long Until the Next Financial Crisis?

25. May 2011

If you ask investors this question I doubt any of them would say ‘a hundred years’ or any other figure that corresponds to reasonable long-term historical average. Chances are you won’t even hear 50 or 20 years. Most of the responses will be generously below a decade. Among the lessons we have learnt from the bubble-bust that provoked the latest crisis is that major financial upset causes more damage to public finances than we would like, is less predictable than we would like, and occurs with a greater frequency than we would like. So it worries me enormously when economists seem to suggest that governments have all the time in the world to get on with fiscal consolidation.

read more

Rather a Risky Recovery than an Uncertain One

28. April 2011

The US jobless rate of 8.8 percent is still too high, but it is sinking. Some 200,000 new jobs were created last month. US businesses celebrate effervescent earnings and the Fed’s economic reports speak of a recovery. However, this oft cited recovery appears not to have yet reached the public; indeed, the economic uncertainty amongst US consumers is disturbingly high. The most recent reading shows US residents are more pessimistic about their future than they have been for two years

read more

Envy III

20. April 2011

Do you doubt that envy becomes more pronounced the closer people’s relationships? The theme is an old one, already recounted in the biblical stories of Cain and Abel and of Joseph and his brothers. In the latter, this son of Jacob was so envied by his eleven brothers that they considered killing him before ultimately deciding to sell him into slavery.

read more