Aspectos monetarios y financieros

[saturno]

Plan de reforma bancaria islandesa: la creación de dinero reservada al banco central

https://www.scribd.com/doc/260617614/Iceland-Monetary-Reform

Entiendo que el BCI determinaría los "cupos" de crédito que los bancos pueden emitir.
Éstos tan sólo los podrían hacer de factotums del BCIslandés

(Sólo he leido el blog en v/F:)
http://www.express.be/business/fr/economy/un-changement-radical-dans-lhistoire-de-la-finance-moderne-lislande-veut-redonner-le-monopole-de-la-creation-de-monnaie-a-sa-banque-centrale/212481.htm

Saludos!

[Republik]

Con Franco teníamos algo así. la actividad bancaria estaba tan regulada que en Consejo de Ministros se decidía hasta la apertura de sucursales. Y los flujos de préstamo por sectores y hasta por regiones,  ojo a esto que la causa del déficit inversor en algunas viene de ahí. Siendo Islandia una simple tribu no tendrá ese problema.
Por cosas como esta las previsiones ecnóminas durante la dictadura eran asombrosamente exactas; ssi esperaban 354157 coches producidos en 1965, la desviación era mínima. No  se si en un mundo  globalizado esto es la solución.

[lectorhinfluyente1984]

Blackrock & Aladdin

http://blogs.elconfidencial.com/mercados/perlas-de-kike/2014-04-21/todopoderosa-blackrock_118835/

¿Cuál es la empresa más poderosa del mundo? Si hiciésemos una encuesta es probable que saliesen a relucir nombres como Goldman Sachs, JP Morgan, Exxon Mobil, alguna compañía vinculada a China u otras corporaciones no tan renombradas como Cargill o Koch Industries. Las respuestas serían múltiples y variadas, ya que no existe una respuesta conocida ni una forma homogénea de medir tal variable. En cualquier caso, si existe una entidad con poder en el mundo financiero y candidata al podio en la cuestión planteada, esa es sin duda la estadounidense BlackRock.

Fundada en el año 1988, por Larry Fink y por Robert Kapito, es en la actualidad la mayor empresa del mundo en gestión de activos con 4,4 billones de dólares según los resultados publicados el pasado 17 de abril referidos al primer trimestre de 2014, o lo que es lo mismo, aproximadamente 4 veces el PIB español. Si escogiésemos al azar cualquier cotizada con un tamaño significativo a nivel global probablemente tuviese como uno de sus principales accionistas a BlackRock, siendo el máximo accionista de la mitad de las 30 mayores empresas del mundo (Apple, Exxon, Microsoft, General Electric, Chevron, etc).

Esta “omnipresencia”, motivada por su gran tamaño, hace que mucha gente se plantee si el “too big to fail” que se ha puesto tan de moda entre los bancos es aplicable también, de alguna forma, a la gestión de activos. ¿Es BlackRock demasiado grande para la salud del sistema financiero? La pregunta no es ninguna tontería e incluso se dice que las autoridades estadounidenses andan a vueltas con dicha cuestión, si bien hasta el momento ha imperado la visión de la compañía: operar por cuenta ajena no es lo mismo que operar por cuenta propia, y por tanto los riesgos potenciales son mucho menores. Parece lógico.

No obstante, últimamente se han publicado varias noticias que podrían indicar que, a pesar que el tamaño en sí mismo no es algo que deba preocuparnos en este caso, sí podrían existir otros factores a considerar, por ejemplo su influencia. Al fin y al cabo recordemos que fue BlackRock quien ayudó al Tesoro norteamericano a valorar activos en plena crisis financiera que nadie se atrevía ni a observar, y fue Larry Fink la mano derecha de Tim Geithner durante esos difíciles momentos. ¿Podría su influencia ser perjudicial de alguna forma para el sistema?

Una de las noticias que más han dado que hablar en los últimos meses fue la publicada por The Economist  (“The monolith and the markets” 7-12-2013) sobre la plataforma de gestión de riesgo “Aladdin”, ofertada por la gestora. Dicha plataforma no recibe más que halagos, al igual que BlackRock no recibe más que alabanzas por su control de los riesgos, especialmente en lo que respecta a productos “complejos”, pero paradójicamente ese buen hacer puede terminar siendo algo negativo. Según el semanal inglés en la actualidad la plataforma Aladdin es responsable de controlar el 7% de todos los activos financieros existentes en el mundo, ¿alguien se imagina que pasaría si tuviese un error, incluso uno minúsculo?

Ojalá todos los problemas que tuviésemos en el mundo financiero fuesen por “exceso de éxito” como es el caso, ojalá todos los problemas que tuviésemos fuesen por controlar demasiado los riesgos, pero a pesar de ello hay que plantearse si el hecho de que cada vez más inversores, e incluso reguladores, piensen de la misma forma no será algo perjudicial. O lo que es lo mismo, ¿hasta qué punto los usuarios de Aladdin tienen una mente crítica o simplemente se creen lo que la plataforma dice? La segunda hipótesis sería sin duda algo a revisar.

Otra noticia controvertida que muestra la gran influencia de la gestora se produjo a principios de año. Y es que BlackRock poseía un sistema de encuestas a los analistas de las mayores entidades del mundo, como son JP Mogan o Goldman Sachs, que podría haberle permitido, según las autoridades estadounidenses, operar con información no pública en su propio beneficio. En la actualidad la gestora ha cancelado dicha práctica y las principales entidades financieras del mundo han decidido dejar de contestar a dichos requerimientos, a pesar de ser BlackRock uno de sus principales clientes. Claro que, ¿de no haber saltado la polémica, quién se atrevería a decir que "no"?

Algo similar parece ocurrir en el mercado de bonos. La SEC está investigando si los grandes clientes de este mercado, como son PIMCO o la mentada BlackRock, reciben un trato de favor y menores precios a cambio del importante volumen que generan para las firmas de Wall Street, según informó Bloomberg la semana pasada (“Trillion-Dollar Firms Dominating Bonds Prompting Probes” 14-04-2014). Estaríamos hablando de algo similar al tradicional rappel por volumen de ventas adaptado al mundo financiero, con la diferencia de que aquí un pequeño diferencial en los precios puede suponer millones de dólares… y ser ilegal.

Por último, otra práctica que podría cuestionar el tamaño de BlackRock, aunque no por su riesgo sino por su enorme influencia, puede derivarse de una opinión escrita por Gillian Tett para el Financial Times la semana pasada (“Emerging markets repent of 'original sin' “ – 18-04-2014). El artículo, muy interesante, se plantea por qué los mercados emergentes siguen sufriendo tanta volatilidad a pesar de depender en menor medida que antaño de la deuda emitida en divisa extranjera, llegando a la conclusión de que, en dólares o en divisa local, quien compra la mayor parte de la deuda son los grandes inversores internacionales.

¿Cuál es el problema? Pues que los inversores suelen moverse como una manada, lógico si tenemos en cuenta que gran parte de los activos están en las mismas manos. Así, los mercados emergentes siguen sufriendo fuertes entradas y salidas de capitales, lo que a cierto nivel desestabiliza sus economías. Nada nuevo, cierto, pero no nos equivoquemos, esto no se limita a pequeños países, pues las propias autoridades estadounidenses están estudiando qué ocurrirá cuando la Reserva Federal comience a subir los tipos de interés. ¿Está preparado el mercado para la “manada” de PIMCO o BlackRock? Y en última instancia, y a tenor de los tres ejemplos anteriores, la pregunta que surge es: ¿puede llegar a morir de éxito BlackRock por su creciente poder?

http://www.economist.com/news/briefing/21591164-getting-15-trillion-assets-single-risk-management-system-huge-achievement

https://www.blackrock.com/aladdin/offerings/aladdin-overview

https://www2.blackrock.com/webcore/litService/search/getDocument.seam?Source=content&Venue=PUB_IND&contentId=1111202564

http://www.ft.com/cms/s/0/300145d2-0841-11e4-acd8-00144feab7de.html#axzz3XMwHk3x6

http://blackbag.gawker.com/this-asset-software-has-more-power-than-the-u-s-gover-1626401486

http://www.forbes.com/sites/greatspeculations/2014/05/16/blackrock-integrates-rates-trading-into-existing-aladdin-platform/

http://es.wikipedia.org/wiki/M%C3%A9todo_de_Montecarlo

[lectorhinfluyente1984]

No apto para menores: conozcamos a una de las hormigas del Norte; del Banco Central de Holanda

Dutch Central banker fired for her hobby: working part-time as a nazi-dressed dominatrix

[juancoco]

No apto para menores: conozcamos a una de las hormigas del Norte; del Banco Central de Holanda

Dutch Central banker fired for her hobby: working part-time as a nazi-dressed dominatrix

No tiene desperdicio el final de artículo:

In retrospect few will be surprised by any of the above: after all for the past 8 years, central bankers have been fornicating with the general population on a far more massive scale than what Conchita did, and they didn't even have to paid for it: they just printed the money.

In fact, some may say this particular central banking hooker acted with far more integrity than all of her colleagues: at least every sexual activity was consensual, not the forced and involuntary variety that her business suit-dressed peers perform on the broader population every single day.

Un saludo

[lectorhinfluyente1984]

A vueltas con la teoría del "estacamiento secular" o persistente:

http://www.project-syndicate.org/commentary/summers-bernanke-secular-stagnation-by-arvind-subramanian-2015-04/spanish

NUEVA DELHI – En un intercambio reciente entre el ex Presidente de la Reserva Federal de los Estados Unidos Ben Bernanke y el ex Secretario del Tesoro del mismo país Larry Summers sobre la posibilidad de un estancamiento persistente, un aspecto en el que convenían era el de la necesidad de una perspectiva mundial, pero desde dicha perspectiva la hipótesis de un estancamiento persistente en el período inmediatamente anterior a la crisis financiera mundial no cuadra con un dato fundamental: el crecimiento mundial ascendió, por término medio, a más del cuatro por ciento, la mayor tasa registrada.

El mismo problema rodea la hipótesis de Bernanke de que el crecimiento lento reflejaba una “saturación del ahorro mundial”. Desde una perspectiva keynesiana, un aumento del ahorro no puede explicar el incremento repentino de la actividad que el mundo presenció a comienzos del decenio de 2000.

Parece que los partidarios de la hipótesis del estancamiento persistente no han entendido en qué consiste el problema. Desde una perspectiva de verdad mundial y duradera, la dificultad estriba en explicar el auge anterior a la crisis. Más concretamente, radica en explicar la conjunción de tres importantes acontecimientos mundiales: un aumento repentino del crecimiento (no un estancamiento), un descenso de la inflación y una reducción de los tipos de interés reales (ajustados a la inflación). Cualquier explicación convincente de ellos debe dejar de insistir exclusivamente en un marco de demanda agregada y centrarse en el aumento de los mercados en ascenso, en particular China.

Esencialmente, el mundo presenció una gran sacudida positiva de la productividad procedente de los mercados en ascenso, que aceleró el crecimiento mundial, al tiempo que reforzaba el proceso desinflacionario que ya había puesto en marcha la llamada gran moderación en la inestabilidad del ciclo económico. Ese dato fundamental permite conciliar dos de los tres importantes acontecimientos mundiales: un mayor crecimiento y una inflación menor.

Entonces el problema estriba en cuadrar el aumento de la productividad mundial con la bajada de los tipos de interés reales. Bernanke puso de relieve correctamente que los tipos de interés reales a largo plazo van determinados por el crecimiento real. Así, pues, la sacudida positiva de la productividad debería haber aumentado el rendimiento del capital y, por tanto, el equilibrio real de los tipos de interés. Además, el hecho de que la sacudida de la productividad reflejara una reducción del coeficiente entre el capital y la mano de obra mundiales debida a la integración de los trabajadores chinos e indios en la economía mundial debería haber acentuado esa tendencia, pero no fue así: al contrario, los intereses reales mundiales bajaron.

Para entender ese misterio resultan fundamentales dos rasgos distintivos de la sacudida de la productividad de los mercados en ascenso: su origen y consecuencias fueron el gran consumo de recursos y su carácter mercantilista. Esos dos rasgos aumentaron el ahorro mundial.
Para empezar, como los motores del crecimiento mundial fueron países relativamente pobres, pero grandes –la India y en particular China–, que estaban ávidos de recursos, los precios mundiales del petróleo se pusieron por las nubes, lo que redistribuyó los ingresos mundiales hacia países con mayor propensión a ahorrar: los exportadores de petróleo.

Más importantes aún fueron las políticas mercantilistas. China y otros países con mercados en ascenso aplicaron una estrategia económica que desafiaba los postulados habituales de la teoría del crecimiento y del desarrollo. El crecimiento mercantilista se basó –porque en parte así lo requería– en impulsar el capital hacia fuera, en lugar de atraerlo. Al limitar las entradas de capitales extranjeros y mantener bajos los tipos de interés internos, China pudo mantener una divisa relativamente débil, lo que sirvió para sostener el modelo de crecimiento impulsado por la exportación y, a su vez, contribuyó a unos enormes superávits por cuenta corriente (más del diez por ciento del PIB en determinado momento), que enviaron capital flotante al resto del mundo.

El reconocimiento de la importancia de esa estrategia revela una falacia común por la cual se atribuye la saturación del ahorro al deseo de los mercados en ascenso de asegurarse contra la agitación financiera comprando dólares de reserva. Eso puede haber sido cierto inmediatamente después de la crisis financiera asiática de finales del decenio de 1990, pero no tardó en prevalecer el imperativo del crecimiento. Dicho de otro modo, el motivo de la autoseguridad podría explicar el primer billón de dólares de China en títulos de reserva, pero nada tiene que ver con los tres billones posteriores.
El propio crecimiento contribuyó también a la saturación del ahorro. Al aumentar los ingresos, los ya prudentes asiáticos se volvieron aún más prudentes y las empresas rentables resultaron aún más rentables. Esa reacción endógena ante el rápido aumento de la productividad fue un factor decisivo que contribuyó a la saturación del ahorro. Hubo que revisar antiguas verdades sobre el desarrollo, en el sentido de que el ahorro es un motor del crecimiento, porque el crecimiento de los mercados en ascenso fue, hasta cierto punto, el motor del ahorro.

En eso estriba la explicación del problema de los tipos de interés. Al aumentar el ahorro (y, por tanto, la oferta mundial de fondos prestables), los tipos reales experimentaron una presión que los hizo bajar. Los tipos bajos, a su vez, brindaron la lubricación necesaria para financiar la burbuja de los activos en los Estados Unidos y en otros países. Según Summers, la magnitud del ahorro causó una debilitación del crecimiento; según la explicación substitutiva aquí ofrecida, fue primordialmente el crecimiento rápido –y sus rasgos distintivos– el motor de la magnitud del ahorro.

Actualmente, al desacelerarse el crecimiento mundial, una vez más parece posible el estancamiento persistente, pero éste es una dolencia de los países que se encuentran en la frontera económica. Para el resto del mundo en desarrollo, la verdadera preocupación no es una escasez de demanda, sino la necesidad de mantener unos niveles elevados de aumento de la productividad a fin de que puedan alcanzar a las economías avanzadas. Cuando los encargados de la formulación de políticas se reúnan en Washington esta semana para celebrar sus conversaciones rituales, no deberían perder de vista esa distinción fundamental.

[lectorhinfluyente1984]

http://www.silverdoctors.com/reverse-repos-go-parabolic-liquidity-shock-derivatives-melt-down-has-begun/

The strange volatility we’ve been experiencing in the markets is occurring because there’s is a massive derivatives melt-down going on behind the scenes. 

The Fed is engaging in an enormous reverse repo operation in order to prevent the global financial system from collapsing.

The ONLY REASON the Fed would need to inject massive amounts of Treasuries into the global banking system is because there’s an extreme shortage.

A massive derivatives accident requiring MASSIVE amounts of collateral to be posted has developed:

Submitted by PM Fund Manager Dave Kranzler, Investment Research Dynamics:

A reverse repurchase agreement, also called a “reverse repo” or “RRP,” is an open market operation in which the Desk sells a security to an eligible RRP counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future.  LINK (http://www.newyorkfed.org/markets/rrp_faq.html)…IMF tells regulators to brace for global ‘liquidity shock’ -LINK (http://www.telegraph.co.uk/finance/economics/11538509/IMF-tells-regulators-to-brace-for-global-liquidity-shock.html).

The financial news spin-doctors are attributing today’s abrupt sell-off to a report of a Bloomberg terminal outage and to a report that China has expanded its list of stocks available for shorting.   This explanation for the plunge in stocks globally is so absurd it almost leaves me speechless.

I have been postulating since mid-December that the strange volatility we’ve been experiencing in the markets – combined with the most intensive effort I’ve ever seen by the Plunge Protection Team (the Fed + the Treasury’s Working Group on Financial Markets) to prop up the stock market and keep a manipulative cap on gold – is occurring because there’s is a massive derivatives melt-down going on behind the scenes.  The volatility reflects the turmoil and the market intervention in stocks and precious metals reflects the effort to keep the problem covered up.

But a good friend and colleague showed me graph this morning that shows my thinking about a derivatives collapse may be correct:

That graph shows the Fed’s Reverse Repurchase Agreement operations with foreign Central Banks and big foreign banks.   A reverse repo is an operation which generally is thought of as being used as a tool to remove short term liquidity from the banking system.  However, as you can see from the timing of the first massive spike up, which occurred in early September 2008, it is an absurd notion to think the Fed would have removed liquidity from the system. (Note:  the second spike up in 2011 coincided with the Fed’s “Operation Twist” which was essentially a huge QE extension disguised with a “twist” – but nonetheless was done to keep the system from collapsing).

No, instead the massive operation was conducted to INJECT Treasury collateral into the global banking system. Treasuries are used as collateral against derivatives positions.  It’s in a sense margin collateral for the big boys.   When an entity (typically a bank or hedge fund) takes on a derivatives bet, it needs to post collateral to protect the counterparty from a decline in the value of the bet.  Treasuries are the de rigeur collateral, although the ECB now allows everything for collateral except loans to lemonade stands.

When the value of the derivatives bet declines because the value of the underlying asset declines (think:  Greek debt, oil debt), more collateral has to posted.  Eventually, the market runs out of collateral and there’s a collateral short squeeze.  The use of hypothecation exacerbates the situation by several multiples.  Please note that Zerohedge intermittently reports big spikes up in Treasury settlement fails.  This reflects the extreme shortage of collateral.  When collateral has been posted but not hypothecated, it can be called and used for settlement.  When that Treasury has been hypothecated by the custodian of the collateral, it becomes harder to call, especially when it’s been hypothecated several times.  Big spikes up in settlement fails occur.

Circling back to my postulation that a massive, ongoing derivatives melt-down has started, as the derivatives lose value, more Treasury collateral has to be posted.  When the situation becomes extreme, collateral isn’t posted and counterparties begin to fail, especially if the counterparty can’t come up with the cash needed to remedy a derivatives bet gone bad.   My bet is that the Greece situation ignited the problem and the collapse in the price of oil threw millions of gallons of napalm on the situation.

The reason I believe this explanation is correct, is from the graph above.   We know that in 2008 we were told that a big derivatives accident started in Europe and spread to the U.S.  Lehman filed for Chap 11 on Sept 11, 2008.    We also know that AIG and Goldman experienced a massive counterparty default collapse in September 2008 that was remedied thanks to rather explicit lies circulated by Ben Bernanke and Henry Paulson about systemic collapse if TARP wasn’t approved.

A reverse repo can be looked at as tool to remove liquidity from the system OR as a tool to inject Treasury collateral into the system.  We know the Fed has been “testing” a new Reverse Repo system since mid-2013 that take Treasuries from its “SOMA” holdings (SOMA = the Treasuries the Fed purchased with QE) and use them for reverse repos, including reverse repos with MONEY MARKET FUNDS and foreign central banks/ Too Big To Fail banks.  Nothing happens by accident and that spike above shows us why the Fed was “testing” a new reverse repo system.

The only reason the Fed would need to inject massive amounts of Treasuries into the global banking system is because there’s an extreme shortage.  A massive derivatives accident requiring massive amounts of collateral to be posted has developed.  If Treasuries are not available to post as collateral, while at the same time a massive amount of hypothecated (Treasuries out on loan, several times over) collateral fails are occurring, it will cause the banking system to seize up.  The giant spike up shown in the graph above is occurring because the Fed is engaging in an enormous reverse repo operation in order to prevent the global financial system from collapsing.

Remember I suggested some time ago that the elitists like give us a warning before something bad is about to happen.   As my colleague John Titus states:  “the true elite aristocracy are polite criminals – they consider it gauche to flush the toilet while we’re in the shower without giving us a heads up.”

This is why the IMF issued this warning yesterday for the financial media to publish:

The so-called ‘flash crash’ on US bond markets last October and the collapse of the Swiss currency floor in January showed how quickly liquidity can vanish, acting as “a powerful amplifier of financial stability risks.”

THIS is why stock markets globally are selling off hard today.   The S&P 500 is now down over 1%.  Typically the Plunge Protection Team has been able to prop it up by noon EST when it falls at the open.  So far today the sell-off has accelerated.

[saturno]

El artículo excelente que traes, enlaza a otro de R:Hausmann.

http://www.project-syndicate.org/commentary/economic-stagnation-free-products-by-ricardo-hausmann-2015-03/spanish

Lo del estancamiento secular parece un pretexto de economistas para no tener que hablar del papel de los "agentes economicos" no productores/no empleados (no recuerdo el término al uso).

El razonamiento acerca de la sociedad de información no sé si es determinante, pero sí es sintomático.

El hecho de que se proporcione tanta innovación de manera gratuita no sólo crea un problema de medición para los economistas, sino que también constituye un problema muy real para quienes buscan oportunidades de inversión. En la bonanza económica posterior a la segunda guerra mundial, si alguien quería un aparato de aire acondicionado, un automóvil o un periódico, tenía que comprarlo, con lo que les daba la oportunidad de ganar dinero a los proveedores.

Pero los productos intensivos en información - típicos de las economías tecnológicamente avanzadas de hoy - son diferentes. Puesto que el costo de proporcionar una copia extra es prácticamente inexistente, es difícil cobrar por ellos.

Read more at http://www.project-syndicate.org/commentary/economic-stagnation-free-products-by-ricardo-hausmann-2015-03/spanish#yLoVZ7EZBkE9wF4O.99

Parece como si los economistas están llegan al límite de su potencial: empiezan a sentirse al estrecho respecto de otros acercamientos más integradores: etnología, politica, ciencias sociales en general.

[lectorhinfluyente1984]

http://www.zerohedge.com/news/2015-04-21/mystery-chinas-gold-holdings-coming-end

Back in 2011, Zero Hedge first asked the key question that matters to the gold market: what are China's true holdings of physical gold.

As is well known, the last time China did provide an update of its official gold inventory was in early 2009 when it disclosed to the IMF some 1,054.1 tons of gold held at the PBOC headquarters (or elsewhere).  The problem is that this number is now very outdated, and substantially undercuts China's true gold holdings.

To be sure, there has been extensive speculation on the topic, suggesting China's current gold may be anywhere between 3,000 and 8,000 tons (or more) but the reality is that until Beijing itself decides to officially reveal the number, speculation will remain just that. And, as we and many others, Bloomberg included, have noted such a revelation will not come in a vacuum, but will be largely a political statement about the preparedness of the Renminbi to replace the US Dollar as the world's reserve currency.

Back in 2011, a leaked cable (courtesy of Wikileaks) admitted as much:

"China increases its gold reserves in order to kill two birds with one stone"
 
"The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): "According to China's National Foreign Exchanges Administration China 's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.

It is no secret that one of the primary prerogatives of the Politburo in recent years has been to do just that: internationalize the RMB, as such quietly adding to its gold reserves is precisely in the interest of the Chinese nation.

This is what Bloomberg said today when it decided to turn its attention to this critical topic:

While the metal is no longer used to back paper money, it remains a big chunk of central bank reserves in the U.S. and Europe. China became the world’s second-largest economy in 2010 and has stepped up efforts to make the yuan a viable competitor to the dollar. That’s led to speculation the government has stockpiled gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves.

Bloomberg's own estimate:

The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, to 3,510 metric tons, says Bloomberg Intelligence, based on trade data, domestic output and China Gold Association figures. A stockpile that big would be second only to the 8,133.5 tons in the U.S.

This is how Bloomberg arrives at this number:

China is the world’s largest gold producer and ranked behind only India among top consumers last year, but the amount of metal its central bank last reported holding in 2009 accounts for just 1 percent of foreign-exchange reserves, which have surged more than fivefold in a decade and are the biggest in the world. Most of that is in dollars.

At the same time, other "experts" are finally realizing what we have said all along:

[Adding gold] may bolster the view China has “a currency that’s well backed by a range of different assets,” said Steven Dooley, a Melbourne-based currency strategist at Western Union Business Solutions for Asia-Pacific. “The most-liquid currencies tend to have a wide range of foreign-exchange reserves.”
 
"If you want to set yourself up as a reserve currency, you may want to have assets on your balance sheet other than other fiat currencies,” Bart Melek, head of commodity strategy at TD Securities, said by phone from Toronto. Gold is “certainly viewed as a viable store of value for an up-and-coming global power."

Apparently not according to Larry "No More Buybacks" Fink, who overnight said that "gold’s traditional role as a store of wealth has been usurped by contemporary art and apartments in cities such as New York and London" and then proceeded to pitch ETFs as a far better means of trading gold; ETFs of which Blackrock is, conveniently, the world's biggest provider.

One wonders: is that because apartments in London (and soon NYC) are about to be taxed through the nose, causing a selling panic as we reported before, or because the Bank of International Settlements does not have an artwork price suppression team? Or maybe it is simply because the world's billionaires simply can't find enough physical gold and have to resort to such ridiculous substitutes?

Ridiculous comments by firms that would prefer you transact in gold ETFs than collect physical gold aside, what is more interesting is that as Bloomberg correctly observes, "China may be preparing to update its disclosed holdings because policy makers are pressing to add the yuan to the International Monetary Fund’s currency basket, known as the Special Drawing Right, which includes the dollar, euro, yen and British pound. The tally may come before the IMF’s meetings on the SDR next month or in October, Nomura Holdings Inc. said in an April 8 report."

What should one expect:

With China disclosing so little about its hoard, finding out how much the central bank has in its vaults is of increasing interest to traders. Confirmation of bigger holdings would signal the importance of the metal as a reserve asset and boost market sentiment, TD Securities’ Melek said. At a time when prices are languishing, the buying could give support, said Suki Cooper, director of commodities at Barclays Plc in New York.
 
In a rare comment on gold, Yi Gang, the central bank’s deputy governor, said in March 2013 that the country could only invest as much as 2 percent of its foreign-exchange holdings in gold because the market was too small. The press office of the People’s Bank of China in Beijing didn’t respond to a fax seeking comment sent on April 14.

Because apparently it never crossed anyone's mind that if China was indeed preparing to announce a new gold-backed quasi-reserve currency it would try to talk the number down, not up, until the actual revelation.

Ashish Bhatia, the World Gold Council’s director, central banks and public policy, in New York, said there’s a lot of room for China to expand. It’s ideal for central banks to have 4 percent to 10 percent of assets in gold, he said. The PBOC may already hold at least 3,000 tons, said Warren Hogan, chief economist at Australia & New Zealand Banking Group Ltd. in Sydney.
 
“Gold has always been, through the history of China, a way to project power,” Kenneth Hoffman, a metals and mining analyst at Bloomberg Intelligence, said in an interview on April 9. “They are thinking about how to make the yuan more international, and so this is a possible reason why they are buying so much gold.”
As a reminder, according to another recent estimate by BullionStar, if China were to announce that they hold 5 % of total reserves in gold, this would translate into roughly 5,000 tonnes.

So while the reality is that nobody has a clue what China's actual gold holdings are, the good news is that the answer is coming. As noted above, Chinese Premier Li Keqiang has asked the head of the International Monetary Fund to include China's yuan currency in its special drawing rights (SDR) basket. "China will speed up the basic convertibility of yuan on the capital account and provide more facility for domestic individual cross-border investment and foreign institutional investment in China's capital market," Xinhua paraphrased Li.

And while the official IMF meeting to determine whether the Special Drawing Right should be extended to include China's currency will take place in October, the informal board meeting will take place in a few weeks in May.

So if China is serious about CNY inclusion in the SDR, it will finally have to reveal its cards which would mean it updating the IMF, and the world (with a 6 year delay) just what its latest gold holdings are.

As such, don't be surprised to wake up one morning to headlines blasting that Chinese gold holdings have gone up by 2x, 3x, 5x or (more x) since 2009, a long-overdue update which will catalyze the next major leg higher in the precious metal.

http://www.nytimes.com/2015/04/22/world/asia/india-seeking-a-boost-plans-to-put-its-idle-gold-to-work.html?hp&action=click&pgtype=Homepage&module=photo-spot-region&region=top-news&WT.nav=top-news&_r=0

In his mission to build India’s economy into one that could someday rival China’s, Prime Minister Narendra Modi would like to mobilize the roughly 20,000 tons of gold thought to be in private hands, 2,500 tons of it in major Hindu temples. Demand here is so high that gold imports have in recent years accounted for nearly 30 percent of India’s trade deficit, and many people prefer to keep it in the form of jewelry, making it difficult to trade or convert into cash.

Economists call it “idle gold,” and Mr. Modi’s team would like to see it used for trade and investment. In May, the government is expected to introduce a plan to induce Indians to deposit gold in banks, offering fixed interest rates for a “metal account.” There are also plans to issue gold bonds and, for the first time, to issue gold in the unsentimental but fungible form of a coin.

But it is an experiment that will run up against old habits and deep emotions. This month, though details of the plan were not yet public, spokesmen for some of India’s richest temples were already offering blustery opinions pro and con.

“These are habits that developed over hundreds and thousands of years,” Jayant Sinha, India’s minister of state for finance, said in an interview. He said temple trusts, in particular, had been forced to think like endowments, weighing strategies to protect their wealth.

...

“For thousands of years, Hindu society has donated this gold to temples whose trusts have safeguarded it,” said Vyankatesh Abdeo, the organization’s all-India secretary. “Our wealth is in gold; the government’s evil eye is on this wealth. This is absolutely wrong, and we oppose this move. This wealth is God’s, not the government’s.”

[lectorhinfluyente1984]

En 2012...

[lectorhinfluyente1984]

Gracias a mi maestro y amigo A. por enlazarme este resumen:

Introducing Freegold

by Bullionstar

In my last post, US Dollar as Reserve Currency – Credibility Inflation, I briefly touched on a few ideas relating to FreeGold such as the demand for the US Dollar as a savings instrument temporarily propping up the fiat/debt/money system.

What is FreeGold?

FreeGold is not a single theory but an understanding of how past events have formed a gold trail which will significantly change our monetary system in the future. It’s a set of all-encompassing explanations tying together trade and geopolitics with the monetary system. The foundation of the ideas constituting FreeGold was laid by two writers, Another and Friend of Another (FOA) and is built upon today by a third contributor, FOFOA.

One of the key tenets of FreeGold is that the monetary functions of Medium of Exchange (MoE) and Store of Value (SoV) can, should and will split, where:
1. Fiat currency will continue to be used as Medium of Exchange.
2. Gold will be used as Store of Value.

In my previous post, Gold or Fiat? That is the question…, I described how lending expands the money supply, whether in gold or fiat. When savers save in the same medium as is used for the Medium of Exchange, a collapse always follows money expansion.

Under gold standards, fiat and gold are always tied together in some way. Reintroducing gold as the international settlement medium for net debts doesn’t however necessitate fiat to be tied to gold.

Under FreeGold, gold is reintroduced as Store of Value but without being tied to fiat. By using scrip money/fiat/debt for short term settling but using freely floating gold for long term settling, the horrendously skewed trade balances we see today will be a memory of the past. Gold is thus set free from its role as medium of exchange, thus the name “FreeGold”.

Under a FreeGold system, politicians will still be able to overpromise and overspend  in the short term but the value of their monetized debt (money) after fiat has hyperinflated, as measured in gold, will be minuscule compared to today.

Debt is the Essence of Fiat

Fiat money is created as debt out of thin air. And there’s a lot of it created.

The US Dollar has already been hyperinflated monetarily but it isn’t visible yet in terms of consumer price inflation as the excess money created has been saved rather than spent on consumption. As long as the (non-US) world is buying roughly the same amount of US Dollar investments as the US trade deficit, there’s no price inflation.

Capital flows can and will turn on a dime though. Just imagine how much (little) the US Dollar would be worth if the US Dollar depreciated to balance the US trade deficit.

The cause of the low price inflation we see today, despite the high monetary inflation, is the hoarding of credit. Credit implies future production revenue. What’s the chance of future production living up to the debt it’s built upon?

Put another way, saving of credit increases the purchasing power of money that isn’t saved. The saved credit causes bubbles whereas price inflation is delayed.

The absence of price inflation is incorrectly interpreted by central banks as too little money supply when there is already too much. Their knee-jerk reaction is to lower interest rates further and inject even more money through QE, thus increasing the underlying problem even more. Banks are complementing this by lowering lending standards to expand their fractional reserve lending as much as possible.

The problem of too much credit competing for a limited pool of credible borrowers can’t be solved by lowering lending standards and flooding the market with even more credit.

The credit must find vehicles to be hoarded into. This is creating massive demand for passive investments without adding any sort of productivity or innovation to the economy – a more realistic determinant of the health of the economy. Instead – to the detriment of the economy – we get bubbles, malinvestment, misallocations, debt saturation and unprofitability. Entrepreneurs which would have been successful in a sound meritocratic economic system are punished. Creating new innovative products have become secondary to putting companies on the investment markets. Companies even operate at a loss just to service debt, often with government stimulus as a substitution for keeping people off the dole.

Hyperdeflationary head fake

Governments around the world are fighting deflation labelled as evil. We are nowhere close to hyperinflation, right?

Wrong.

Hyperdeflationary pressure precedes hyperinflation. It’s the loss of confidence in a deflation that triggers the hyperinflationary phase. In terms of gold as a unit of account, what’s called a hyperinflation in a fiat money terms, is actually deflation, as gold typically strengthens its purchasing power when fiat currency hyperinflates.

The only reason the US Dollar is still holding up at this point, is its demand as a form of a savings instrument from the private sector. It used to be central banks providing structural support for the US Dollar but this structural support has ended. Surplus countries like China and Russia are no longer interested in accumulating any more US debt. They know it’s worthless. Instead, they try to diversify as much as they can without imploding the value of their existing US debt holdings. They know the monetary system is going to reset and they are planning accordingly by accumulating real tangible assets generally and gold specifically.

So yes, deflationists are right in their analysis of the current environment but miss what follows next.

Hyperinflation is Guaranteed

With our current monetary system, US Dollar denominated (debt) assets are held as future claims on US Dollars i.e. held with a promise of the counterpart to deliver US Dollars. The problem is that cash or digital cash only makes up a very small percentage of the total money supply. When cash is claimed en masse, there is no cash to finance the redemption. As the cash doesn’t exist, the government will have to monetize the debt with newly printed cash to avoid a massive hyperdeflationary depression.

When debt defaults, fiat money is destroyed. It’s not the printing of new money that lead to hyperinflation. If that was the case, we should already have seen hyperinflation in the light of the excessive printing the last years. Think Japan! It’s hyperinflation that leads to printing. Hyperinflation is just not more inflation progressively.

Depression and hyperinflation are built up in the same way. It starts with expanding the money supply followed by debt defaulting. When this is realized among the general population, there’s a loss of confidence leading to further deflationary pressure. At this point, governments start to monetize debt at all cost. Whereas bank issued fiat debt money is elastic and can contract, government issued fiat base money (cash) can not. The issuance of inelastic cash coupled with the demand for that cash is what causes the hyperinflation, which in the end leads to the physical money printing.

Hyperinflation is thus the process of saving debt at all costs replacing debt with cash.

We can already see the signs – the beginning of the end – of a guaranteed hyperinflation.

One sign, is the excess credit created that is steadily siphoned into the stock markets, which delays the price inflation of real goods and services but cause massive asset bubbles.

Another sign is that governments monetize credit with newly created base money/cash.

Remember that strong deflationary pressure always precedes hyperinflation, which is exactly where we are now.

It’s when the confidence in the economy is lost on a broader scale that hyperdeflation turns into hyperinflation with governments monetizing debt at all costs.

But what if they don’t?

They will.

No country outside the gold standard has ever allowed a depressionary deflation to run its cause. The primary objective for a government is to get re-elected. If they can kick the can forward, they will. Sure, the coming hyperinflation will be destructive, but a hyperinflation may be less visible to the general population than a deflationary depression with immediate economic failure.

When the hyperinflation is coming, you don’t want to be stuck with fiat denominated assets as all the empty promises will be exposed in daylight. Fake capital will be destroyed whereas gold will shine as the ultimate store of value.

How about the price of gold in a hyperinflation? Financial media, bullion dealers and investors alike are always ranting about the price of gold. Will it go up or down?

The price of gold is irrelevant. The price of gold has got more to do with how worthless the fiat currencies become. The only way to accurately measure data like e.g. food, assets and commodities is to do it in terms of gold. Gold needs to replace fiat currency as the unit of account for us to get a stable ruler.

Unless the physical gold market will be rejuvenated by the initiatives we see in China and Singapore, the hyperinflation may at first not be reflected by a rising price of gold on the paper markets. As the price of gold is set on the London OTC spot market and on the futures markets, it may very well decrease at first due to a loss in confidence of paper gold.

There may instead be a shortage of physical gold on the real physical market. If/when this happens, there will be a mass scramble into physical gold with the physical markets significantly revaluing gold to entice any physical flow at all. Having built a sound marketplace for physical gold trading, China is likely to take over the pricing power of gold and with it emerge as the new dominant player in the world economy.

Encapsulating all of this, FreeGold can be said to be the adjustment mechanism correcting the imbalances between the artificial debt/credit/paper system and the real physical world represented by gold.

Debts come due.

Freegold: the differentiation between savings and investment

"Freegold: a monetary system in which long-term savings (transaction settlement) self-focuses in a medium that is not essential to the real economy.

Large scale demand for this settlement, from international trading all the way down to personal savings, does not affect consumer prices (and the price transmission mechanism) because this medium is not used in industry or as raw material.

To work, this medium cannot be debt-based, and must already be a focal point of the global super-organism: gold"

Aquilus

[lectorhinfluyente1984]

La multa a Deutsche Bank por manipulación del LIBOR se zanja en... 2.500 millones de US$

http://www.elmundo.es/economia/2015/04/23/5538eab2268e3edd338b458e.html

[lectorhinfluyente1984]

Debt supercycle, not secular stagnation

Kenneth Rogoff 22 April 2015

Weak, post-Crisis growth has been blamed on secular stagnation. This column argues that the ‘financial crisis/debt supercycle’ view provides a more accurate and useful framework for understanding what has transpired and what is likely to come next. The difference matters. Unlike secular stagnation, a debt supercycle is not forever. After deleveraging and borrowing headwinds subside, expected growth trends might prove higher than simple extrapolations of recent performance might suggest.

I want to address a narrow yet fundamental question for understanding the current challenges facing the global economy.1 Has the world sunk into ‘secular stagnation’, with a long future of much lower per capita income growth driven significantly by a chronic deficiency in global demand? Or does weak post-Crisis growth reflect the post-financial crisis phase of a debt supercycle where, after deleveraging and borrowing headwinds subside, expected growth trends might prove higher than simple extrapolations of recent performance might suggest (Lo and Rogoff 2015)?

I will argue that the financial crisis/debt supercycle view provides a much more accurate and useful framework for understanding what has transpired and what is likely to come next. Recovery from financial crisis need not be symmetric; the UK and perhaps the UK have reached the end of the deleveraging cycle, while the Eurozone, due to weaknesses in its construction, is still very much in the thick of it. China, having markedly raised economy-wide debt levels in response to the crisis originating in the West, now faces its own challenges from high debt, particularly local government debt.

The case for a debt supercycle
The evidence in favour of the debt supercycle view is not merely qualitative, but quantitative. The lead up to and aftermath of the 2008 global financial crisis has unfolded like a garden variety post-WWII financial crisis, with very strong parallels to the baseline averages and medians that Carmen Reinhart and I document in our 2009 book, This Time is Different (Reinhart and Rogoff 2009). The evidence is not simply the deep fall in output and subsequent very sluggish U-shaped recovery in per capita income that commonly characterise recovery from deep systemic financial crises. It also includes the magnitude of the housing boom and bust, the huge leverage that accompanied the bubble, the behaviour of equity prices before and after the Crisis, and certainly the fact that rises in unemployment were far more persistent than after an ordinary recession that is not accompanied by a systemic financial crisis. Even the dramatic rises in public debt that occurred after the Crisis are quite characteristic.

Of course, the Crisis had unique features, most importantly the euro crisis that exacerbated and deepened the problem. Emerging markets initially recovered relatively quickly, in part because many entered the Crisis with relatively strong balance sheets. Unfortunately, a long period of higher borrowing by both the public sector and corporates has left emerging markets vulnerable to an echo of the advanced-country financial crisis, particularly as growth in China slows and the US Fed contemplates raising interest rates.

Modern macroeconomics has been slow to get to grips with the analytics of how to incorporate debt supercycles into canonical models, but there has been much progress in recent years (see Geanokoplos 2014 for a survey) and the broad contours help explain the now well-documented empirical regularities. As credit booms, asset prices rise, raising their value as collateral, thereby helping to expand credit and raise asset prices even more. When the bubble ultimately bursts, often catalysed by an underlying adverse shock to the real economy, the whole process spins into a harsh and precipitous reverse.

Of course, policy played an important role. However, there has been far too much focus on orthodox policy responses and not enough on heterodox responses that might have been better suited to a crisis greatly amplified by financial market breakdown. In particular, policymakers should have more vigorously pursued debt write-downs (e.g. subprime debt in the US and periphery-country debt in Europe), accompanied by bank restructuring and recapitalisation. In addition, central banks were too rigid with their inflation target regimes. Had they been more aggressive in getting out in front of the Crisis by pushing for temporarily elevated rates, the problem of the zero lower bound might have been avoided. In general, failure to more seriously consider the kinds of heterodox responses that emerging markets have long employed is partly a reflection of an inadequate understanding of how advanced countries have dealt with banking and debt crises in the past (Reinhart et al. 2015).

Fiscal policy (one of the instruments of the orthodox response) was initially very helpful in avoiding the worst of the Crisis, but then many countries tightened prematurely, as IMF Managing Director Christine Lagarde rightly noted in her opening speech to the “Rethinking Macro Policy III” conference. Slowing the rate of debt accumulation was one motivation, as she notes, but let us not have collective amnesia. Overly optimistic forecasts played a central role in every aspect of most countries’ responses to the crisis. No one organisation was to blame, as virtually every major central bank, finance ministry, and international financial organisation was repeatedly overoptimistic. Most private and public forecasters anticipated that once a recovery began it would be V-shaped, even if somewhat delayed. In fact, the recovery took the form of the very slow U-shaped recovery predicted by scholars who had studied past financial crises and debt supercycles. The notion that the forecasting mistakes were mostly due to misunderstanding fiscal multipliers is thin indeed. The timing and strength of both the US and UK recoveries defied the predictions of polemicists who insisted that very slow and gradual normalisation of fiscal policy was inconsistent with recovery.

Secular stagnation
Of course, secular factors have played a role, as they always do in both good times and bad. Indeed, banking crises almost invariably have their roots in deeper real factors driving the economy, with the banking crisis typically being an amplification mechanism rather than a root cause.

What are some particularly obvious secular factors? Well, of course, demographic decline has set in across most of the advanced world and is at the doorstep of many emerging markets, notably China. In the long run, global population stabilisation will be of huge help in achieving sustainable global economic growth, but the transition is surely having profound effects, even if we do not begin to understand all of them.

Another less-trumpeted secular factor is the inevitable tapering off of rising female participation in the labour force. For the past few decades, the ever greater share of women in the labour force has added to measured per capita output, but the main shift is likely nearing an end in many countries, and as such will no longer contribute to growth.

Then there is also the supercycle of Asia’s rise in the global economy, particularly China. Asian growth has been pushing up IMF estimates of global potential growth for three decades now. As China shifts to a more consumption-based domestic-demand-driven growth model, its growth will surely taper off, with significant effects around the globe on consumers’ real incomes and on commodity prices, among other factors. As Asian growth slows, global growth will likely tend back towards its 50 year average.

Going forward, perhaps the most difficult secular factor to predict is technology. Technology is the ultimate driver of per capita income growth in the classic Solow growth model. Some would argue that technology is stagnating, with computers and the internet being a relatively modest and circumscribed advance compared to past industrial revolutions. Perhaps, but there are reasons to be much more optimistic. Economic globalisation, communication and computing trends all suggest an environment highly conducive to continuing rapid innovation and implementation, not a slowdown. Indeed, I personally am far more worried that technological progress will outstrip our ability to socially and politically adapt to it, rather than being worried that innovation is stagnating. Of course, given tight credit in the aftermath of the financial crisis, some technologies may have been ‘trapped’ by lack of funding. But the ideas are not lost and the cost to growth is not necessarily permanent.

What of Solow’s famous 1987 remark that “You can see the computer age everywhere but in the statistics”? Perhaps, but one has to wonder to what extent the statistics accurately capture the welfare gains embodied in new goods during a period of such rapid technological advancement. Examples abound. In advanced countries, the possibilities for entertainment have expanded exponentially, with consumers having at their fingertips a treasure-trove of music, films and TV that would have been unimaginable 25 years ago. Quality-of-health improvements through the low-cost use of statins, ibuprofen and other miracle drugs are widespread. It is easy to be cynical about social media, but the fact is that humans enormously value connectively, even if GDP statistics really cannot measure the consumer surplus from these inventions. Skype and other telephony advances allow a grandmother to speak with a grandchild face to face in a distant city or country. Disruptive technologies such as Uber point the way towards vastly more efficient uses of the existing capital stock. Yes, there are negative trends such as environmental degradation that detract from welfare, but overall it is quite likely that measured GDP growth understates actual growth, especially when measured over long periods. It is quite possible that future economic historians, using perhaps more sophisticated measurement techniques, will evaluate ours as an era of strong growth in middle-class consumption, in contradiction to the often polemic discussion one sees in public debate on the issue.

All in all, the debt supercycle and secular stagnation view of today’s global economy may be two different views of the same phenomenon, but they are not equal. The debt supercycle model matches up with a couple of hundred years of experience of similar financial crises. The secular stagnation view does not capture the heart attack the global economy experienced; slow-moving demographics do not explain sharp housing price bubbles and collapses.

Low real interest rates mask an elevated credit surface
What about the very low value of real interest rates? Low rates are often taken as prima facie by secular stagnation proponents, who argue that only a chronic demand deficiency could be responsible for steadily driving down the global real interest rate. The steady decline of real interest rates is certainly a puzzle, but there are a host of factors. First, we do not actually observe the true economic real interest rate; that would require a utility-based price index that is extremely difficult to construct in a world of rapid change in both the kinds of goods we consume and the way we consume them. My guess is that the true real interest rate is higher, and perhaps this bias is larger than usual. Correspondingly, true economic inflation is probably considerably lower than even the low measured values that central banks are struggling to raise.

Perhaps more importantly, in a world where regulation has sharply curtailed access for many smaller and riskier borrowers, low sovereign bond yields do not necessarily capture the broader ‘credit surface’ the global economy faces (Geanokoplos 2014). Whether by accident or design, banking and financial market regulation has hugely favoured low-risk borrowers (governments and cash-heavy corporates), knocking out other potential borrowers who might have competed up rates. Many of those who can borrow face higher collateral requirements. The elevated credit surface is partly due to inherent riskiness and slow growth in the post-Crisis economy, but policy has also played a large role. Many governments, particularly in Europe, have rammed down the throats of pension funds, banks, and insurance companies. Financial repression of this type not only effectively taxes middle-income savers and pensioners (who receive low rates of return on their savings) but also potential borrowers (especially middle-class consumers and small businesses), which these institutions might have financed to a greater extent if they were not required to be so overweight in government debt.

Surely global interest rates are also affected by the massive balance sheet expansions that most advanced-country central banks have engaged in. I don’t believe this is as important as the other effects I have discussed (even if most market participants would say the reverse). Global quantitative easing by advanced countries and sterilised intervention operations by emerging markets have also surely had a very large impact on bringing down market volatility measures.

The fact that global stock market indices have hit new peaks is certainly a problem for the secular stagnation theory, unless one believes that profit shares are going to rise massively further. I won’t pretend there is one simple explanation for the stock-bond disconnect (after all, I have already listed several). But one important observation follows the work of my colleague Robert Barro. He has shown that in canonical equilibrium macroeconomic models (could be Keynesian, but his is not), small changes in the market perception of tail risks can lead both to significantly lower real risk-free interest rates and a higher equity premium. Another one of my colleagues, Martin Weitzman, has espoused a different variant of the same idea based on how people form Bayesian assessments of the risk of extreme events.

Indeed, it is not hard to believe that the average global investor changed their general assessment of all types of tail risks after the global financial crisis. The fact that emerging market investors are playing a steadily increasing role in global portfolios also plausibly raises generalised risk perceptions, since of course many of these investors inhabit regions that are still inherently riskier than advanced countries. I don’t have time to go into great detail here, though I have discussed the idea for many years in policy writings (Rogoff 2015), and have explored the idea analytically in a recent paper with Carmen and Vincent Reinhart (Reinhart et al. 2015). Of course, a rise in tail risks will also initially cause asset prices to drop (as they did in the financial crisis), but then subsequently they will offer a higher rate of return to compensate for risk. All in all, a rise in tail risks seems quite plausible, even if massive central bank intervention sometimes masks the effect in market volatility measures.

What are the policy differences between the debt supercycle and secular stagnation view?
When it comes to government spending that productively and efficiently enhances future growth, the differences are not first order. With low real interest rates, and large numbers of unemployed (or underemployed) construction workers, good infrastructure projects should offer a much higher rate of return than usual.

However, those who would argue that even a very mediocre project is worth doing when interest rates are low have a much tougher case to make. It is highly superficial and dangerous to argue that debt is basically free. To the extent that low interest rates result from fear of tail risks a la Barro-Weitzman, one has to assume that the government is not itself exposed to the kinds of risks the market is worried about, especially if overall economy-wide debt and pension obligations are near or at historic highs already. Obstfeld (2013) has argued cogently that governments in countries with large financial sectors need to have an ample cushion, as otherwise government borrowing might become very expensive in precisely the states of nature where the private sector has problems. Alternatively, if one views low interest rates as giving a false view of the broader credit surface (as Geanokoplos argues), one has to worry whether higher government debt will perpetuate the political economy of policies that are helping the government finance debt, but making it more difficult for small businesses and the middle class to obtain credit.

Unlike secular stagnation, the debt supercycle is not forever. As the economy recovers, the economy will be in position for a new rising phase of the leverage cycle. Over time, financial innovation will bypass some of the more onerous regulations. If so, real interest rates will rise though the overall credit surface facing the economy will flatten and ease.

Sundry unrelated issues
Let me conclude by briefly touching on a few further issues. First, it is unfortunate that in the debate over the size of government, there is far too little discussion of how to make government a more effective provider of services. The case for having a bigger government can be strengthened when combined with ways of finding out how to make government better. Education would seem to be a leading example. Second, inequality within advanced countries is certainly a problem and plausibly plays a role in the global shift to a higher savings rate. Tax policy should be used to address these secular trends, perhaps starting with higher taxes on urban land, which seems to lie at the root of inequality in wealth trends. I am puzzled again, however, that those who claim to be interested in inequality from a fairness perspective pay so much attention to the world’s upper middle class (the middle class of advanced countries), and so little attention to the true global middle class. Shouldn’t a factory worker in China should get the same weight in global welfare as one in France? If so, the past 30 years have largely been characterised by historic decreases in inequality (Rogoff 2014), not rises as many seem to believe. In any event, these are all important issues, but should not be confused with longer-term output per capita trends.

Concluding remarks
In sum, the case for describing the world as being in a debt supercycle is both theoretically and empirically compelling. The case for secular stagnation is far thinner. It is always very difficult to predict long-run future growth trends, and although there are some headwinds, technological progress seems at least as likely to outperform over the next two decades as it is to exhibit a sharp slowdown.

Again, the US appears to be near the tail end of its leverage cycle, Europe is still deleveraging, while China may be nearing the downside of a leverage cycle. Though many factors are at work, the view that we have lived through a debt supercycle, marked by a severe financial crisis (Lo and Rogoff 2015), is far more constructive for policy analysis than the view that the world is suffering from long-term secular stagnation due to a chronic shortfall of demand.

References
Geanakoplos, J (2014), “Leverage, Default, and Forgiveness: Lessons from the American and European Crises”, Journal of Macroeconomics 39, pp. 313-222.

Lo, S and K Rogoff (2015), “Secular stagnation, debt overhang and other rationales for sluggish growth, six years on”, BIS Working Paper No. 482.

Obstfeld, M (2013), “On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability", CEPR DP No. 9563.

Reinhart, C and K Rogoff (2009), This Time Is Different: Eight Centuries of Financial Folly, Princeton, New Jersey: Princeton University Press.

Reinhart, C, V Reinhart and K Rogoff (2015), “Dealing with Debt”, Journal of International Economics, forthcoming.

Rogoff, K (2014), “Where is the Inequality Problem?”, Project Syndicate, 8 May.

Rogoff, K (2015), “The Stock-Bond Disconnect”, Project Syndicate, 9 March. []

Endnotes
[1] This column is based on the author’s Background Notes for Remarks at Closing Panel, “Rethinking Macro Policy III,” IMF, Washington DC, 16 April 2015.

[JENOFONTE10]

"Many governments, particularly in Europe, have rammed down the throats of pension funds, banks, and insurance companies." Rogoff.

Damnificados: pension funds, insurance companies,...

Otro que se percata de los 'efectos colaterales' , como Goldman Sachs. Aseguradoras y fondos de pensiones, efecto MFBH-p, como esta tratándose en su hilo con Saturno y Chosen.

Ya son multitud los gemidos de los reprimidos. Es un clamor de 'zarzamoros' afligidos por la 'represión' financiera, llorando por los rincones de la red,  .

Saludos.

[JENOFONTE10]

In particular, policymakers should have more vigorously pursued debt write-downs (e.g. subprime debt in the US and periphery-country debt in Europe), accompanied by bank restructuring and recapitalisation

TODO ES 'DEBT' para Rogoff en el 'factor común' originario: "subprime debt, periphery-country debt".

¿No echan de menos una mención a la madre inmobiliaria burbujil de ambas deudas?.

Es como si Rogoff en su papel de llorador ( ) por los 'reprimidos financieros' estuviera afectado por la 'omertá' inmobiliaria. Ni palabra del tabú. Se vé que no cabía una mención al origen hipotecario burbujil tanto de las subprime americanas como de la deuda euro-periférica.

Otra:

"Secular stagnation
Of course, secular factors have played a role, as they always do in both good times and bad. Indeed, banking crises almost invariably have their roots in deeper real [¿REAL ESTATE?] factors driving the economy, with the banking crisis typically being an amplification mechanism rather than a root cause."

Otra oportunidad perdida de citar, de pasada, el Tabú. Es que hasta en inglés lo inmobiliario es 'REAL' (ESTATE), no financiero, o al menos lo real es previo a lo financiero.

"Unlike secular stagnation, a debt supercycle is not forever. After deleveraging and borrowing headwinds subside, expected growth trends might prove higher than simple extrapolations of recent performance might suggest."

Rogoff además niega la ERA CERO ('secular stagnation'); parece un ciclista ('superciclo' de deuda) y postula que tras la normalización ('desapalanque' y cese de 'tipos bajitos' que 'subsidian' la deuda y que, defiende él, son su 'madre causal') volverá el crecimiento 'como antes'.

________

@LH84: gracias por el extenso enlace, que no he leído completo por mi 'subcapacidad' manifiesta con el inglés. Ya sé que Rogoff defiende hace años la 'maternidad' de la crisis 'financiera' en la 'deuda' (que solo es el síntoma de la enfermedad), y critica a los 'policymakers' (bancocentralculpismo). La postura de los 'creditófagos' (ellos no querían, los tipos bajitos -o EVA con la manzana- les tentaron irresistiblemente) a menudo pasa por negar la 'pisitofilia', que es causa, no efecto, porque 'nace' antes, como bien nos ha explicado PP.CC. varias veces.

Perdona que haga la crítica al texto que nos citas 'a saltos' y con horas de desfase; tengo dos excusas: mi lentitud con el inglés y la siesta  .

Saludos.