Archive for the ‘Speech / Interviews’ Category

Did Bernanke create the Ukraine crisis?

August 8, 2014

Things keep getting crazier. Central banks which were kind of unknown entities till even 25 years ago, are being embroiled in all kinds of things.

Benn Steil of CFR who wrote a book which is like events post Great Depression (or Lords of Finance part II). There is this interview where he says in a way Bernanke created the Ukraine crisis:

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Why killing cash is MasterCard’s main strategy…

July 31, 2014

Ajay Banga. chief of Mastercard gives a nice interview of MasterCard’s strategy.

He says usage of cash is bad economics:

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How India managed its economy post-taper shock?

July 28, 2014

RBI’s ED Deepak Mohanty does a nice summary of the events in India economy post Bernanke’s May taper talk.

He sums up the talk at the end:

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Thomas Piketty and Ireland crisis…..

July 15, 2014

Patrick Honohan of Ireland central bank responds to a presentation by Piketty on his famed book in Ireland.

In the process he tries to connect the recent Irish crisis to Piketty’s theory:

Although much of the commentary around Piketty’s book has centred on his forward-looking analysis of the prospects for the size distribution of worldwide wealth in the decades ahead, other parts have greater immediate resonance for us here in Ireland. I am thinking specifically about the way in which many of the long data series in Capital show a pronounced decline in the mid-20th Century. Related to two world wars and the Great Depression which separated them, as well, perhaps, as to the rise of the “Welfare State”, these collapses occurred both in terms of the aggregate wealth-to-income ratio and to the concentration of wealth at the top end of the distribution.

If Capital convinces of anything, it surely establishes that looking at major historical transitions through the lens of data on wealth is very instructive. We also have had disruptive events in Ireland in the past decade somewhat comparable to the mid-century capital and wealth collapses in Europe documented by Piketty. As well as tipping the economy into a deep recession, triggering a surge in unemployment and emigration and crippling the public finances, our crisis has been associated with large losses in household capital and increases in indebtedness causing distress. These latter aspects have been the focus of a lot of work at the Central Bank in the past few years as we have used the limited powers at our disposal and sought to provide advice to Government to map the best available route to recovery.

Pikettymania continues to bit one and all..

Cricket’s corridor of uncertainty and monetary policymaking…case of interesting similarities..

July 14, 2014

A fascinating speech by Andy Haldance of BoE.

He connects cricket with monetary policymaking. The predicament facing today’s policymakers is similar to the batsman in cricket who face balls in corridor of uncertainty:

It is wonderful to be back in Scarborough. I say back because many of my earliest and fondest childhood memories were of summer holidays spent here. Being a cricket fan, the Scarborough Festival – the cricketing jamboree held at the end of August each year since 1876 – has always held a place in my imagination. Alas I have never been, but am hoping one day to break my duck.

I want to discuss the economy and the role of monetary policy in supporting it. And with apologies to the non-cricketers in the audience, to do so I will borrow a cricketing metaphor – the “corridor of uncertainty”. The corridor of uncertainty is every bowler’s dream and every batter’s nightmare. It refers to a ball which pitches in such a position – the corridor – that the batter does not know whether to be playing off the back foot or the front foot.

This, I will argue, is similar to the dilemma facing monetary policymakers on the Bank’s Monetary Policy Committee (MPC) today. Should monetary policy hold back until key sources of uncertainty about the economy have been resolved? Or instead push forward to prevent leaving it too late?

He reviews the econ situation across globe and UK. For both an econ and cricket follower one can easily connect the two.

He says depending on how the batter/policymaker reacts, one dubs him/her a dove or hawk:

Faced with these uncertainties, what would be a prudent course for monetary policy in the period ahead? The first thing to say is that there is consensus across the MPC on three key elements of our monetary strategy: that any rate rise need not be immediate, that when rate rises come they are intended to be gradual and that interest rates in the medium-term are likely to be somewhat lower than their historical average.

This message appears to have largely been understood by financial markets. Despite the upwards revision to growth, financial markets’ best guess of how rapidly the first percentage point of tightening will take place is essentially unchanged over the past year – around 20 basis points per quarter. So too is their best guess of where interest rates may settle in the medium run – around 2-3%. Views may in time differ across the MPC on the preferred lift-off date for interest rates, as you would expect at a difficult-to-predict turning point in the cycle. These will reflect individual members’ different reading of the runes, not their individual preferences. That is a real benefit of the MPC’s committee-based structure, with individual member accountability.

It is not difficult to see why this choice over timing is a difficult one. The policymaker in this situation faces the self-same dilemma as the batsmen facing a ball pitching in the corridor of uncertainty. In that situation, the coaching manual no longer offers a clear guide. Two strategies are equally justifiable.

The first is to stay on the back foot and play late. This has the advantage of giving the batsmen more time to get a read on the trajectory of the ball as it swings and darts around. It avoids the risk of lurching forward and then needing hurriedly to reverse course if the first movement is misjudged. This is the way, Joe Root, the Yorkshire and England batsmen, plays his cricket. If he were on the MPC, he’d be called a dove.

But this strategy is not riskless. Playing late relies on having an uncannily good eye and strong nerve. It runs the risk of having to react fast and furiously to avoid missing the ball entirely. An earlier front foot movement would avoid that risk, allowing a more gradual movement forward. This is the way Ian Bell, the Warwickshire and England batsman, plays his cricket. If he were on the MPC, he’d be called a hawk.

What about owls? Night watchmen?

Which is better? Hawk or Dove?

So which is the better strategy? Benjamin Disraeli told us there are lies, damned lies and statistics. Here my analogy between cricket and the economy breaks down. Economic statistics, as we know, do sometimes lie. Cricket statistics, typically, do not. They tell us that Joe Root averages 43 in test matches to Ian Bell’s 45. In other words, it is a close run thing with the odds at present slightly favouring the front foot. But a good run of scores from either player could easily tilt the balance. That, in a nutshell, is where the MPC finds itself today

A superb analogy.

Though, Haldane misses the other side of the cricket pitch – the bowlers. In this case the bowlers are financial markets/players. They keep putting the batters into difficulty with their persistent attack on the batters. In the swinging UK conditions, they pose even more difficulty to the batters.

And then all this happens cyclically. During tough times, the central bankers become the batters and are made to face tough batting conditions. And when the times turn good, the markets become the batters and thrash the bowlers all around…

 

Importance of understanding the principles of regulation by the regulated…case from India

July 3, 2014

An interesting speech by G. Padmanabhan of RBI. The speech is on corporate governance, the recent companies act etc.

In the middle of the speech he discusses regulation and narrates this interesting case:

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When civil society protesters question ECB members over latter’s monetary policy..

July 2, 2014

The elitists central bankers are getting the fury doze which is usually reserved for politicians. And rightly so, given how important central bankers have become over the years without the kind of accountability faced by politicians.

It was really interesting to read this interview of Benoît Cœuré of ECB conducted by 2 members of protest group in Europe. It was published inc Süddeutsche Zeitung (SZ), so SZ is also asking the questions.

SZ: Mr Cœuré, have you ever taken part in a demonstration?

Cœuré: Since I’ve been working at the ECB, no. I have taken to the streets in the 1990s, including to campaign against the French government’s anti-immigration laws. But that was long ago.

SZ: For you, Mr Rätz, demonstrations are part of your job description. What is your mission?

Rätz: Mission is something of an exaggeration, but standing up for your views in public is part of democratic and civic action. Demonstrating is an important tool in this respect, and it should be used.

SZ: Mr Aschmoneit, you define the right to demonstrate very broadly and propagate civil disobedience. What justifies this right in your view?

Aschmoneit: I came to this interview by train. On the way, a respectably dressed man in his early seventies came over and I moved over so that he could sit down. But he didn’t want to. He said that he wanted the deposit bottle that was in the bin in front of me. A poor, old man who has to collect bottles to get by. This reminded me once again that what we are doing is legitimate, moving from protest to resistance. We will interfere with and obstruct the opening of the ECB’s new premises because what happens at the ECB is immoral. We want it to stop.

These protesters blame the ECB for the evils surrounding European economy. Some tough talks this:

SZ: Mr Rätz, what irritates you the most about the ECB?

Rätz: For us, it is the role that the ECB is playing within the Troika. Together with the International Monetary Fund (IMF) and the European Commission, the ECB pursued a policy that had dramatic – in some cases fatal – consequences in the crisis countries. In Spain, 400,000 people have been driven out of their homes; in Greece, almost one-third of the population no longer has access to the healthcare system and 40% of its people are poor. All of this is clearly linked to the Troika’s policy. It is therefore a bit ripe to say that the ECB only wants the best. I believe you, Mr Cœuré, as a person, but the ECB is contributing to division in Europe, and not to cohesion.

Aschmoneit: The IMF, which is not known for its left-wing extremism, says that saving is wrong. There is far too little investment. The International Labour Organization (ILO) says that the unemployment rate in the euro area has shot up and that one-quarter of the population is seriously threatened by poverty. The ECB is creating winners and losers from the crisis. Last year, the wealth of the rich in western Europe rose by 5.2%. The US investor Warren Buffett has said that there is class warfare and that it is his class, the rich class, that is winning. Your policy, Mr Cœuré, is geared towards reducing large portions of the population to poverty and safeguarding the profits of a few.

Rätz: It’s not all about the citizens of Europe for the ECB – they’re not even being asked. Let’s take Greece, for example. Since 2010, its economy has shrunk by 25%. This year, it is expected to grow by 0.7%, which is extremely little. We’re not going to live to see Greece recover. The people of Greece are not being asked about the Troika’s recommendations, even though the measures have a profound impact on society: salaries and pensions have been reduced, unemployment benefits have been cut and hospital care has deteriorated. That is not a policy for the people, it is a policy for the banks.

In the middle ECB member defends ECB saying usual things…so have skipped them,,

Nice bit.

Usually such criticism is meant for the politician. We see politicians take on questions from protesters. I have never read a formal interview of a central bank by civil society protesters criticising the central bank. It seems as if central bankers have become the neo-politicians for the amount of media space they generate. Who really cared what central banks did around 15-20 years ago?People are now taking note on who is trying to call the shots in their economies.

Also interesting to see Coeure agreeing to be a part of the interview.

Rethinking economics after the crisis — Making economics more relevant for policy..

July 2, 2014

A superb speech by Benoît Cœuré of ECB. It is really important that economic policymakers also reflect on the state of the profession barring a few academicians who are often ignored. With people like Coeure talking, hopefully more it reaches more ears.

He says policymakers do not have the luxury if academicians..

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My experiments with truth in the Indian capital markets ….Speech by C. B. Bhave

June 19, 2014

This is truly an amazing and inspirational speech by former SEBI chief – Mr. Chandru Bhave. And what a title based on Mahatma Gandhi’s autobiography. It is a no holds barred speech and completely on front foot Sehwag style. Or in this FIFA season Robben style.

I had the pleasure to hear the speech at IIMB in one of the classes and was floored.He comes across as a pretty reticent and low-key person but was amazing all the way in the speech. The speech had a bit of everything- finance, inspiration, policy development and challenges, building capital markets in India, handing special interests etc. All this along with some humor as well. At that time his name was not taken in the MCX case but in this one, he speaks his mind on the allegation as well.  I was wondering how to put this speech up. Great thanks to Ajay Shah Blog for putting this up though given at a different venue.

I am not discussing the speech as every word is great. But how about this for ending the speech?

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Distribution and management of currency and coins in US..

June 12, 2014

Louise L. Roseman of Fed gives a nice speech sharing insights on how currency and coins are distributed in US economy.

Fed plays a larger role in currency management with US mint managing the coins (much like India):

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Michael Lewis on a Rigged Stock Market and the Heroes of Wall Street..

June 5, 2014

Prof. Jeremy Siegel of Wharton interviews Michael Lewis where he talks about his recent work on bashing Wall Street. The book is called — Flash Boys: A Wall Street Revolt

Here is a sample:

Jeremy Siegel: On page 232, you write the following: “The stock market at bottom was rigged. The icon of global capitalism was a fraud.” Wow. Those are strong statements. They probably have been misinterpreted in a lot of ways. First of all, let me say that I believe a lot of what you are saying about high-frequency trading. It’s true, and we have to get these regulators off their duff to do something about this. But don’t you think words like that scare people away from legitimate investing in the stock market?

Michael Lewis: I doubt any words I could write would be as scary as what high-frequency traders have done and what exchanges have done with them. When I’m writing that, I’m writing through the eyes of the person who’s been investigating the stock market for the previous 231 pages. That’s his view of the matter. A lot of people, when they read the book and the facts of what he’s uncovered, will come to the same conclusions. It doesn’t mean that you shouldn’t invest in the stock market. It doesn’t mean that you won’t do well in the stock market. But it does mean there’s a systematic stealth that’s built into the stock market. “Rigged” is a fair description of it. It just turns on the connotations of “rigged.” But to my mind, that’s a fair description of it. And to Brad Katsuyama’s mind.

Great read all through.

What makes Switzerland an international finance centre?

May 20, 2014

A nice speech by Thomas J. Jordan, Chairman of the Governing Board Swiss National Bank.

He points to historic reasons that led to formation of Swiss IFC and how it can maintain it in future.

 

 

History of Netherlands Central Bank and future outlook for central banks (which is highly confused)…

May 8, 2014

A really nice speech by Klaas Knot head of De Nederlandsche Bank, the central bank for Dutchland.

The speech is given celebrating 200 years of the bank, so there is some history to it. Knot then also looks at the future outlook for central banks in future. How DNB evolved from being a sleeping old lady to guardian of the gilder is an interesting story which I guess is common across most central banks.

He says neglect of financial stability as a goal is coming to haunt central bankers. After all the original purpose for most central banks was fin stability which then moved to price stability. With FS, there are two issues:

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Currency management in India – issues and challenges…

April 29, 2014

One wishes central banks talked more about other issues they tackle other than mon policy.

This is a really interesting speech from RBI Dep Guv. Dr KC Chakrabarty (slightly dated) on this really interesting issue of currency management. People can choose to ignore what central banks do in mon pol but currency policy  is something  which no one can choose to ignore. Any policy change with respect to currency issues is followed and understood by all.

The speaker touches on several issues in currency management in India:

  • Demand and supply of currency notes – both process and trends are discussed
  • Demand and supply of factors that lead to currency production
  • Security and counterfeit issues

Useful stuff. May be with digital currency etc. one looks at other kinds of currency management challenges in future. 

A year without dividends and profit distribution – what are the reasons?

April 25, 2014

The title of the post will most likely suggest that it is about some company. Well it is, except that the company is Swiss National Bank, the central bank of the nation.

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QE in Euroarea has to deal with three kinds of interest rate differentiation..

April 17, 2014

A thoughtful speech from Benoît Cœuré, member of ECB.

He says when we say about QE in EZ, we have to look at interest rates across three spectrums:

Focusing specifically – and at the risk of over-simplifying the issue – on the interest rate channel of monetary transmission, monetary policy operates by raising or lowering the interest rate in the economy. A lower (real) interest rate lowers the cost of capital for firms, encourages investment spending and stimulates consumption. A higher real interest rate has the opposite effect.

But the point of course is that there is no such thing as one interest rate to which all economic agents respond. There are at least three ways in which interest rates are differentiated in the euro area. There is vertical differentiation – different economic agents are sensitive to interest rates with different maturities. There is spatial differentiation – different interest rate curves provide the reference rates in different jurisdictions. And there is horizontal differentiation – within jurisdictions, different markets determine firms’ and households’ cost of borrowing.

What this implies is that the levels of medium- and long-term real interest rates across jurisdictions and markets will always be relevant to the formulation of monetary policy. The difference between normal and abnormal times is therefore not what we are trying to achieve – it is how we strive to achieve it.

He further explains these three kinds of differentiation:

First, vertical differentiation – the relevant maturities at which asset purchases should take place. In practice, purchases would naturally be linked to the interest rate maturities that are most important for firms’ and households’ investment and consumption decisions. In the euro area, this tends to be the intermediate to longer part of the yield curve.

Second, spatial differentiation – the jurisdictions across which asset purchases should be spread. Here we would have to take into account the interest rates in different jurisdictions that provide the benchmarks for loan pricing. In the euro area, remember, there is no single yield curve that refers to a “commoditised” reference asset and that is equally relevant for loans to firms and households. Creating such an asset would ease the implementation of our monetary policy, but this cannot be a short term project.

Third, horizontal differentiation – the markets within jurisdictions that asset purchases should target. When financial markets are highly integrated with a high degree of substitutability between assets, purchases in one asset class, such as government bonds, are more likely to affect term premia across all asset classes. This is because the process of portfolio reallocation facilitates a relatively homogenous transmission. But given the segmentation of euro area financial markets, this effect cannot just be assumed. To achieve a homogenous reduction of term premia across relevant interest rates, segmentation would have to be taken into consideration in our strategy.

Pretty complicated as most things in EZ are. One has to decide on maturities, countries and then within countries..

He says unconv policies are not as unconv and there is a wonderful quote at the end:

Unconventional monetary policy tools are less unconventional than the word implies. They are unusual, because they respond to highly unusual circumstances. They imply risks that have to be carefully weighed and mitigated. But fundamentally, unconventional tools are only a means for central banks to continue doing what they have always done: managing aggregate demand, by influencing the level of real interest rates and other monetary transmission channels, to maintain price stability. To borrow from Giuseppe Tomasi di Lampedusa, in these unusual times “everything must change, so that everything stays the same”. It is this that will determine both the appropriateness of using targeted asset purchases in our monetary policy operations, and the design of any such purchases.

Superb..

 

From a one handed economist to an economist with many hands like a Hindu god …

April 14, 2014

Came across this interesting and dated speech of Nemat Shafik, ex IMF DMD and now BoE’s Deputy Governor. The speech was given at a conference in Delhi organised by CAFRAL.

She says:

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What happens when the heart available for transplant is that of 75 year old central banker?

April 11, 2014

Usually brilliant and funny Richard Fisher if Dallas Fed has this interesting speech. He discusses QE, forward guidance, hype around central banks and so on..

He narrates a story told by Mario Draghi at a conference:

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What is fair trade and fair value? Myths and Reality..

April 1, 2014

DeLisle Worrell, Governor of the Central Bank of Barbados has this interesting speech. As his previous speeches this one also looks at myths around economics (one and two).

This time he targets fair trade and fair value concepts:

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Three dimensions of a successful finance professional…

March 13, 2014

Rave Menon of Monetary Authority of Singapore speaks on finance sector and jobs in Singapore… He says fin professionals in Asia need three competencies:

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