Archive for June 21st, 2017

Argentina manages to sell a 100 year bond!

June 21, 2017

Despite all the noise about Argentine economy, the investors continue to buy their bonds. And that too 1oo year ones:

Hyman Minsky must be rolling in his grave at the sight of a country with as checkered a long-run economic history as Argentina successfully placing a 100-year bond in the market. It would have been for him yet another indication of how little markets seem to learn from past experience. It would also likely have been for him a red flag as to how complacent global financial markets have become about risk and how all too likely it is that those markets are now setting up the very conditions for another major global financial market meltdown.

Against the backdrop of the extraordinarily easy monetary policies that have been pursued by the world’s major central banks over the past several years, global investors have been forced to stretch for yield by moving up the risk curve. Taking advantage of these favorable market conditions for issuers, the Argentine government has now successfully placed a 100-year bond in the amount of US $2.75 billion at a rate of 7.9%. A further indication as to how desperate global financial markets have become for yield is the fact that Argentina received bids in the amount of US $9.75 billion for those bonds.

In rushing to buy these very long-dated bonds, global investors are choosing to ignore how poorly managed the Argentine economy has been over the past century. They are also choosing to overlook how divided the country remains today and the questions that all too many years of past mismanagement must raise as to the country’s ability to honor its very long-dated debt obligations.

So much so for economy fundamentals and all that..

Thinking about financial independence of central banks…

June 21, 2017

Central bank independence is perhaps one of the most discussed economics topics. Econs have  divided central bank indep into two parts: goal independence and instrument independence. Goal means what a central bank should so and instrument is a way to achieve goals. In an optimum case, governments set goals and let central banks set instruments to achieve those goals. However, one sees central banks getting into setting goals and governments interfering in instruments leading to all kinds of frictions.

There is another dimension of independence which is missed- financial independence. Do central banks have enough resources of their own to sustain their operations? Or are they reliant on regular support from Government to run the show.

This note from ECB discusses financial independence of Sweden’s Riksbank:


ECB trying to caution Euroarea Governments over war on cash…

June 21, 2017

Interesting developments in Euroarea.

Both Portuguese and Belgian Governments are trying to be aggressive over their war on cash. They recently took more measures and asked ECB to share its opinion on their meaures.

ECB shared its opinion (Portuguese here and Belgian here.) In both, ECB has a common thing to say:


Comprehensive Guide to understand statistics presented in RBI’s Monthly Bulletin

June 21, 2017

This is a useful publication from RBI:

The Reserve Bank of India today, released a Comprehensive Guide for Current Statistics of the RBI Monthly Bulletin. The Current Statistics portion of the RBI Monthly Bulletin contains summary forms of statistics and information which reflects the changing pattern of economic activity in the country. The contents of the Current Statistics are reviewed and reoriented from time to time to capture the development in the Indian economy.

The Monthly Bulletin currently contains 46 tables which cover balance sheet of the Reserve Bank, money and banking, prices and production, government accounts and treasury bills, financial markets, external sector and payment and settlement systems. Apart from the print version, time series versions of all the Bulletin tables are available through the Database of Indian Economy (DBIE) (URL

This guide explains various data items and linkage among different tables which will be helpful in enhancing the understanding of the data.


The farmer protests reflects India’s money illusion problem…

June 21, 2017

Interesting piece by Niranjan. He says the recent farmer protests due to fall in prices of agri goods despite a record agri production reflects nothing but money illusion. It is the old problem where people attribute rise in prices to rise in well-being.

The recent farmer protests in some parts of the country throw fresh light on an old economic problem. People think in nominal rather than real terms. Price changes matter. The paradox of farmer protests when farm output is at record levels is less puzzling once we take falling food prices into account. It is the nominal rather than the real trend that is hurting farmers. It is useful to remember that two of the biggest movements launched by M.K. Gandhi were timed with the deflation in farm prices after World War I and the Great Depression across the world.


The recent drop in Indian inflation provides an excellent opportunity to think more clearly on the old problem of nominal versus real variables in an economy. It can also offer some clues about why this does not “feel” to be an economy growing at around 7%. This has been a common complaint

The answer could be that human psychology—or feeling of confidence or pessimism—is deeply affected by the trend in prices rather than in output alone. Indian workers, companies, investors, savers are so used to high inflation that lower nominal numbers because of the drop in inflation is a fact that they have psychologically not adjusted to. The Indian economy is not yet out of the woods but the money illusion is making the situation seem worse than it is. Think about it.


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