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LONDON Oct 20 (Reuters) – Euro zone monetary policy needs
to remain very accommodative, ECB Vice President Vitor
Constancio said on Monday, and called for the central bank to be
given new powers to tackle unregulated part of the banking

We are in a situation of low inflation and low growth in
the euro zone, monetary policy needs to be very accommodative,
said at an event at London think-tank Chatham House.

He adding that new instruments were needed to give more
control outside the more traditional banking sector as it takes
up its new role as a pan-European supervisor.

(Reporting by Marc Jones)

Houston, TX – 21 October, 2014 – (Techsonian) – National Bank of Greece (ADR) (NYSE:NBG), together with its subsidiaries, offers diversified financial services primarily in Greece. The company is involved in retail and commercial banking, investment management, investment banking, insurance, investment activities, and securities trading activities. It offers demand deposits, savings deposits, and time deposits, and current accounts; investment products; consumer loans, personal loans, mortgage loans, automobile loans, overdraft facilities, and foreign currency loans, as well as letters of credit and guarantees; credit cards; currency swaps and options; and ATMs.

National Bank of Greece (ADR) (NYSE:NBG) opened the session at $2.71, trading in a range of $2.68 $2.74, and was at $2.69. The stock showed a positive performance of +3.86% in the recent trading session. The stock was trading on a volume of 1.16 million shares and the average volume of the stock remained 4.73 million shares.

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Advanced Micro Devices, Inc. (NYSE:AMD) released revenue for the third quarter of 2014 of $1.43 billion, operating income of $63 million and net income of $17 million, or $0.02 per share. Non-GAAP (1) operating income was $66 million and non-GAAP (1) net income was $20 million, or $0.03 per share.

Advanced Micro Devices, Inc. (NYSE:AMD) at recent check, traded 3.17 million shares in the recent trading session and the average volume of the stock remained 27.79 million shares. The 52 week range of the stock remained $2.54 $4.80. The stock showed a positive movement of +1.87% and was recently trading at $2.72. The market capitalization of the stock remained 2.09 billion.

Why Should Investors Buy AMD After The Recent Gain? Just Go Here and Find Out

Synergy Pharmaceuticals Inc (NASDAQ:SGYP) released the presentation of results from a phase 2b dose-ranging study assessing plecanatide’s safety and efficacy in 424 adult patients (mITT population= 423) with irritable bowel syndrome with constipation (IBS-C).

Synergy Pharmaceuticals Inc (NASDAQ:SGYP) reported 801,763.00 shares has been exchanged so far while the average volume is about 1.05 million shares. The stock escalated +2.92% and most recently was trading at $2.82. The beta of the stock is recorded at 0.02 and the EPS of the stock remained -0.82. The shares outstanding of the stock are 94.80 million.

Why Should Investors Buy SGYP After The Recent Gain? Just Go Here and Find Out

Kinross Gold Corporation (USA) (NYSE:KGC) released that mill operations at its Round Mountain mine in Nye Country, Nevada are temporarily suspended following a fire in the mill building on October 1.

Kinross Gold Corporation (USA) (NYSE:KGC) gained volume of 2.44 million shares, while the average volume remained 12.37 million shares. The stock decreased -0.51% to $2.93. The EPS of the stock over the last 12 months remained -0.54. To get a view of its performance, the one month trend of the stock was -17.23% and the three month trend remained negative -29.57%.

Has KGC Found The Bottom and Ready To Move Up? Find Out Here

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Downbeat global economic forecasts have led several major central banks to go easy on their hawkish biases and push back rate hike expectations. What might this extended period of easy monetary policy mean for risk-taking?

For the newbies out there who are still struggling to make sense of how monetary policy could affect forex price action, here’s a quick refresher. You see, central banks typically use monetary policy tools such as interest rates or money supply in order to maintain price stability or to control economic activity. A strengthening economy could require policy tightening to keep inflation in check while weak economic performance could warrant policy easing to boost lending and spending.

While monetary policy easing or expectations of such tend to spark risk-off moves or currency deprecation for a while, it could eventually spur currency appreciation and risk-taking when the economy starts to recover. After all, an extended period of low interest rates (Sound familiar?) winds up encouraging businesses and consumers to take advantage of cheaper loan rates to expand their operations or make big-ticket purchases. This could translate to a pickup in production, hiring, shopping – you name it! In effect, these contribute to stronger growth and more upbeat economic prospects.

With that, it’s no wonder that the possibility of prolonged easy monetary policy sometimes leads to risk rallies, which are particularly evident in the equity markets. Back in June, when Fed head Yellen acknowledged US economic improvements while pledging to keep rates low for the time being, risk appetite surged as the Samp;P 500 reached new highs while the Nasdaq marked consecutive daily gains. That’s because the US central bank just confirmed that economic stimulus will stay in place even as progress has been made, which could be another way of saying that things are likely to keep getting better!

While improving economic data has led forex market participants to entertain the idea of seeing policy tightening soon, the possibility of extending the era of easy monetary policy has been raised once more.

As Forex Ninja mentioned in his article on Why Forex Trends Could Pause in Q4 2014, the BOE and the Fed are backpedaling on their rate hike forecasts for next year. Just last week, BOE chief economist Andy Haldane confirmed that a rate hike might take place later than expected while Fed official Bullard even recommended that the US central bank should consider delaying the end of its taper program. Apart from that, the prospect of additional BOJ stimulus isn’t completely off the table yet while the ECB is mulling further easing measures in an attempt to keep the euro zone economy afloat.

It’s too early to tell whether the global economy is just stuck in a rut or if a major meltdown is just waiting around the corner, but it’s pretty clear that central banks are not looking to withdraw stimulus anytime soon. This could keep businesses and consumers confident that economic support will stay in place for the foreseeable future, which might be enough to whet risk appetite once the recovery shows traction. The question is: Is this bound to happen anytime soon?

Monetary policy and economic inequality

Keynote speech by Yves Mersch, Member of the Executive Board of the ECB,
Corporate Credit Conference,
Zurich, 17 October 2014

Ladies and gentlemen,

It is a pleasure for me to join you for this annual conference on corporate credit hosted by Muzinich. In my remarks today, I would like to discuss an unusual topic for central bankers – namely the interactions between monetary policy and inequality. All economic policy-makers have some distributional impact as a result of the measures they introduce – yet until relatively recently, such consequences have been largely ignored in the theory and practice of monetary policy.

Of course, central banks are not charged with the task of addressing inequalities in the distribution of wealth, income or consumption – nor are they dealing with the broader challenge of promoting economic justice for society as a whole. This is certainly true of the European Central Bank (ECB), which has been assigned a clear mandate – to maintain price stability over the medium term.

But particularly at a time of exceptionally low interest rates and non-standard monetary policy measures, it is essential for us to be aware of all collateral effects – including the distributional ones, ie the potential economic damage to some parts of society; and the potential benefits for others.

So I would like to take this opportunity to explore some of the emerging evidence on the distributional effects of monetary policy. I will begin with a brief discussion of the rising prominence of inequality as an issue of global public concern.

I will then review what we are learning about the impact of low interest rates and non-standard measures on household finances. My main focus will be on the euro area but since this is a universal phenomenon, I will also look at the experiences of other major economies.

I will conclude by touching on the implications for ECB policy.

The rise of inequality

Let me begin with inequality, which has recently re-emerged as a topic of wide public debate.
[1] From a central banker’s perspective, the most relevant aspects of recent works concern the assessment that monetary policy can have sizeable distributional effects. Indeed, inequality has been largely ignored in discussions of monetary policy. But this might be changing.

In part, this is because of the potentially negative impact of rising inequality on financial stability. For example, some – not least the current governor of the Reserve Bank of India – have argued that US policies to circumvent the consequences of inequality fuelled financial instability ahead of the crisis.
[2] But while income inequality may have driven the credit boom that preceded the US subprime crisis, comparative and historical evidence suggests that there is little relationship between rising inequality and financial crises.

More generally, inequality is of interest to central banking discussions because monetary policy itself has distributional consequences which in turn influence the monetary transmission mechanism. For example, the impact of changes in interest rates on the consumer spending of an individual household depend crucially on that household’s overall financial position – whether it is a net debtor or a net creditor; and whether the interest rates on its assets and liabilities are fixed or variable.

Such differences have macroeconomic implications, as the economy’s overall response to policy changes will depend on the distribution of assets, debt and income across households – especially in times of crisis, when economic shocks are large and unevenly distributed. For example, by boosting – first – aggregate demand and – second – employment, monetary easing could reduce economic disparities; at the same time, if low interest rates boost the prices of financial assets while punishing savings deposits, they could lead to widening inequality.

Insofar, central bankers have a technical, non-judgemental interest in the distribution of income and wealth in a society.

The distributional effects of monetary policy: theory and evidence

So what do we know about the impact of monetary policy on the distribution of wealth, income and consumption? A comprehensive study published recently by the National Bureau of Economic Research (NBER) outlines five potential channels by which more accommodative measures might affect inequality.

The first is the ‘income composition channel’: while most households rely primarily on earnings from their work, others receive larger shares of their income from business and financial income. If more expansionary monetary policy raises profits more than wages, then those with claims to ownership of firms will tend to benefit disproportionately. Since the latter also tend to be wealthier, this channel should lead to higher inequality in response to more accommodative monetary policy.

The second is the ‘financial segmentation channel’: if some individuals and organisations frequently trade in financial markets and are affected by changes in the money supply before others, then an increase in the money supply will redistribute wealth towards those most connected to markets. To the extent that households that participate actively in financial transactions typically have higher income, then this channel also implies that consumption inequality should rise after expansionary monetary policy shocks.

The third is the ‘portfolio channel’: if low-income households tend to hold relatively more cash and fewer financial assets than high-income households, then potentially inflationary actions on the part of the central bank would represent a transfer from low- to high-income households. Again, this would tend to increase consumption inequality.

The NBER study outlines two further channels that tend to move inequality in the opposite direction in response to expansionary monetary policy. The first is the ‘savings redistribution channel’: lower interest rates will benefit borrowers and hurt savers. To the extent that savers are generally wealthier than borrowers, this will generate a reduction in consumption inequality.

The second is the ‘earnings heterogeneity channel’: earnings from jobs are the primary source of income for most households and earnings for high- and low-income households may respond differently to monetary policy. This could occur, for example, if unemployment falls disproportionately on low-income groups: evidence does suggest that that labour earnings at the bottom of the distribution are most affected by business cycle fluctuations. So if monetary policy reduces unemployment, it will also reduce inequality.

In addition, the income composition channel could potentially lead to reduced, rather than increased, inequality as a result of expansionary monetary policy. Because low-income households receive, on average, a larger share of their income from transfers and because transfers tend to be countercyclical, then this component of income heterogeneity could lead to reduced income inequality.

All these different channels imply that the effect of monetary policy on economic inequality is a priori ambiguous. The study therefore looks at US data from 1980 to assess whether monetary policy has contributed to changes in inequality and, if so, through which channels. The researchers find that contractionary monetary policy shocks have significant long-run effects on inequality.

In particular, they note the sensitivity of inequality measures to monetary policy actions at the zero-bound. They conclude that nominal interest rates hitting the zero-bound in times when the central bank’s systematic response to economic conditions calls for negative rates is conceptually similar to the economy being subject to a prolonged period of contractionary monetary policy.

A report last year by the McKinsey Global Institute looks specifically at the period of what it calls ultra-low interest rates.
[5] It suggests that as a result of low rates in the US, the UK and the euro area, households have lost a combined $630 billion as lower interest earned on deposits and other fixed income investments has outweighed lower interest payments on debt. Younger households, which tend to be net borrowers, have gained while older households, which tend to be net savers, have lost at a time when many countries have introduced pension reforms affecting the benefits of pensioners

Rising asset prices prompted by monetary easing could potentially offset this effect. But while bond prices have clearly risen, the McKinsey report finds little evidence that non-standard monetary policy has boosted equity markets.

James Bullard, president of the Federal Reserve Bank of St Louis, has also examined the post-2008 experience and whether quantitative easing has exacerbated US inequality.
[6] It has been suggested that the Fed’s policy of buying US government bonds and mortgage-backed securities has depressed real yields on relatively safe assets and thus encouraged savers to move into riskier assets, such as equities, raising their prices. Since only half of US households hold equities and they tend to be the wealthiest households, this policy could be making the wealth distribution more unequal.

The analysis suggests that quantitative easing has influenced equity prices, but he does not think that this has made the US income or wealth distribution worse. It is, he says, only as good or bad as it was before the crisis.

Bullard also examines whether current US monetary policy hurts savers. He argues that Fed policy generally and quantitative easing in particular have influenced the real yield earned by savers. The question is then whether the Fed has helped or hurt the situation by pushing real yields lower. This hinges on whether credit markets have been functioning smoothly during the period of quantitative easing.

If credit markets were working perfectly, then the Fed intervention to push real yields lower than normal was unwarranted and the low real yields were indeed punishing savers. At the same time, it is difficult to argue that credit markets have been working perfectly over the past five years. But as time passes, he concludes, it becomes increasingly difficult to argue that credit markets remain in a state of disrepair, and thereby to justify continued low real rates.

One final piece of literature on monetary policy and inequality outside the euro area lies in recent research by Ayako Saiki and Jon Frost at De Nederlandsche Bank.
[7] They have examined the impact of unconventional monetary policy on the distribution of income in Japan, a country whose long history of non-standard measures makes it particularly relevant. Their results show that while aggressive monetary policy finally seems to be having the desired effect on the economy, this strong medicine has come with the unwanted side-effect of higher income inequality.

They suggest a straightforward mechanism via the portfolio channel: an increase in the monetary base (through purchases of both safe and risky assets) tends to increase asset prices. Higher asset prices benefit primarily those on higher incomes, who hold a larger amount and share of overall savings in equities, and thus benefit from greater capital income. Overall, the Bank of Japan’s unconventional policies have widened income inequality, especially after the collapse of Lehman Brothers in 2008, when quantitative easing became more aggressive.

The researchers conclude that their study holds lessons for other countries undertaking unconventional monetary policy. While preventing deflation and repairing the monetary transmission mechanism at the zero-bound is inherently a difficult undertaking, Japan’s experience provides a cautionary tale on the potential side-effects. It is possible that the portfolio channel will be even larger in the US, the UK and many euro area economies, where households hold a larger portion of their savings in equities and bonds.

Household finances in the euro area

Let me now turn to what we know about the distributional effects of monetary policy in the euro area. A deep understanding of how the economy responds to various shocks or policy changes requires detailed information on the structure and composition of household finances.

Central banks have long been involved in the collection and analysis of such data. In 1983, the Federal Reserve System launched its Survey of Consumer Finances. Several other central banks have since followed suit. Here in Europe, the ECB and the national central banks of the euro area have launched the Household Finance and Consumption Survey.

The data collected by the survey are a wealth of information on the finances of over 62,000 households across 15 countries in the euro area. In April 2013, the ECB published the results of the first wave, triggering substantial research activity.

For example, ECB analysis of the immediate impact of the financial crisis suggests that between 2008 and 2013 high-income households experienced the largest declines in wealth.
[8] But the impact on consumer spending by low-income households was probably also magnified owing to their stronger response to wealth shocks.

In the context of concerns about inequality, the survey data can be used to assess changing financial pressures on euro area households – as measured, for example, by the debt service-to-income ratio. That ratio can be used to gauge households’ capacity to take on new loans or service existing debt, making it an indicator of their ability to cope with financial shocks.

The debt service-to-income ratio has recently been affected by two countervailing factors, the magnitude of which varies across countries and households: first, a decline in interest rates; and second, an increase in unemployment rates, which has caused declines in income for some households.

ECB analysis finds that between 2008 and 2013 although households with variable rate mortgages have benefited from declines in interest rates, the impact that falling rates have had on the debt service-to-income ratios of low-income households has been dampened by the fact that those poorer households have been disproportionately affected by rises in unemployment.


Let me conclude.

As I noted at the start, the ECB has a clear mandate to deliver price stability – and that mandate does not involve policies aimed at the distribution of wealth, income or consumption.

Nevertheless, we need to be aware that there are distributional consequences of our actions – and these may well be particularly significant at times of exceptionally low interest rates and non-standard measures. It seems clear that there are different effects on different parts of society.

There is no clear evidence whether standard monetary policy has a dampening or intensifying effect on economic inequality.

Non-conventional monetary policy however, in particular large scale asset purchases, seem to widen income inequality, although this is challenging to quantify.

Still, a central bank with a clear mandate to safeguard price stability needs to act forcefully when push comes to shove. These distributional side-effects then need to be tolerated. But they clearly should not last too long. They are one more reason to recognise that the non-standard measures we have introduced have to be temporary.

Thank you for your attention.

SYDNEY (Reuters) – Australias monetary policy setting is currently configured to support growth in demand, a senior Reserve Bank of Australia (RBA) official said on Monday.

Low interest rates should temporarily raise the disposable incomes of those with debt, but also lower incomes for those reliant on interest-bearing assets, said Christopher Kent, RBA Assistant Governor.

This is stimulatory nonetheless, in part because the household sector is a net debtor overall, said Kent, who is responsible for the Banks Economic Analysis and Economic Research Departments.

Australias cash rate is at a record low 2.5 percent, where it has been since the last interest rate cut in August last year.

Speaking at the Leading Age Services Australia National Congress in Adelaide, Kent focused the bulk of his speech on the challenges and opportunities that an ageing population poses to the economy.

He said the RBA can best contribute to the necessary adjustments to population ageing by maintaining low and stable inflation.

(Reporting by Ian Chua; Editing by Shri Navaratnam)

Renowned author George Gilder recently told an audience at The Heritage Foundation that conservatives have a fundamental problem in their economic ideology when it comes to money. They’re all for free markets in other areas of the economy, but when it comes to this one topic, they want not just rules but rules that don’t make sense.

Gilder said too many conservatives seem to have accepted that “centralized control of money is crucial to economic growth and expansion.” And who does he blame for this? In part, Gilder said, it was Milton Friedman, the iconic free-market economist, who set us on this course.

It is largely because of Friedman, said Gilder, that other conservatives accept centralized control of money and “join in believing that the money supply has to expand regularly to accommodate economic growth.”

Gilder is probably right in that Friedman’s “constant money growth rule” has helped keep conservatives focused on constraining the Fed with “rules-based” monetary policies. But Friedman’s original idea took off in the 1960s, and even though many conservative economists seem to have missed it, Friedman suggested a very different approach to monetary reform in the 1980s.

The fall issue of the Cato Journal includes an excellent reminder of the elder Friedman’s ideas. This article, Monetary Policy Structures, originally appeared in a 1984 book titled Candid Conversations on Monetary Policy.

It’s well worth reading the entire article, but here are a few Friedman quotes from Monetary Policy Structures that may surprise some people.

Page 632: I now realize in my later years that our approach has been misconceived. It was our view that the way to improve monetary policy was (a) to learn more about how money operated, (b) to construct appropriate rules for the conduct of monetary policy, and (c) to persuade the people who run monetary policy that they were the right rules.

Page 634: My ultimate ideal at the moment…is to eliminate every element of discretion. At the moment, my ultimate proposal is that we freeze what is called high-powered money–that is to say, current Federal Reserve notes and deposits at the Federal Reserve. To put it more simply… never print another one except to replace those that wear out. Just freeze it, and you don’t need a Federal Reserve System.

Page 634: Under those circumstances, what would happen would be that the markets would determine and would adjust the total quantity of money in the sense of the money we use including deposits plus currency.

Page 636: As you can see, I am not in favor of the independence of the Federal Reserve. This is a democracy. And I believe that money is too important to leave to [a] central bank, that it is intolerable that a group of non-elected people should have the power to create a major inflation or a major recession.

Page 636: The best change of all would be to abolish the Fed completely and simply have zero creation of high-powered money and no discretionary powers anywhere.

Page 636: My preference is to have a constitutional amendment to enforce a zero growth in high-powered money.

Page 644: People who say they’re for a gold standard vary from people at one extreme, like Ron Paul, who is for an honest-to-God gold standard in the sense that gold would be the medium of exchange and nothing else would have legal tender status. That’s an honest-to-God gold standard, and I may say I would not be against such a standard. That would work very well, but there isn’t a chance of a snow ball in hell of … getting it.

Page 645: The other notion that you’re raising is not to have a gold standard, but rather competitive money. I’m all in favor of competitive money, but that has nothing to do with a monetary standard. It has to do with banking regulations.

Page 645: I would be strongly in favor of eliminating any such barrier [capital gains taxes] to using gold or anything else as an alternative. I am strongly in favor of changing the laws in such a way as to permit competitive banking.

Page 645: As an economist and student of money, I would predict that none of those competitive monies will displace the official government money unless there is really extreme mismanagement by the government. That doesn’t mean I’m not in favor of it; I’m in favor of it. Maybe I’m wrong. And if I’m wrong, I’d like to see it operate. I’d like to see it have the opportunity.

Page 648: Now, I may be wrong. But you know the world would exist very well, it would be a very fine world, if prices were going down on the average of 1 percent a year or 2 percent a year.

Page 648: I believe that the Federal Reserve does a large part of its harm by its continuous fine-tuning in the market. It’s in and out, in and out. It’s introducing an additional uncertainty in the market that need not be there. The Federal Reserve itself can do a lot better than that and cut out this fine-tuning it’s engaged in. But if it did, it would lose its influence and importance, so it isn’t going to do it.

Page 650: What you ought to move to is to dismantle the Federal Deposit Insurance Corporation and establish private insurance companies that will provide private insurance to banks and other institutions.

Page 651: I’ve always been in favor of immediate disclosure of Fed action. There is absolutely no justification whatsoever for the Fed waiting a month before they disclose what they said and what they have decided at these meetings.

Page 651: In fact, I would be in favor of publishing transcripts of the discussion at open market investment committee meetings. So I’m all in favor of immediate disclosure.

Friedman’s work on monetary policy rules has influenced generations of economists. It’s virtually impossible to get a PhD in economics without studying his research, as well as the work of those who followed in his footsteps.

But this focus is almost always on rules-based monetary policies. Few graduate school seminars even mention that Friedman was in favor of competitive banking.

It’s all but certain this state of affairs has contributed to what Gilder calls the “division [that] has paralyzed conservatives in addressing the issue of money.” But Friedman clearly wanted to move past that point.

Author: Mike Paterson

Mike Paterson has more than 30 years of experience trading FX including as a senior trader with UBS and Credit Suisse. He was also head of FX at the State Bank of Victoria. With sizeable daily trading volumes Mike carved out a name in the market combining professional integrity with a cynical grasp of seizing market opportunity. Since leaving the City, Mike has been working as an independent consultant and trading along with presenting seminars and writing for a number of publications. Mike lives in Kent and supports Southend United FC.

LONDON (Reuters) – European Central Bank policymakers will be able to use the information they gain from their new banking supervisory powers in the traditional monetary policy side of their jobs, ECB Vice President Vitor Constancio said on Monday.

The ECB will take over the supervision of around 120 the euro zones most important banks next month. It is one of the blocs flagship responses to the financial crisis but marks a huge broadening of the central banks primary role of keeping inflation in check.

Up until now policymakers have stressed how the responsibilities will be clearly separated to avoid a blurring of the lines between the two, but Constancio said in reality that would be impossible, and anyway should be seen as a plus.

The separation of the two policy functions (monetary policy and supervisory) does not preclude benefiting from combining them, he said at the London think-tank, Chatham House.

If policymakers are members of the same institution, they can decide independently, but in a pragmatic way, taking spontaneously into account the spillovers between policy areas.

It could apply in both directions, he added. The interlinkage between monetary policy and financial stability for decisions on banking supervision matters could be just as useful as the other way around.

Combining and using the experience is one aspect of the synergies that emerge from having all these functions under one roof.

Germany in particular has been wary about combining the roles of monetary policy and interest rate setting with that of supervising banks.

The concern is the ECB will become overburdened and that worries about the potential negative impact of higher interest rates or other policy moves on a countrys, or set of countries banks, could end up delaying monetary policy decisions.

Despite stressing that combining all new information should be seen as a benefit, Constancio did say however that neither banking nor monetary policy considerations should have too much influence on decisions about the other.

Obviously supervisory decisions have to be taken not considering their affects on monetary policy and vice versa, he said.

(Reporting by Marc Jones; Editing by Crispian Balmer)

The US Federal Reserve has been stimulating the US economy with extraordinarily easy monetary policy. But it is preparing to tighten.

The European Central Bank and Bank of Japan, however, appear to be on the verge of easing further.

Meanwhile, central bankers in Russia and Ukraine are all about tighter monetary policy.

To help everyone keep track, Morgan Stanley offers this guide to the monetary policy stance and bias of every major economys central bank around the world.

Morgan Stanley

Heres Morgan Stanleys outlook for the five most important central banks:

US – Expect First Rate Hike In Q1 2016
Dollar strength and overseas economic weakness could feed disinflation bck to the US, lowering need for imminent rate hike from the Fed.

Euro Area – Lower For Longer, But No QE
The chances of QE has increased (up to 40% probability in our view), but not our base-case; the need for full-blown QE will be reduced, if the ABSPP was sizeable and successful.

Japan – Further Easing Expected
Policy response to poor data likely to be further easing of monetary policy as soon as end-October and more aggressive action on the raft of structural reforms.

UK – Rate Rise Expected in Q1 2015
A first rate rise in 1Q would give a few more months for the recover to settle in. We expect three 25bp rate rises in each of 2015 and 2016. However, this wont happen without higher pay growth.

China – Targeted Easing
In view of strong growth headwinds, the PBOC is likely to maintain the loosening bias in monetary policy; targeted easing measures such as pledged supplementary lending (PSL) and selective RRR cuts will likely remain as the main tools to keep financial conditions loose.

The stock markets plunge over concerns about the eurozone; there’s a flight from lower quality sovereign bonds; Greek, Spanish and other periphery bond yields spike. It looks like the eurozone debt crisis is back. But this time around we really should get to grips with the fact that what we’ve got here is really not a debt crisis. Sure, that’s the proximate problem, the one that is most obvious and in our faces. But the root problem, the ultimate cause, has nothing at all to do with either debt or fiscal policy: It’s monetary policy that is at error here. And yes, it is indeed all the fault of the ECB and the fools that designed Europe’s current monetary structure.

Here’s the sort of thing that is happening in the markets:

Greece’s benchmark cost of borrowing for 10 years has soared from 5.6 per cent last month to 8.71 per cent, while the nation’s main stock market sank 2.5 per cent yesterday and is down a mammoth 12 per cent in two days.

Spain – which failed to cover a EUR3.5bn (pound;2.8bn) debt auction – was also hit by a sell-off alongside Italy, France and Portugal. Even UK and German debt markets were not spared the sell-off as traders sought the ultimate safe haven of US Treasury bonds.

Growth in the eurozone stagnated between April and June, and dire economic data since then – including Germany’s worst plunge in exports for five years – has left the bloc on the brink of outright economic contraction in the current quarter. Investors are also questioning how far the ECB is willing to go to support the region after Mr Draghi evaded questions on the scale of the central bank’s private sector asset purchases.

To put the basic economic problem in simplistic terms: The entire eurozone is close to recession, again, and deflation, a general deflation, is a real possibility. Interest rates are near zero, we’re at that zero monetary bound. So we can’t slash interest rates to get the economy moving again. We can’t use fiscal policy either. Partly because everyone’s deficits are at or above what the euro system allows them to be, partly because those who most need to borrow to expand simply cannot borrow at present. Greece, even after the private sector creditors took a 70% haircut, still has debt well north of 100% of GDP and, as above, would pay near 9% to raise more.

It’s simply not possible to use the two standard policies to get the continent up out of what is, by now, getting on to be as bad as the Great Depression (and in some periphery countries is already worse than that).

That means that we’ve only got unconventional monetary policy left to us. The usual bleats about everyone needing structural reform are entirely correct: but that takes years if not decades and there’s absolutely no point at all in condemning an entire generation to waiting for that.

A decade ago no one would really have believed in such unconventional monetary policy. But both the UK and the US show that quantitative easing, the deliberate flooding of the market with newly minted money, does in fact work. Both economies sufferred in the crash, of course they did, but they’ve both recovered. Perhaps not as well as we would have liked but that QE has worked. And the one thing the ECB hasn’t done is QE and that is the policy difference. And thus, given that QE has worked, the ECB hasn’t done QE therefore the ECB should do QE.

There are problems with this, of course. We’ve still got Germans at the Bundesbank insisting that we’ve already got loose money: which is a ridiculous statement. Low interest rates do not mean a loose monetary policy: expanding money supply does and that’s something that we’ve not in fact got. The answer to this trick question is that near zero nominal interest rates can still be tight monetary policy in a deflationary world. Which is where we are.

It’s entirely true that we see the symptoms of the problem as high and rising national debts. To the point where it wouldn’t surprise at all to see further haircuts on some issuers’ debt. But that is a symptom: the solution is full blown QE in the eurozone.

This really isn’t a difficult diagnosis: Doesn’t anyone understand what Scott Sumner has been saying all these years?

My latest book is “23 Things We Are Telling You About Capitalism” At Amazon or Amazon UK. A critical (highly critical) re-appraisal of Ha Joon Chang’s “23 Things They Don’t Tell You About Capitalism”.

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