Financial topics

[aedens]

Externalities also arise over the course of the cycle if the structure of capital regulation allows an increase in leverage in financial booms while dampening it in busts.

[Trevor]

Let's not forget all the Credit Default Swaps that are a bomb just waiting for the fuse to light.

[aedens]

Let's not forget all the Credit Default Swaps that are a bomb just waiting for the fuse to light.

http://blogs.smeal.psu.edu/grumpyoldacc ... chives/375
never attribute to accident what malice is.

[Higgenbotham]

http://www.graduateinstitute.ch/webdav/ ... anking.pdf

By the early 2000s, a growing number of central banks, in advanced countries and emerging markets alike, had converged on a policy framework, flexible inflation targeting, which seemed capable of achieving price stability and delivering macroeconomic stability at the national and international levels. This framework had many practical achievements, including bringing price stability to many emerging markets. Now, however, there is growing recognition that the conventional approach to central banking needs to be rethought. The relationship between price stability and the broader goals of macroeconomic and financial stability clearly needs to be redefined.

Now that is funny. Thanks, aedens, great find.

[Trevor]

I remember taking economics in college and we never mentioned the stock market bubble or any other bubble. Even today, some deny that there even was one. If the stock market triples in just 5 years, that's pretty good evidence you're dealing with a bubble. The bubble that led to the Great Depression started around the 1924-1925 range.

[aedens]

School is a religion.
http://www.zerohedge.com/contributed/30 ... enter-2012

[Higgenbotham]

http://www.graduateinstitute.ch/webdav/ ... anking.pdf

One view is that unconventional policies are no different from conventional policies in their cross-border implications. If floating exchange rates can adjust to make international coordination of conventional policies unnecessary, then the same must be true of unconventional policies. This was the view of the United States following the adoption of QE2. In response to complaints from emerging market policy makers who feared the wave of liquidity coming their way, Fed officials essentially argued that, “everything will be okay if you just let your currencies appreciate.”

Financial stability should be an explicit mandate of central banks. Other micro- and macroprudential policies should be deployed first, wherever possible, in the pursuit of financial stability, but monetary policy should be regarded as a legitimate part of the macroprudential supervisors’ toolkit.

The spillover effects of a central bank’s policies in other countries are a legitimate concern. At present, central banks do little to internalize these effects. Admittedly, they may have difficulty in justifying actions taken in the effort to do so to domestic political authorities. This tension points to the need for further changes in prevailing policy framework. Specifically:
(i) Domestic political authorities should be persuaded to allow such considerations
to play an explicit role in the central bank’s monetary policy framework in large economies.
(ii) Large-country central banks should pay more attention to their collective policy stance and its global implications. Where appropriate, they should consider coordinated action to help stabilize the global economy in times of stress.
(iii) These recommendations are unlikely to be implemented in isolation. We therefore propose that a small group of systemically significant central banks, perhaps called the International Monetary Policy Committee, should meet regularly under the auspices of the Committee on the Global Financial System of the BIS. This group would discuss and assess the implications of their policies for global liquidity, leverage, and exposures, and the appropriateness of their joint money and credit policies from the point of view of global price, output, and financial stability.

Instead of firing Bernanke for the QE2 disaster, this committee was obviously put together to cluck at him without explicitly using his name and tell the Chinese we're sorry and it won't happen again. Pathetic.

[Trevor]

This is his Great Historic Experiment. So far, it hasn't worked, though admittedly we haven't hit a full scale depression yet. Even he's starting to admit this didn't go as planned.

[vincecate]

Reflecting over past year and looking ahead. My strategy of S&P puts and SLV calls did not do so well this last year. Both S&P and SLV were about the same at the end of the year as they were at the beginning of the year. So even a 2 year option loses lots of value. My S&P puts were short term and were nearly a total loss.

If I had followed Higgie and sold at the peak for silver I would have done really well, but I just held on. Oh well.

On the other hand, it sort of served me good as insurance. I could sleep fine at night because if hyperinflation hit I had my insurance. And I really don't feel the need to check the market often. So it was not a total waste.

I still think we are headed for hyperinflation and so am planning to keep with the same strategy. I bought more SLV options this morning for 2 years from now.

[Trevor]

What I'm finding interesting now is that there's a possibility of fighting a trade war with Europe as well as China. Many European countries want to put a carbon tax on aircraft that fly into their country. We're protesting of course, and threatening to retaliate if they do so. The recriminations aren't nearly as bad as with China, but now even our "allies" are being belligerent when it comes to economic ties with us.