very good morning to @FT who's joined the fight for coordination between central bank & government, and now recognises what some of us have said for a long time: 'there is no clear distinction between quantitative easing and monetary financing'.
ft.com/content/fd1d35…
ft.com/content/fd1d35…
4 years ago, monetary financing
two years ago, joking w @Louih73 about the only flaw in Benoit Coeure (then ECB's repo man) top 3 speeches
McCauley and Pozsar (2013): fiscal “irresponsibility” (running large deficits despite large deficits as far as the eye can see) may in fact be far more important at the zero bound than monetary irresponsibility, as a strategy of aiming for negative real rates may not work 
my 2016 paper on political economy of repo markets: collateral-based financial structures entangle monetary&fiscal policy, and require their coordination
tandfonline.com/doi/full/10.10…
tandfonline.com/doi/full/10.10…
in human language: central banks & governments always travel companions in capitalism.
For past 30 years, w central bank independence, clandestine encounters in finance land.
Central banks looking for financial stability in sovereign bonds, governments looking for liquidity.
For past 30 years, w central bank independence, clandestine encounters in finance land.
Central banks looking for financial stability in sovereign bonds, governments looking for liquidity.
But finance land can become inhospitable for government bonds - even the metropolis (US).
When this happens, it's a question of financial stability for central banks.
When this happens, it's a question of financial stability for central banks.
however, clandestine encounters have changed relationship central bank & government.
Why: central banks (ECB) adopted the customs of finance land in relating to the sovereign (collateral valuation framework).
Why: central banks (ECB) adopted the customs of finance land in relating to the sovereign (collateral valuation framework).
those new customs (mark-to market of sovereign bonds, margin calls etc) make the old central bank methods for stabilising finance, what is known as lender of last resort, at best ineffective, at worst destabilising.
way out: return to old relationship, before central bank independence - buy government bonds to preserve their liquidity & safe asset status (OMT, PEPP, QE).
That old relationship was monetary financing.
Central banks reluctant to call it that, jealously guarding independence.
That old relationship was monetary financing.
Central banks reluctant to call it that, jealously guarding independence.
Corona has killed the clandestine affair between central banks and governments in repo-finance land.
It is now obvious to most (hello Germany) that the old marriage is a better institutional form to cope with shocks.
It is now obvious to most (hello Germany) that the old marriage is a better institutional form to cope with shocks.
and this 'make your affair a great marriage again' is now official BIS advice for emerging countries too.
bis.org/publ/bisbull05…
bis.org/publ/bisbull05…
wow @Lagarde is now threatening Mario Draghi's super central banker icon status.
* welcome back Greece
* across the board reduction in haircuts
* foreign currency loans (hello Eastern European banking systems)
ecb.europa.eu/press/pr/date/…
* welcome back Greece
* across the board reduction in haircuts
* foreign currency loans (hello Eastern European banking systems)
ecb.europa.eu/press/pr/date/…
all my pet hates in the collateral framework in one go - get credit ratings agencies out of collateral valuation regimes!
(except for daily mark to market of collateral, but getting there)
(except for daily mark to market of collateral, but getting there)
and @Lagarde timing is exquisite: press release during #Eurogroup meeting.
So far, more solidarity via ECB extraordinary operations than from elected politicians.
So far, more solidarity via ECB extraordinary operations than from elected politicians.
still true, unelected technocrats at ECB provide more solidarity policies that elected politicians.
ft.com/content/da1411…
ft.com/content/da1411…
