Category: English

How the ECB can stop the coronavirus crisis overnight

I haven’t posted on the blog in a while, but I’m very active on Twitter.

Here’s my 3 point plan for the ECB:

(1) The ECB should issue bonds, which are risk free (the ECB cannot default on euro liabilities). It should buy every sovereign bond trading at a yield of 40 basis points or more above the yield on the ECB bonds.

(2) The ECB should set the interest rate on TLTROs at -5% until six months after the coronavirus public health crisis is over.

(3) The ECB should do helicopter money as soon as businesses are operational again, because the outlook for price stability is bleak.

Coronavirus economics: dangerous hacks versus credible voices

The coronavirus pandemic once again demonstrates that a lot of prominent economic commentors are dangerous. Their recommendations will amplify the economic shock caused by the virus.

People who claim that

  • the coronavirus is not the job of central banks
  • this is mainly a supply chain issue
  • we have to beware of the long term consequences of doing fiscal/monetary stimulus now
  • we should continue business as usual

are spreading falsehoods.

Don’t listen to that guy!

Here is a selection of people who do grasp the importance of acting now in order to prevent an economic meltdown later.

Scott Sumner and David Beckworth: How central banks should respond to the coronavirus threat (podcast)

John Cochrane: Corona virus monetary policy

Skanda Amarnath:

This is not a drill

The ECB, government leaders and the banking sector must act immediately to stop the financial panic caused by the coronavirus.

A recession can still be avoided.

Banks should provide bridge loans to businesses suffering from the corona shock.

The ECB should do a TLTRO-like operation, providing cheap funding proportional to banks’ SME/corporate credit portfolios. Make the terms of the ECB loans conditional on coronavirus metrics. For example: banks should repay 4 months after the last new COVID-19 case is detected in the EU.

If Europe’s leaders fail to act decisively, the financial costs will snowball.

The economics of the coronavirus on Twitter

The coronavirus won’t cause a recession

But the reaction of policymakers might.

The direct impact of the coronavirus on the economy is limited. Unlike disasters such as hurricanes or earthquakes, there is no material damage. Few workers have been incapacitated by the virus.

Once the spread of the virus is under control, the economy can recover quickly.

The greatest risk is that politicians and central bankers will let financial uncertainty get out of hand. The stock market has taken a hit. Some companies will need to defer payments.

Continue reading “The coronavirus won’t cause a recession”

Larry Summers is a VSCO girl. On central banks, fiscal stimulus, and why you should read Eric Lonergan

In case you’re not familiar with teen culture, VSCO girl is a fashion trend.

Surely, the Very Serious People who think about central banks are not susceptible to such fads, right?

I regret to inform you that the Very Serious economists and central bankers are just as prone to trends as teens on TikTok.

Continue reading “Larry Summers is a VSCO girl. On central banks, fiscal stimulus, and why you should read Eric Lonergan”

Follow the money

Detective Lester Freamon in The Wire

Money flows shed light on the entanglement of economic and political power. So following the money can reveal a lot about how the world works.

That’s why Follow the money is the name of Brad Setser’s blog and a Dutch research journalism website.

Here’s a great example of where following the money can take you. Economists at the World Bank have looked at aid granted to poor countries. By comparing disbursement dates with statistics from the BIS, they found that part of the aid money ends up in offshore havens.

Criminals, banks and criminal bankers

How do you move millions of dollars from one place to another?

Obviously, you use a bank.

But what if the money is dirty?

The Organized Crime and Corruption Reporting Project (OCCRP) has documented several laundromats, e.g. the Troika Laundromat.

A laundromat is a scheme of shell companies and bank accounts to move money – often Russian money – offshore. The investigations read like a spy novel, full of criminals, politicians, lawyers and bankers.

For example, this article explains how Moldovan judges enabled flows out of Russia by authenticating guarantees on “defaulted loans” between shell companies.

Sometimes, bankers looted their own institutions, see The Vienna Bank Job for details.

Fascinating stuff, involving major Western banks as well.

How should authorities respond to these illicit activities?

In the EU, several countries have jointly proposed to create a centralized anti-money laundering (AML) supervisor.

Joshua Kirschenbaum has pointed out that the U.S. could counter malign financial activity by targeting banks that facilitate organized crime.