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Do Banks Require Savings to Accommodate Demand for Lending?

DO BANKS REQUIRE SAVINGS TO ACCOMMODATE DEMAND FOR LENDING?

There is an emerging view held by many commentators that it is banks and not the central bank that are key for the expansion of money. This way of thinking is promoted these days by the followers of the post Keynesian school of economics (PK).[1] In a research paper by the Bank of England’s Zoltan Jakab and Michael Kurnhof, they suggest that

In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation. That is they create deposits of new money through lending, and in doing so are mainly constrained by profitability and solvency considerations.[2]

It seems that for the researchers at the Bank of England and PK followers the key for money creation is demand for loans, which is accommodated by banks increasing lending. In this framework, banks do not have to be concerned with the means of lending, all that is necessary here that there is a demand for loans, which banks are going to accommodate i.e. demand creates supply.

According to the Bank of England researchers,

In the real world, the key function of banks is the provision of financing, or the creation of new monetary purchasing power through loans, for a single agent that is both borrower and depositor. The bank therefore creates its own funding, deposits, in the act of lending, in a transaction that involves no intermediation whatsoever. Third parties are only involved in that the borrower/depositor needs to be sure that others will accept his new deposit in payment for goods, services or assets. This is never in question, because bank deposits are any modern economy’s dominant medium of exchange.[3]

 …click on the above link to read the rest of the article…

Will the Bank of England join the loose money bandwagon?

Will the Bank of England join the loose money bandwagon?

As the year of the 325th anniversary of the Bank of England’s foundation, and as the month of one of the Bank’s more important rate-setting decisions since 2008, September provides a congruous occasion on which to reflect on the history of the BoE and consider what the future holds for it. Founded in 1694 as a private bank to the government, it was in 1998 that the BoE was granted independence from the government in setting monetary policy. Now the UK faces perhaps its greatest political uncertainty in a generation, it is worth asking the question: to what extent will this independence continue? 

We have already seen the effect of populist leaders on central banks that are ostensibly independent. The obvious case is that of the US, but there are other examples to be found of central banks facing political pressure to keep monetary policy easy, from Turkish President Erdogan’s sacking of the then central bank governor, to the ECB’s reaction to persistently low growth in Europe. Even if Trump doesn’t control the Fed directly, he certainly controls the market, which in turn has forced the hand of the central bank and led to the Fed cutting rates with the economy in expansion. And with ever more monetary sweets to choose from in the jar, which politician could resist raiding the cupboard and giving their economy a sugar high of rate cuts, QE and lending? 

Pressure on the Fed is likely only to increase as the 2020 elections approach: if President Trump is able to engineer further cuts, and then get the markets soaring with a trade deal and promises of tax cuts just in time for elections, we might begin to agree he is – in his words – “a very stable genius”.

In Unprecedented, Shocking Proposal, BOE’s Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency

In Unprecedented, Shocking Proposal, BOE’s Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency

After Jerome Powell’s neutral-to-slightly-dovish-but-mostly-boring speech on Friday morning, investors could be forgiven for suspecting that this year’s Fed-sponsored gathering in Jackson Hole might be disappointingly dull (especially with all that’s going on in Trump’s twitter feed, the escalating trade war and escalating geopolitical unrest).

Then along came former Goldman banker and current (outgoing) BOE governor, Mark Carney, who in his lunchtime address laid out a shocking, radical proposal – perhaps the most stunning thing to ever be unveiled at Jackson Hole – urging to replace the US Dollar with a “Libra-like” reserve currency in a dramatic revamp of the global monetary, financial and economic order.

While it was unclear if Carney was focusing on Libra as the new reserve currency, or simply was hoping to find something against which the dollar could be devalued, the proposal was clearly shocking as it suggests that the central bank quiet acceptance of cryptocurrencies (especially in Japan) has been what many have speculated all along: a “currency” against which fiat money can be devalued in hopes of sparking fiat hyperinflation that inflates away record amounts of fiat debt.

Of course, such a new system would bring about the end of US hegemony, and effectively end the dollar-based global financial system, dramatically scaling back the US’s influence in the global economy, and making rising powers like China and Russia critical players an increasingly multipolar world…. especially if they propose a gold-backed dollar alternative to the world. That this would quickly emerge as the new reserve currency – together with whatever stablecoin/crypto central bankers deign to be the dollar’s replacement – goes without saying.

 …click on the above link to read the rest of the article…

$1.6 Trillion Fund Spots A New, Ticking Time Bomb In The Market

$1.6 Trillion Fund Spots A New, Ticking Time Bomb In The Market

First it was the shocking junk bond fiasco at Third Avenue which led to a premature end for the asset manager, then the three largest UK property funds suddenly froze over $12 billion in assets in the aftermath of the Brexit vote; two years later the Swiss multi-billion fund manager GAM blocked redemptions, followed by iconic UK investor Neil Woodford also suddenly gating investors despite representations of solid returns and liquid assets, and most recently the ill-named, Nataxis-owned H20 Asset Management decided to freeze redemptions.

By this point, a pattern had emerged, one which Bank of England Governor Mark Carney described best when he said last month that investment funds that promise to allow customers to withdraw their money on a daily basis are “built on a lie.” 

And now, the chief investment officer of Europe’s biggest independent asset manager agrees with him, because while for much of 2019 the biggest risk bogeymen were corporate credit, leveraged loans, and trillions in negative yielding debt, gradually consensus is emerging that investment funds may be the basis for the next liquidity crisis.

“There is no point denying we are faced with a looming liquidity mismatch problem,” said Pascal Blanque, who oversees more than 1.4 trillion euros ($1.6 trillion) as the CIO of Amundi SA, according to Bloomberg’s Mark Gilbert who in a Bloomberg View piece writes that Blanque told him that the prospect of melting liquidity is one of “various things keeping me awake at night.”

Continuing the discussion of illiquid institutions, Blanque said that market making, where firms generate prices at which they are willing to either buy or sell financial products, is effectively “a public good” (or “public bad”, if it is being done by HFTs who disappear at the first sign of volatility, and them having to take on real positional risk).

 …click on the above link to read the rest of the article…

Markets are being Lulled into a False Sense of Accommodation

Markets are being Lulled into a False Sense of Accommodation

Those who take an interest in the actions of central banks will know that the advent of Brexit and Donald Trump’s presidency has seen the direction of monetary policy gradually change in both the UK and the U.S.

Since the EU referendum, the Bank of England have raised interest rates twice, after initially cutting them and implementing a new round of quantitative easing in the aftermath of the vote. The first rate hike in November 2017 came over a decade since the bank last increased rates in July 2007.

A month after Donald Trump was confirmed as the 45th American president, the Federal Reserve raised rates for only the second time in nine and a half years. Since Trump’s inauguration, they have gone on to hike a further seven times, and over the course of eighteen months (starting late 2017) the Fed have rolled off over $600 billion in assets from its balance sheet.

As the Fed continue to roll off assets until their balance sheet ‘normalisation‘ programme ends in September, the sentiment amongst traders is that the central bank will soon begin a course of rate cuts in order to stave off the threat of a recession as the prospect of a full blown trade conflict with China and other nation states gathers momentum.

A similar sentiment can be found in the UK over Brexit. With the British economy stagnant and manufacturing and construction sectors in decline, there exists an expectation that the Bank of England will ultimately reverse course if an economic downturn takes hold.

 …click on the above link to read the rest of the article…

Store Gold Bullion In Safest Ways – Learning from Tragic Venezuela Today

Store Gold Bullion In Safest Ways – Learning from Tragic Venezuela Today 

– Store gold bullion in the safest ways possible and learn from Venezuela’s gold battle with the Bank of England and Trump’s White House 
– What in the world is happening in Venezuela and to the people of Venezuela’s gold?
– How you store gold and invest in gold is vitally important in these uncertain times

As a sovereign nation, Venezuela should have the right to take possession of and sell their gold on the open market. As sovereign individuals, we should too.

It is a difficult issue as the recent election is in doubt and the concern is that the euros (or dollars) garnered by the sale of the people’s gold reserves may be squandered trying to prop up the Maduro government rather than looking after the humanitarian needs of the people of Venezuela.

Central banks are repatriating and taking possession of their gold and indeed buying gold today. This tragic story highlights the importance of all people owning gold in the safest ways possible.

We must all become our own central banks!

What are the ‘7 Key Gold & Silver Storage Must Haves’?

1. How to store gold bullion and the importance of owning individually segregated and allocated coins and bars
2. Can you visit, view and collect your bullion whenever you want and is liquidity and competitive pricing ensured?
3. Chain of integrity that ensures the authenticity of your store of gold bullion
4. Bailment and legal structures that best protects the investor
5. Risks inherent in ETF, electronic & digital gold (online gold platforms or bullion vaults)
6. Vital insurance considerations to know: Ensure that your bullion provider and its storage partners have adequate insurance cover
7. Can you visit, view and collect your gold bullion whenever you want and is liquidity and competitive pricing ensured?

Bank of England tears up its Gold Custody contract with Venezuela’s central bank

Bank of England tears up its Gold Custody contract with Venezuela’s central bank

In early November 2018, it first came to light that the Bank of England in London was delaying and blocking the withdrawal of 14 tonnes of gold owned by the Venezuelan central bank, Banco Central de Venezuela (BCV). At the time, Reuters and The Times of London both reported that according to unnamed British ‘public officials’, the delays were being caused by the difficulty and cost of obtaining insurance for the gold shipment back to Venezuela, and also due to “standard measures to prevent money-laundering“.

As I explained in a BullionStar article on 15 November titled ‘Bank of England refuses to return 14 tonnes of gold to Venezuela’, the explanations given to Reuters and the Times for the withdrawal delays were completely bogus, and that the real reason for blocking the BCV gold withdrawal was undoubtedly US and UK joint government interventions to stall the withdrawal. As I wrote at the time:

“The reasons put forward by official sources in the Reuters and Times articles for why Venezuela can’t withdraw its gold from the Bank of England are clearly bogus. The more logical and likely explanation is that the US, through the White House, US Treasury and State Department have been liaising with the British Foreign office and HM Treasury to put pressure on the Bank of England to delay and push back on Venezuela’s gold withdrawal request.”

As it turns out, this was an entirely correct prediction, since by 25 January, Bloomberg confirmed in an ‘exclusive report’ (two and a half months later) that:

 …click on the above link to read the rest of the article…

Bank Of England Refuses To Release Venezuela’s Gold After US Lobbying

Bank Of England Refuses To Release Venezuela’s Gold After US Lobbying

With Maduro desperately clinging to power in Venezuela – albeit protected by Russian “security contractors” – The Bank of England just ‘virtue-signaled’ another jab in the socialist utopia’s back by confirming its refusal to hand over Venezuela’s gold from its vaults.

Bloomberg reports that Maduro’s embattled regime, desperate to hold onto the dwindling cash pile it has abroad, was stymied in its bid to pull $1.2 billion worth of gold out of the Bank of England, according to people familiar with the matter.

The Bank of England’s (BoE) decision to deny Maduro officials’ withdrawal request comes after top U.S. officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, lobbied their U.K. counterparts to help cut off the regime from its overseas assets, according to one of the people, who asked not to be identified.

Mike Krieger recently dug into the gold part of the Venezuelan coup sagaIn case you forgot, Hugo Chavez didn’t make any friends in the empire back in 2011 when he repatriated around 160 tonnes of gold from banks in the United States and Europe. But the story doesn’t end there. As Reuters reports:

The government of Nicolas Maduro has since last year been seeking to repatriate about $550 million in gold from the Bank of England on fears it could be caught up in international sanctions on the country.

Its holdings at the bank more than doubled in December to 31 tonnes, or around $1.3 billion, after Venezuela returned funds it had borrowed from Deutsche Bank AG through a financing arrangement that uses gold as collateral, known as a swap, one of the sources said.

Venezuela last year started carrying out gold barter operations with Turkey to import food following U.S. sanctions that have made international banks reluctant to handle Venezuelan transactions.

 …click on the above link to read the rest of the article…

Bank Of England Boss: China’s Renminbi Will Rival The Dollar As Global Reserve Currency

The past year was full of events that inevitably split the global geopolitical space into two camps: those who still support using US currency as a universal financial tool, and those who are turning their back on the greenback.

Global tensions caused by economic sanctions and trade conflicts triggered by Washington have forced targeted countries to take a fresh look at alternative payment systems currently dominated by the US dollar.

So far, China, India, Turkey, Iran, and Russia have all taken steps towards eliminating their reliance on the greenback, and the reasons behind their decision.

But while those nations could be conceived by many as “enemies” that could be forgiven for daring to question the hegemon, we must admit we were a little surprised at just how frank Bank of England Governor Mark Carney was during a lengthy Q&A this morning

One of the first questions asked was:

“Does he envisage one of the types of IMF SDRs to become a global currency in his lifetime? If so, will it be crypto/blockchain/gold ‘backed’?”

Carney’s response was oddly honest and open…

“The IMF’s SDRs are designed for a specific purpose – to supplement IMF member countries’ official reserves and so help them to address balance of payments problems. So they are not intended to become a widely accepted means of exchange – what most people understand ‘currency’ to mean.

OK, so definitely got the message – Don’t look over here at the SDRs

What about other currencies?

“That said, I think it is likely that we will ultimately have reserve currencies other than the USD. The evolution of the global financial system is currently lagging behind that of the global economy, and there are asymmetric concentrations of financial assets in advanced economies relative to economic activity.

Venezuela’s gold in limbo amid tug-of-war at the Bank of England

Venezuela’s gold in limbo amid tug-of-war at the Bank of England

In early November news was placed into the British media (Reuters and The Times) revealing that the Bank of England in London, one of the world’s largest custodians of gold bars on behalf of other central banks, was refusing to allow the withdrawal and repatriation of 14 tonnes of gold belonging to Venezuela’s central bank, the Banco Central de Venezuela (BCV).

According to these media reports, the delays / refusals by the Bank of England to allow the Venezuelan gold repatriation ranged from excuses about the prohibitive cost of transport insurance to concerns about future money laundering. In all cases, these excuses were bogus, as I explained in the article “Bank of England refuses to return 14 tonnes of gold to Venezuela” on the BullionStar website, dated 15 November, and that the real reasons for the Bank of England’s refusal were political. As I stated at the time in my conclusion:

The reasons put forward by official sources in the Reuters and Times articles for why Venezuela can’t withdraw its gold from the Bank of England are clearly bogus. The more logical and likely explanation is that the US, through the White House, US Treasury and State Department have been liaising with the British Foreign office, HM Treasury to put pressure on the Bank of England to delay and push back on Venezuela’s gold withdrawal request.”

According to the Reuters report dated 5 November, the Venezuelan central bank gold withdrawal plan had “been held up for nearly two months”, which would put the original withdrawal request by the BCV to the Bank of England at a date in at least September and probably earlier. So the BCV had been looking for its gold back for sometime, and the Bank of England was stalling.

…click on the above link to read the rest of the article…

The Bank of England and the Manipulation of Sterling

The Bank of England and the Manipulation of Sterling

In a recent article where I discussed the Bank of England being at the heart of the Brexit process, I mentioned how the fall in the value of sterling following the 2016 referendum was pigeonholed by the bank as being the sole cause for inflation breaching their 2% target.

After the article was re-posted by Zero Hedge, a reader commented on something I did not make specific mention of, which was that six weeks after the referendum the BOE halved interest rates to 0.25%, prompting the pound to drop further in value. The reader pointed out that cutting interest rates usually results in currencies depreciating, and that the bank’s actions were the cause of a subsequent rise in inflation and not Brexit itself. Essentially, the premise here is that the BOE were responsible for devaluing the pound and creating the conditions to eventually raise interest rates a year later.

A similar comment from another reader in October last year spoke of how the BOE extending quantitative easing by £60 billion, as well as lowering rates, were ‘two sure fire things to lower the value of the pound.’

Whilst I have touched upon this in previous articles, it is a subject that deserves more attention and fresh context.

Let’s start by first going back to December 2007 when the Bank of England cut interest rates from 5.75% to 5.5%. At the time sterling was valued at $1.96. Two more rate cuts followed in February and April 2008, taking rates down to 5%. The pound remained stable around $1.97. So far the bank lowering rates had not prompted a fall in sterling.

Five months later Lehman Brothers collapsed, and so began a violent downward trend in interest rates. The next cut came in October, down to 4.5%. The chaos within financial markets had fed through to sterling – the $1.97 from five months ago was now $1.72.

…click on the above link to read the rest of the article…

Irish Central Bank Refuses To Discuss If Gold Reserves Are In Bank of England Vaults

– As Brexit looms, the Central Bank of Ireland has refused to discuss the location and value of Irish gold reserves
– No date given for removal of “commercially sensitive” gold reserves from Bank of England vaults

– Bank of England vaults in London believed to hold almost €200 million of Irish gold
– Ireland’s financial system & economy is hugely exposed to a Brexit downturn

via Irish Independent:

IRELAND’S Central Bank has refused to say if it plans to move almost €200m worth of gold bars from the vaults of the Bank of England as a result of Brexit, insisting that any such move would be “commercially sensitive”.

The gold reserves have been held by its UK counterpart for a number of years, and the Central Bank has traditionally been coy on the precise details of the reserves, and the terms of the arrangement it has with the Bank of England.

It refused to be drawn yesterday on whether the reserves would be removed from the Bank of England either before or after the Brexit deadline of next March.

“It is for the Central Bank to determine how Ireland’s gold reserves ought to be managed,” a spokeswoman told the Irish Independent.

“The Central Bank’s portfolio is managed in line with approved parameters, which are kept under regular review and we report on key activities and developments in our annual report,” she added.

“The Central Bank’s transactions in gold are commercially sensitive and no further comment can be made at this time,” she said.

The latest Central Bank annual report shows that it had €209.3m worth of gold and gold receivables on its books at the end of 2017.

…click on the above link to read the rest of the article…

Ann Pettifor: If I governed the Bank of England, here’s what I do

Ann Pettifor: If I governed the Bank of England, here’s what I do

The radical economist outlines how she’d overhaul the UK’s broken economy.

If such an implausible appointment were ever to be made by a Labour chancellor, I would regard it as a great honour. The Bank of England stands at the pinnacle of Britain’s monetary system, which I regard as one of Britain’s great public goods. It is as vital to our economic health as the sanitation system is to public health. The development of the monetary system and the founding of the Bank of England in 1694 represented – despite all its flaws – a great civilisational advance. As the £1,000 billion bailout of the banking sector in 2007-9 proved, thanks to our monetary system, there need never be a shortage of money. We need never lack the money for all that society regards as vital to economic, social, political and ecological stability. I write that with feeling, having worked in countries that lack a developed monetary system, and therefore have no money.

The Bank of England, explained the governor Mark Carney recently, is ‘the only game in town’. The bank’s power – or at least the power of its civil servants and monetary policy committee members – was greatly enhanced during the Blair government. Under Gordon Brown’s watch one of the most important economic tools available to any government – the power to determine the rate of interest (bank rate) – was delegated to a committee of unelected men (and the occasional woman) at the Bank of England. Brown made clear in 1997 that the monetary policy committee was expected to wield this great power independently of parliament’s scrutiny.

…click on the above link to read the rest of the article…

Bank of England refuses to return 14 tonnes of gold to Venezuela

Bank of England refuses to return 14 tonnes of gold to Venezuela 

The Bank of England claims to be one of the largest physical gold custodians in the world, holding gold bars in vault storage on behalf of more than 70 central banks and a number of commercial (bullion) banks.

As a long-standing and well-known gold custodian, it should therefore be a simple matter operationally and logistically for any central bank customer from around the world to withdraw gold bars from the Bank of England and to have those gold bars sent overseas. These types of shipments have been happening at the Bank of England for hundreds of years.

Such an event would normally not generate any media interest nor even be known about in the public domain such is the secrecy and opacity of central bank gold transactions. For these reasons, the current case involving the Bank of England’s refusal to deliver Venezuela’s gold stored in London, and the way its been publicized, raises some questions and deserves comment.

HM Treasury and Fleet Street

So what exactly is the issue? On 5 November, the London headquartered Reuters news agency reported that the Venezuelan state, fearing sanctions, is attempting to repatriate 14 tonnes of gold from the Bank of England in London, but that this gold withdrawal and transport operation has not yet been actioned despite the withdrawal request being made by Venezuela nearly two months ago.

According to Reuters’ sources which were two unnamed “public officials with direct knowledge of the operation“, Venezuela’s gold bar withdrawal delay is being caused by the difficulty and cost in obtaining insurance for the gold shipment, and also because the Bank of England wants to know what Venezuela plans to do with its gold once it receives it.

…click on the above link to read the rest of the article…

 

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

Even the US is now ‘swimming naked’

Steen Jacobsen, Chief Economist and Chief Investment Officer of Saxo Bank sees economic slowdown ahead.

Specifically, his “Four Horseman” indicators: the drivers of economic growth, are all flashing red.

Jacobsen believes that the central banks will continue their liquidity tightening efforts for as long as they can get away with (i.e., until the financial markets start toppling over). In his opinion, they eased way too much for way too long; and the malinvestment and zombification that resulted needs to clear the system — and it will likely do so more violently and painful than the central banks will like:

I like to make things simple. Right now we have the Four Horsemen: the four drivers of the global economy. They are the quantity of money, which is falling; the price of money, which is rising; the price of energy,which is a tax on consumers and is rising; and globalization/productivity, which is falling.

So, if you look at the economy as a black box, I really don’t know what happens inside of it. But I can observe what goes into the black box: it’s these four things.

Globalization / productivity, we know that’s all about Trump, trade war and the likes. It’s not exactly improving; it’s actually worsening.

As for the quantity of money, a lot of people argue with me that the Central Banks are still expanding their balance sheets, but the fact of the matter is that the QT in terms of the U.S has been reducing the Federal Reserve balance sheet. And we have a stealth reduction of the balance sheet in terms of the Bank of Japan. The EBC would love to cut and is publicly committed to doing so. The Bank of England is doing its first hike. So the quantity of money is falling.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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