Coppola Comment

Japan has just introduced negative rates on reserves, following the example of the Riksbank, the Danish National Bank, the ECB and the Swiss National Bank. The Bank of Japan has of course been doing QE in very large amounts for quite some time now, and interest rates have been close to zero for a long time. But this is its first experiment with negative rates. The new negative rate framework is complicated, to say the least. The Bank of Japan has helpfully produced a pretty picture to explain it: The bottom tier is a "basic balance" which is the existing reserve level in the banking system: The average outstanding balance of current account, which each financial institution held during benchmark reserve maintenance periods from January 2015 to December 2015, corresponds to the existing balance and will be regarded as the basic balance to which a positive interest rate of 0.1 percent will be applied. So existing reserves will (overall) continue to bear posi

"So tief im Abendrot, wie sind wir wandermüde.....is das etwa der Tod?" - R. Strauss, Four Last Songs, no. 4 " Im Abendrot " Japan  is in recession. Will it ever escape from its deflationary trap? Indeed, should it even try to? Or would it be better for it simply to accept that its future is gentle decline into a comfortable (and highly automated) old age? Is it becoming the land of the setting sun? My thoughts on this are at Pieria .

Never pick a fight with a central bank. The only one who gets hurt is you. Unless, of course, you are another central bank. Central banks routinely intervene in the markets to influence the prices of assets, commodities and currencies. That’s the way monetary policy is conducted. It’s the principle behind QE. Generally, everyone co-operates..... Have you ever wondered why they do? In this piece at Forbes I use a game theory explanation for the ability of central banks to manipulate markets, and apply it specifically to the Bank of Japan's exorbitant QE commitments. 

The Economist has an interesting graphic. Here are the world's 10 biggest banks year by year since 2004, apparently: Umm, not quite. This graphic actually shows the banks with the largest amount of shareholders' equity (Tier1 capital) in US$. It says nothing at all about the absolute size of these banks in assets, and since the Tier1 capital is expressed in dollars rather than as a percentage of assets, it says absolutely nothing about the safety of these banks either. Cross-checking the figures for 2013 against other metrics gives interesting results. Relbank reports that by assets, Britain's HSBC is the second largest bank in the world , but The Economist's list has HSBC in fifth place by Tier 1 capital. So it appears that its capital is deficient relative to China Construction Bank, JP Morgan and Bank of America. But the accounting treatment affects the definition of assets. In particular, there are significant differences between US GAAP and IFRS regarding t

There are perhaps more myths about QE than almost any other monetary policy instrument. Here are five of the most pernicious QE myths: Myth 1: QE raises inflation. Despite the considerable evidence that it does nothing of the kind , people still persistently believe that it does - that "eventually" inflation will come. This is because of the widespread misrepresentation of QE as "printing money". Numerous people have painstakingly explained what QE is and how it works , but inflationistas aren't listening. To them, QE is printing money, and everyone knows that printing money causes inflation. (That isn't necessarily true either, but as I said, they aren't listening). An alternative view proposes that because QE props asset prices, eventually the increase in asset values would feed through into an increase in the money supply as asset holders take profits and spend the proceeds, increasing inflation. This is perhaps more reasonable, but again there i