Risk Update – August 2020

“The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decision making by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.” (bold highlights added by us) https://www.federalreserve.gov/monetarypolicy/files/FOMC_LongerRunGoals.pdf So reads the opening paragraph to the “Statement on Longer-Run Goals and Monetary Policy Strategy”. The original…

Risk Update – July 2020

A Reuters article mid-month titled “Global debt hits record high of 331% of GDP in first quarter: IIF” got us thinking a bit.https://www.reuters.com/article/us-global-debt-iif/global-debt-hits-record-high-of-331-of-gdp-in-first-quarter-iif-idUSKCN24H1V5 In a world with that much debt outstanding, that has just gone through an unprecedented negative GDP shock (Figure 1), what choice do policy makers have other than extreme financial repression? We’ve written a lot about the explosion of Central Bank interventions in markets, and the increased accompaniment of fiscal side stimulus, sort of de facto shifting a significant portion of the world into some form of Modern Monetary Theory (MMT), which as we always point out…

Risk Update – June 2020

‘Really it’s about getting the labor market back and getting it in shape. That’s been our major focus. I would say if we were to hold back because…we think asset prices are too high, others may not think so, but we just decided that that’s the case, what would happen to those people? What would happen to the people that we’re actually, legally supposed to be serving? We’re supposed to be pursuing maximum employment and stable prices, and that’s what we’re pursuing.‘     Federal Reserve Chairman Jerome Powell, June 10th 2020. Not an unusual sentiment from policy makers, but is it…

Risk Update – May 2020

We’ve written a fair bit about China’s prominent role in the build-up of endogenous risk during the global growth cycle since the GFC. There are any number of ways of trying to reflect it. A chart we used last month gives a clear impression of China’s importance in terms of credit creation over the last cycle. In the March monthly, we used one of our regular views, China FX reserves to M2 money supply. Back in the December 2019 monthly, we showed some graphs from IMF and World Bank reports. This one shows the rates of change of Debt/GDP going…