“Overall, European banks need to shed €3.2tn in assets by 2018 to comply with Basel III regulations on capital and leverage, according to RBS. Eurozone banks have already shrunk their balance sheets by €2.9tn since May 2012 – by renewing fewer loans, repurchase and derivatives contracts and selling non-core businesses. Deutsche Bank recently said it would seek to cut its assets by about a fifth over the next two and a half years. Barclays, which announced a £5.8bn rights issue last month, said it wants to shrink its balance sheet by £65bn-£80bn.Europe’s banking sector assets are worth €32tn, or more than three times the single currency zone’s annual gross domestic product.” --FT, today
What is the #1 problem in Europe today: low growth. How does one stimulate real growth: increase nominal growth. How does one stimulate nominal growth: money growth. How does one stimulate money growth: grow bank credit. How does one grow bank credit: grow bank assets. For the economy to grow, bank balance sheets must grow.
Now, if one wanted to retard growth and create a depression, what would one do? One would require banks to shrink their balance sheets. And that is indeed Europe’s plan. Basel III will require European banks to call in loans, refuse to renew lines, and sell securities in order to raise their capital ratios.
Here is the point: when banks shrink their balance sheets, they shrink their deposits, and when they shrink their deposits, they shrink the money supply. Shrinking the money supply reduces nominal growth. MV = PT. When M declines, so does PT. Europe is planning to shrink its money supply. How Hooverish!
Mine is not a modern insight. It was identified by Fisher eighty years ago. Shrinking bank balance sheets reduce nominal growth. This is orthodox stuff. So Europe has decided to reduce M2 in the face of deflation and high unemployment. Good luck!
At a time when democracy is under threat, there is an urgent need for incisive, informed analysis of the issues and questions driving the news – just what PS has always provided. Subscribe now and save $50 on a new subscription.
To have unlimited access to our content including in-depth commentaries, book reviews, exclusive interviews, PS OnPoint and PS The Big Picture, please subscribe
Despite Donald Trump’s assurances that he will not seek to remove Federal Reserve Chair Jerome Powell, there is little doubt that the US president-elect aims to gain greater influence over the Fed’s decision-making. Such interference could drive up long-term interest rates, damaging the American economy.
worries about the incoming US administration’s plans to weaken the central bank’s independence.
Following the addition of new members to the BRICS, some observers believe that the group has a good chance of becoming the new lodestar of global politics and international affairs. But the organization is neither representative enough nor sufficiently united to lead others.
explains why the group of major emerging economies will not become the new fulcrum of world politics.
“Overall, European banks need to shed €3.2tn in assets by 2018 to comply with Basel III regulations on capital and leverage, according to RBS. Eurozone banks have already shrunk their balance sheets by €2.9tn since May 2012 – by renewing fewer loans, repurchase and derivatives contracts and selling non-core businesses. Deutsche Bank recently said it would seek to cut its assets by about a fifth over the next two and a half years. Barclays, which announced a £5.8bn rights issue last month, said it wants to shrink its balance sheet by £65bn-£80bn. Europe’s banking sector assets are worth €32tn, or more than three times the single currency zone’s annual gross domestic product.”
--FT, today
What is the #1 problem in Europe today: low growth. How does one stimulate real growth: increase nominal growth. How does one stimulate nominal growth: money growth. How does one stimulate money growth: grow bank credit. How does one grow bank credit: grow bank assets. For the economy to grow, bank balance sheets must grow.
Now, if one wanted to retard growth and create a depression, what would one do? One would require banks to shrink their balance sheets. And that is indeed Europe’s plan. Basel III will require European banks to call in loans, refuse to renew lines, and sell securities in order to raise their capital ratios.
Here is the point: when banks shrink their balance sheets, they shrink their deposits, and when they shrink their deposits, they shrink the money supply. Shrinking the money supply reduces nominal growth. MV = PT. When M declines, so does PT. Europe is planning to shrink its money supply. How Hooverish!
Mine is not a modern insight. It was identified by Fisher eighty years ago. Shrinking bank balance sheets reduce nominal growth. This is orthodox stuff.
So Europe has decided to reduce M2 in the face of deflation and high unemployment. Good luck!
HOLIDAY SALE: PS for less than $0.7 per week
At a time when democracy is under threat, there is an urgent need for incisive, informed analysis of the issues and questions driving the news – just what PS has always provided. Subscribe now and save $50 on a new subscription.
Subscribe Now