From Simon Kennedy in “Draghi Sees Almost $1 Trillion Stimulus With No QE Fight” (Bloomberg):
Mario Draghi signaled at least 700 billion euros ($906 billion) of fresh aid for his moribund economy and left a fight with Germany over sovereign-bond purchases for another day.
As I begin teaching finance in the new semester, I am highlighting the key puzzle of our times, discussed by Jim in his last post, with this graph:
As the U.S. economy returns to healthier growth, many of us expected long-term interest rates to return to more normal historical levels. But the general trend has been down since the end of the Great Recession. The 10-year rate did jump back up in the spring of 2013. But during most of this year it has been falling again.
Roger Farmer has taken a new look at an issue concerning the Federal Reserve’s program of large-scale asset purchases (referred to in the popular press as “quantitative easing”) that I’ve been discussing on Econbrowser and in my research with University of Chicago Professor Cynthia Wu for some time.
The unfunded liabilities of the San Diego County Employees Retirement Association have increased every year for the last five years, reaching $2.45 billion last year, more than quintuple the level in 2008. The calculation of how big the shortfall is assumes that the fund is going to be able to earn a 7.75% return on its investment after subtracting administrative costs. If it earns less than 7.75%, the shortfall will be even bigger. A 10-year Treasury bond currently pays 2.4%, and a typical stock has a dividend yield under 2%. So what do you do if you’re in charge of the system’s $10 billion in assets?
Consider this prognostication from 2011:
Americans face the most predictable economic crisis in this nation’s history. Absent reform, the panic ahead is no longer a question of if, but rather when. A deterioration of confidence by investors in government’s ability to pay its bills will drive interest rates up, increasing borrowing costs for government, small businesses and families alike. A vicious cycle of debt will compound upon itself; the available exit options once the crisis hits will be limited; and all will involve pain. (p.59)
Three years ago I called attention to the NYU Stern Volatility Laboratory. Since then it’s grown into an even more amazing resource, giving anyone access to constantly updated information about financial conditions in dozens of countries around the globe. Of particular interest are recent changes in their measure of the systemic risk posed by financial institutions.
From BBC:
Russia’s central bank has unexpectedly raised its key bank interest rate over concerns about inflation and “geopolitical tension”.
This is not the most erudite debate, but it pretty much sums up matters.
From today’s FT: