Archives for category: economie

Bad Banks – Alex Brummer – 2014

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In January 2013, for example, Bank of America Merril Lynch agreed to pay the government $11.6 billion in penalties relating to the mortgage transactions it had conducted with intermediary Fannie Mae. Withholding punishment until such a time as the banks were strong enough to take the pain was a shrewd move. Retribution may have come too slowly for some critics, but it did come eventually, and at a time when the offenders could afford to pay.

Draghi : “the ECB will do whatever it takes to preserve the euro. And believe me, it will be enough.” He was a major European figure making a clear and unequivocal guarantee.

The lack of substance to Drgahi’s plan symbolized a fundamental problem at the heart of euroland: so complicated are its central institutions and so diverse the political and economic outlooks of its various members that it is difficult to bang heads together and agree on decisive action.

Greece: Early 2010 an EU report highlighted severe irregularities in its public accounts. Aided by its adviser, the US investment bank Goldman Sacks, some critics argued it had used derivatives to shift debt obligations off its balance sheet and disguise the terrible underlying state of its finance. “Greece with the assistance of Goldman Sachs cooked the books totally.”

Ireland: the medicine doled out was strong and hard to swallow. Public sector employees had to accept real wage cuts of up to 40%. Pensions and workplace benefits were cut….It even look set to become the first country to leave the programme imposed by the troika. The Irish economy was projected to grow by 2% in 2014. But public debt that amounted to 25% of GDP in 2007 soared to a peak of 123% in 2013.

Out of control banks were not at the root of every struggling economy. Portugal had simply become uncompetitive (as opposed to Ireland and Greece, where crisis resulted from poor banking business).

Cyprus : a 20% levy was imposed on those depositors with over €100.000 in their accounts. Nicosia was obliged to sell off a range of assets, including €400 million of its gold reserve. Large deposits were paying the heavy price. It was a message that reverberated across the Eurozone. Russians seeking to leave the country with their aluminium suitcases found themselves out of luck. A combination of temporary bank closures and new capital controls made it far more difficult to extract funds.

By the spring of 2013, the EU had created the European Stability Mechanism, the ECB had cut interest rates and launch a huge three-year €1 trillion loan programme to stabilize over 1,300 debt-ridden banks in the region and the long term refinancing operations bought time for banks and trouble nations to begin restructuring the debt built up. But little was done to resolve the underlying problems of a banking system too weak to support any kind of economic recovery.

If one country can be said to embody both the wishful thinking and the huge problems still lurking in Europe it is Italy. The most emotive struggle for Italy has been the battle to save Banca Monte dei Paschi di Siena. Founded in 1472, the bank is regarded as the world’s oldest. Despite its distinguished history the bank has been brought low by cultural corruption that affected the bankers across the piece.

More than 3 years after the collapse of Lehman Brothers there was no indications that bonus structures which incentivize employees to take irresponsible decisions had been curbed. Under the ‘volker rule’ the type of risky activity these individuals became involved with would be banned by a bank insured by the US government.

Libor: the most important number in finance, it underlies some $800 trillion worth of financial instruments (about 6 times the world economy) ranging from interest rate derivatives to mortgages.  Each day 16 major banks have been asked at what rate could they borrow funds from the inter-banking market just before 11.00am. They would submit estimates to borrow across 10 currencies and 15 lengths of loan (from overnight to 12 months). Once submitted, Thomson Reuters (who collect the data) would remove the four highest and four lowest submission and average the remaining 8. Traders routinely asked banks’ submitters (of Libor data) to submit particular rates to benefit their derivatives trading positions which were priced on Libor.

Looking back over 30 years of investment banking he noted with regrets how bankers had gone from building businesses to focusing purely on increasing returns.

In 1969 just 6.6% of the UK stick market was held by institutions outside Britain. By 2013, this figure had leapt to 53.2%. This reflect globalization and Britain openness to trade.

Mervyn King (Governor of the Bank of England: It is not in our interest to have banks that are too big to fail, too big to jail, or simply too big.  His successor Mark carney : Fairness demands the end of a system that privatizes gains but socializes losses.


Swimming with Sharks – Joris Luyendijk (2015)

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In the years before the crash, commercial banks and mortgage providers lent far too much money to people who could not afford such debts – primarily in the US and the UK, mostly for mortages. This continued for a long period of time because the easy money drove up houses prices, making many people feel richer than they were. Commercial banks had no reason to worry about the risk of default on loans because they could sell them on to investment banks, which the chopped them up and repackaged them into ever more complex financial products. Assets managers at pension funds were keen to buy them because interest rates were low and these new instruments offered better returns. For protection, pension funds and others relied on American insurance giant AIG. In turn AIG trusted the credit rating agencies’ triple AAA ratings.

In 2007, millions of buyers would not be able to meet their financial obligations. Financial products that contained their mortgages began to lose value. Investors had to take big losses but banks, too, had kept some of these products. They had to write off huge sums but how much was difficult to estimate: not only some of the products where mind-bogglingly difficult to value but the same was true for the ‘vehicles’ in off-shore tax havens where banks had placed many of them. At Leman Brothers the buffers were not enough and the bank had to announce bankruptcy. Other banks and financial institutions stopped lending to each others (as none knew the financial solidity of the others). Suddenly the financial world was gripped by a paralysing fear. In response, Governments reached deep into the state coffers and central banks lowered interest rates and pumped unprecedented amounts of newly created money into the economy.  They had saved the system.

For bankers, the crash of 2008 was a perfect storm, or rather a black swam: unique and literally unforeseeable. But isn’t it all the more alarming if virtually nobody in the sector realised how dangerous these complex financial products could be?

The salaries of those who manage the risks in banks has always come from the revenues raised by those taking the risks. Historically, investment bankers worked in small partnership where management and owners partly overlapped. Partners were personally liable. From mid eighties these partnership started to list on the stock exchange or were taken over by publicly listed commercial banks who wanted to take advantage of the deregulation and move into investment banking. Those commercial banks took over dozens of other banks and became ‘too big to fail’.  In listed companies, the risk lies with shareholders rather than partners, while bankers are paid partly in shares and options. And a good way to raise the share price is to take risk (which ultimately the taxpayer will bear).  It was genuinely eye-opening to realise just how recently the investment banks had mutated in this way. Those who take the risks are no longer those who bear them.

If you can be out of the door in five minutes, your horizon becomes five minutes. That was the essence of zero job security. Not only does all loyalty evaporates, but continuity does too. Nobody can built on anyone else, the best can be poached at anytime and meanwhile there are swords of Damocles hanging over everyone’s head.

We need to get rid of the idea of ‘the bank’: that term implies a unity of action and purpose. There is no such a thing.

Perverse incentives: rewards for undesirable actions.

Traditionally there were separate firms for trading, for asset management and for deal making (mergers,listing of new companies etc.) . Since the 80’s, all three activities have been brought under the roof of one bank, through mergers and acquisitions in the financial sector. This is a conflict of interest of the highest order and banks have been asked to set up Chinese wall between their divisions and activities to avoid leaking of information and pressure from one sector to another (e.g. investing in companies whose listing is done by the same bank…)

Corporations can be hit hard by currency fluctuations (with increasing volatility in the 1970’s). So banks invented derivatives that allowed parties to protect themselves. This was a good idea that perform a useful service to the economy and society. But fast forward 20 years and you see the British bank Barings collapse as a result of a rogue trader using advance foreign currency derivatives.  A company or government can go bust, meaning investors lose money. Banks developed an insurance of sort: the Credit Default Swap (CDS). This was a good idea but a good decade later (in 2008) CDS played a crucial role in the financial crisisMortgages are good long term investments for pension funds but as a pension funds you are not going to by individual mortgages. Banks found a way to package those in instruments allowing investment by pension funds. 15 years later, those products would sank Lehman Brothers.

In 2012, a trader at JP Morgan (and his team) run up a 6.2bn loss. The year before, his pay came to 7m. He did not break any law and has never been prosecuted. (Bruno Iksil)

While doing research there are sometimes points at which lines of investigation suddenly coalesce into an insight.

Around 2000, the dot-com scandal revealed fundamental conflicts of interest between activities that used to be done by separate firms; taking company public, trading and asset management. The regulatory response was not to prevent those conflicts, it merely forced the banks to install Chinese wall – policed by their own risk and compliance staff.

Tony Blair is making 2.5M pound a year as adviser to JP Morgan. Hector Sants, chief regulator in 2008, has a top job at Barclays. His estimated compensation was 3M pound a year. The three major credit rating agencies have kept their de-facto cartel; as have the four accountancy firms who continue to do lucrative consultancy jobs for the banks there are meant to audit independently.

After quizzing interviewees on their motives, greed seemed a highly inadequate explanation of their behaviour. I have come to believe that the focus on greed is the biggest mistake outsiders have made in the aftermath of Lehman’s collapse. (The Wolf of Wall Street kept this popular). [The system was to blame in more general term, short termism etc.]

To think that blinkered bankers will one day wake up and decide to change finance from inside is wishful thinking.

Andrew Haldane, number 2 at English central bank told that the balances of the big banks are the blackest of black hole.

Four changes the laws should bring: banks must be chopped up into units so that they are no longer too big to fail; banks should not have activities under one roof that create conflict of interests; banks should not build or sell overly complex financial products, the bonus should land on the same head as the malus.

Political parties, politicians, regulators have come to identify themselves with the financial sector and the people in it. The term is ‘capture’. Politicians started to believe the world works in the way that bankers say it does.

As put by interviewee: The left insists on solidarity across the nation, with higher tax rates for rich people to help their less fortunate countrymen. But this solidarity is predicated on a sense of national belonging, to which the left is allergic; national identity comes with chauvinism and nationalism and creepy right wing supremacists.

Nobody is helped more by cynicism about politics than cynical politicians.






Le négationnisme économique, Pierre Cahuc et Andre Zylberberg, 2016

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Pour le grand public, un grand nombre d’intellectuels et de journalistes, et même certains économistes dissidents ou hétérodoxes, l’économie ne serait pas une discipline scientifique. Selon eux, l’analyse économique  se réduirait à des arguties théoriques, le plus souvent déconnecté de la réalité. Ce jugement est erroné. Ce n’est pas le sujet abordé qui permet de qualifier la discipline de scientifique, c’est la méthode employée pour valider les résultats. Depuis 3 décennies, l’économie est devenue science expérimentale dans le sens plein du terme.

Le négationnisme repose sur trois pilier: 1.L’ethos, la qualité de celui qui s’exprime. Avec deux figures ; l’intellectuel engage et le grand patron.2. La désignation de boucs émissaires: pour les uns, la Finance, pour les autres l’Etat. 3. Le logos ou l’art de construire le raisonnement, de le faire apparaitre logique et capable de répondre à toutes les objections.

Pour Sartre, le vrai intellectuel est un technicien du savoir conscient que sa connaissance est façonnée par l’idéologie dominante. Dès lors il doit combattre l’idéologie dominante afin d’être en mesure de produire du vrai savoir. Ce sont les économistes hétérodoxes qui se reconnaissent pour la plupart sous la bannière des ‘économistes atterrés’ (manifeste de 2010). Ils dénoncent une science économique orthodoxe au service du libéralisme, ne défendant que les intérêts de la classe dominante.

Faut-il changer d’école pour réussir: oui mais seulement si les enfants ont moins de 13 ans. Il existe de meilleur moyen pour permettre aux familles pauvres de réussir à l’école: investir dans les très jeunes enfants  de 3 et 4 ans (Perry Preschool programme). Pour les adultes les plus défavorisés, les politiques de formation n’améliorent pas significativement le sort de leurs bénéficiaires. A choisir, il vaut mieux subventionner l’embauche avec des baisses de charges sociales ou réduction d’impôts.

La hausse du salaire minimum n’a pas eu d’impact négatif sur l’emploi dans les fast-foods du New Jersey. Tant que le salaire minimum est plus faible que le salaire choisi par l’employeur, celui-ci voit sa marge réduite mais va continuer à embaucher. Les hausses de salaires minimums n’agissent pas toujours dans le même sens.

Fernand Braudel: tout au long de l’histoire, les entrepreneurs les plus puissants ont cherché à se protéger de la concurrence avec l’appui du pouvoir en place. Les plus farouches opposants à la dure loi de la concurrence sont le plus souvent des capitalistes à la tête de grandes entreprises qui cherchent à préserver ou augmenter leurs parts de marche.

Le programme Quaero a reçu 90 million d’euro pour relever le défi mondial des géants américains Google et Yahoo. Il s’est achevé en Décembre 2013 et on ne trouve pas trace de ce moteur de recherche sur internet…

En règle générale, la puissance publique, même épaulée par des chefs d’entreprises talentueux, n’est pas mieux a même que les investisseurs privés de choisir les bons projets.

Une synthèse des travaux d’évaluation des politiques volontaristes de regroupement d’entreprises (cluster) confirme que l’intervention des pouvoirs publics via subvention et la sélection de projets spécifiques n’améliore pas véritablement les performances des entreprises. Elles devraient plutôt créer un environnement favorable à la mobilité des entreprises, de la main d’œuvre et des organismes de formation…

La production d’une pseudoscience mettant en doute le consensus établi par la communauté des chercheurs est une constante de la stratégie négationniste.

La conclusion de Schumpeter revient à dire que nous serions collectivement beaucoup moins riches sans l’incessant mouvement de créations et de destructions d’emplois. La prospérité provient en grande partie des réallocations d’emplois.

Marché n’est pas synonyme d’absence de régulation. Au contraire, le marché financier ne peut remplir correctement son rôle que s’il est supervisé….

La cohérence d’un raisonnement ne prouve rien quant à la validité des conclusions.

Le consensus actuel s’appuyant sur plus de 40 ans de recherche sur la question va à l’encontre du jugement des économistes atterrés: un marché financier concurrentiel supervisé par des autorités de régulation indépendantes du pouvoir politique, avec des acteurs prives responsables de leurs ressources, constitue un moyen efficace d’allouer l’épargne et de favoriser la croissance.

Stiglitz, comme Tobin, se déclare partisan d’une taxe sur les transactions financières non pas pour prendre de l’argent là où il y en a (Sarkozy, Hollande, le pape…) mais pour améliorer le fonctionnement des marchés financiers (afin de limiter les transactions erratiques et mal informes des traders non-professionnels). Une comparaison entre Chine et Hong Kong montre qu’en moyenne une hausse des taxes  diminue la volatilité des cours financiers (1996-2009).

Moins d’impôt sur les revenus incite à travailler plus (Iceland). Au RU une hausse de la fiscalité équivalente à 1% du PIB se traduit au bout de 3 ans par une baisse de 2.5% du PIB (3% aux US). La pression fiscale a un impact négatif sur la croissance à moyen terme.

Effet Laffer: une hausse des taxes, au-delà d’une certaine limite, finit par diminuer les recettes fiscales. Mais pour la France on est  vraisemblablement très loin de cette situation…

Cette expérience naturelle (transfert de ressource de l’Etat fédéral aux Etats et montants additionnels résultant de la mise à niveau des chiffres de population suite au recensement) nous apprend que l’injection d’un dollar supplémentaire de dépenses publiques est associe en moyenne a une augmentation du revenu de 1.6 dollar. Les dépenses publiques ont donc un effet multiplicateur: elles entrainent  un accroissement de revenu supérieur au montant injecte. L’impact est plus élevé là où le revenu par habitant est faible. Il est pratiquement nul dans les comtes les plus riches. De façon similaire, une diminution de 1 dollar des dépenses publiques d’une collectivité locale en 2008-2009 a provoqué une contraction de 1.6 dollar du revenue sur son territoire.

Les Fonds Européens de Développement: un examen méticuleux de 600 programmes d’investissement de 1993 à 2006  révèle  un effet positif sur le revenu par habitant seulement dans 30% des cas. Les aides européennes  améliorant le revenu dans les régions ou le niveau d’éducation, de sante et de justice est élevé. Les dépenses publiques n’ont pas systématiquement des effets multiplicateurs dans les zones à sous-emploi important.

La médicine keynésienne faite de relance par les dépenses publiques financées par du déficit budgétaire, peut être adaptée en période de récession et sous-emploi. Le Recovery Act d’Obama a réussi car les conditions étaient réunies. Comment expliquer le soutien inconditionnel aux remèdes keynésiens? Ils sont indolores et universels. Il ne faut pas changer l’économie, juste augmenter la dépense publique…

La loi de Malthus (dans une économie agricole, la population a tendance à augmenter plus vite que les ressources) : la surpopulation réduit le revenu des habitants.  C’est ce que confirme le cas du Rwanda. Six années après la fin du génocide, les survivants ont des revenus plus élevés dans les zones ou les massacres furent les plus massifs. Ils cultivent des exploitations plus grandes, ont plus de bétails et consomment plus.

1980 – on estime à 125.000 le nombre de cubains ayant émigré avant la fermeture du port de Mariel en septembre 1980. La moitie s’était installé à Miami (soit une hausse de 7% de la population active). En comparaison avec 43 autres villes américaines en termes de salaires et d’emplois, l’immigration massive des cubains a été absorbée sans effet négatif sur les résidents (même sur les populations les plus exposées à la concurrence des nouveaux réfugiés).

L’Autriche a accueilli 100.000  refugies bosniaques entre 1992 et 1995 avec un effet très faible sur les salaires et l’emploi des populations d’origine. L’accroissement des populations en âge de travailler ne fait pas systématiquement baisser les salaires ou créer du chômage.

Les études en Allemagne, au Québec et en France aboutissent toutes à la même conclusion: la réduction du temps de travail ne crée pas d’emplois. L’emploi des jeunes ne s’améliore pas lorsque les seniors se retirent du marché du travail. Au contraire,  une baisse de l’emploi des seniors induite par interventions publiques est plutôt associée a une diminution de l’emploi des jeunes.

Les medias mettent ainsi aux mêmes niveaux des conclusions scientifiques et des opinions pseudo scientifiques (d’apparence crédible mais en opposition aux connaissances établies) afin de présenter des vues équilibrées. Ainsi, paradoxalement, le souci de maintenir une réputation d’objectivité de la part des medias ne favorise pas la connaissance scientifique.

La folie des banques centrales, Patrick Artus et Marie-Paule Virard, 2016


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Lorsque l’argent ne coute rien

On compte sur les banquiers centraux pour relancer la croissance, combattre la déflation, aider a résoudre l’endettement des Etats, conjurer l’éclatement de l’euro, faire repartir l’investissement…on a fini par vouloir régler avec la monnaie tous les problèmes, et d’abord ceux de l’économie réelle. Or le recours systématique à l’inondation monétaire dès qu’un déficit de croissance se fait jour n’a aucun sens.

En continuant à inonder la planète de liquidités, les banquiers centraux jouent un jeu dangereux et l’issue pourrait bien faire de la crise de 2007-2008 une aimable répétition avant un nouvel accident plus dévastateur encore. L’inflation étant revenue à un niveau inférieur à l’objectif de 2%, les banquiers centraux se sentent désormais les mains libres pour s’occuper de la croissance et de l’emploi dans un contexte ou la pression des politiques et des opinions publiques jouent dans ce sens. Par ailleurs, les politiques monétaires sont de plus en plus inefficaces à mesure que les pays sont de plus en plus endettés (plus on est endetté, moins on s’endette a nouveau). L’abondance de liquidité existante amène à pratiquer l’inondation monétaire pour espérer obtenir un résultat.

Un relèvement des taux américains serait le signe que l’injection massive de liquidités qui dopent les marchés depuis 2007, touche à sa fin. Et avec elle la période d’argent facile qui a permis de se refaire après la crise de 2007 et déclencher un incroyable boom sur les actifs financiers.

Il n’existe aucune limite technique à l’augmentation du bilan des banques centrales: une banque centrale peut toujours créer de la monnaie pour acheter des actifs.

Le Quantitative Easing fonctionne de la manière suivante. La banque centrale crée de la monnaie en créditant des lignes de dépôt des institutions financières, cette monnaie étant la contrepartie d’achat de titres (de la dette) détenus par les institutions financières sur les marches financiers. Pour ces institutions, ces créances sont donc converties en argent frais, leur permettant de distribuer d’avantage de crédits, ce qui est censé doper l’activité et la croissance. En outre, l’achat d’obligation fait baisser leur rendement (la demande fait monter leur prix donc leur rendement baisse) ce qui incite les investisseurs à acheter d’autres actifs (dont les prix montent créant un effet de richesse). De plus la baisse des rendements obligataires entraine une baisse des taux de prêts bancaires: autant de vitamines pour l’économie. En tirant l’ensemble des rendements vers le bas, le QE  peut espérer favoriser la dépréciation de la monnaie et rendre les exportations plus compétitives. Avec son programme de QE de 1140 milliard d’euro (10% de la masse monétaire) en 18 mois (fin Sept 2016), la BCE fait mécaniquement baisser le cours de l’euro.

La situation ou le taux d’intérêt est durablement inférieur au taux de croissance est bien pathologique puisqu’elle incite les acteurs économiques à s’endetter au-delà du raisonnable. C’est bien ce que l’on observe depuis une quinzaine d’année. De même en pratiquant une politique de taux d’intérêt à long terme très bas associée a la monétisation des dettes publiques dans les cadres du QE, elles ont encouragé les gouvernements à laisser filer les déficits publics (parce que les intérêts à payer sur la dette sont très faible). Lorsque la dette est détenu par la banque centrale, l’état lui verse les intérêts sur cette dette, mais ensuite la banque centrale, qui transfère ses profits a l’état, les lui rend

La base monétaire mondiale tourne autour de 20 000 milliards de dollars. Nous pensons que la liquidité mondiale va continuer d’augmenter pendant plusieurs années.

Les bulles sur les prix d’actifs sont de retour: la politique laxiste des banquiers centraux n’a pas fait revenir l’inflation (celles de salaires ou des biens) mais elle a nourri l’inflation des prix des actifs notamment actions et immobilier. Les banques font apparaitre un effet de richesse nécessaire à la stimulation de la demande par l’enrichissement des détenteurs de portefeuilles.

Avec des politiques monétaires très expansionniste et des taux d’intérêt à long terme demeurant inferieurs a la croissance nominale, les valeurs boursières sont tirés vers le haut.

A NY, le Standard & Poor’s 500 a progressé de 72% entre sept 2010 et sept 2015. Le Nikkei s’est apprécié de 93%. A Londres le QE a plutôt nourri la bulle immobilière. A Shanghai, la bourse s’est envole de 150% entre Juin 2014 et Juin 2015 et a alimente le train de vie d’un nombre croissant de Chinois de la classe moyenne. La bourse devient dans un certain nombre de pays un instrument de politique monétaire.

Les banques souhaitent compenser une demande trop faible en raison du manque de pouvoir d’achat des revenus salariaux par une expansion ininterrompue du crédit et des revenus non-salariaux. La manœuvre est périlleuse: les pires excès sont à craindre si les investisseurs sont incités à croire que les banques centrales encouragent la prise de risque et les ‘assurent’ contre une baisse des actifs. Il y a alors formation de bulle doublée d’une augmentation de l’endettement (grâce au taux d’intérêt faible).

Une remonte des taux d’intérêt provoqueraient des pertes massives sur les portefeuilles d’obligations achetés avec des coupons très faibles par les investisseurs.

Le recours au QE lorsque la situation des marches financiers est bonne ne peut que faire enfler les bulles: c’est bien la preuve qu’une banque centrale ne devrait pas utiliser celle-ci comme instrument de politique monétaire pour soutenir l’économie.

A l’été 2015, les perspectives de croissance des pays émergents a provoqué des sorties de capitaux de ces pays 10 fois plus importantes qu’il y a dix ans, ce qui explique l’effondrement de leurs devises (les devises –hors China- ont perdu 30% contre le dollar depuis Janvier 2014)

La création monétaire – indispensable lorsqu’il se produit une crise de liquidité en 2009 – ne sert strictement à rien lorsqu’on parle de la faiblesse de la productivité, de l’innovation, du niveau de qualification de la population active,  de l’insuffisance de l’investissement dans les infrastructures…Ces politiques ont des effets pervers sur le plan structurel: elles protègent les faibles contre le risque de défaut (grâce a des taux d’intérêt bas) mais les incitent aussi à profiter de cette protection. Elles contrarient le processus de ‘destruction créatrice’ en évitant la disparition des ‘faibles’ (et cela au détriment des agents économiques les plus dynamiques). Elles favorisent le développement de la partie de l’économie liée aux prix des actifs, a l’endettement, a la spéculation…

En Chine, la politique monétaire provoque une accélération du crédit qui ne finance pas l’investissement des entreprises, mais la construction, les infrastructures avec le risque d’excès à la fois d’investissement et d’endettement.

Au japon le programme de QE a fait perdre (volontairement) 35% de la valeur du yen face au dollar depuis l’automne 2012 (même politique de dévalorisation de la monnaie en Europe et en Chine) mais les exportations n’ont pas suivi. On a parlé de ‘dépréciation sans exportation’ avant de conclure que les stratégies de change des années 80 avaient perdu de leur pertinence avec la globalisation des chaines de production.

Dollar, euro, yen ont cédé plus de 20% de leur valeur en 3 ans. En l’absence de coordination internationale, on risque d’assister à une surenchère qui fera encore plus de dégât sur la croissance mondiale.

Il y a fort à parier qu’une remonté des taux d’intérêt n’est pas pour demain car la première banque qui le fera exposera sa monnaie a l’appréciation.

Même les périodes de croissance avec baisse du chômage ne font plus revenir l’inflation. La théorie économique qui lie la baisse du chômage a l’inflation par le biais de l’augmentation du pouvoir d’achat et des salaires ne fonctionne plus (la courbe de Phillips liant croissance des salaires, prix et taux de chômage, n’est plus vérifiée).

Des reformes pour éviter le pire

  1. Les banques centrales doivent laisser de cote l’objectif d’inflation (qui restera faible certainement) et veiller plus à la stabilité financière (contrôle des prix d’actifs, de la liquidité…)
  2. S’adapter à une faible croissance potentielle (plutôt que d’essayer de retrouver les niveaux élevés d’antan).
  3. Faire en sorte que le FMI coordonne les politiques monétaires et de changes.
  4. Renoncer aux politiques monétaires expansionnistes qui durent trop longtemps et notamment lorsque le problème de l’économie n’a rien à voir avec la politique monétaire mais est lie a l’absence de réformes etc. qui bloque la croissance.
  5. Se donner un objectif de liquidité mondiale et commencer à réduire les liquidités très doucement. La base monétaire devrait progresser a peu près comme le PIB mondial en valeur. Ce dernier a progressé de 8-9% par an entre 2000 et 2009. La base monétaire a augmenté de 17% par an


L’hydre mondiale, Francois Morin, 2015

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L’objectif de ce livre est de démontrer que « l’être » des plus grandes banques mondiales est effectivement de nature systémique et que seule action qui changerait cela est susceptible de prévenir un prochain cataclysme financier.

Cet ouvrage démontrera l’existence d’un oligopole bancaire a l’échelle mondiale. Celui-ci est constitué de banques systémiques, au nombre de 28 selon le G20. Nous observerons que 11 sont en fait beaucoup plus puissantes que les autres…et, face à des états surendettés, le rapport de force entre Etat et banques s’est progressivement inversé. C’est ce qui explique l’emprise de l’oligopole bancaire sur la conduite des politiques économiques et le cycle des affaires.

Plusieurs de ces banques ont pris l’habitude de s’entendre entre elles, notamment sur les prix essentiels que sont les taux de change et les taux d’intérêt.

Cet oligopole est de formation récente. Il est né de la globalisation des marchés monétaires et financiers survenue vers le milieu des années 90. Les premières ententes frauduleuses n’ont été détectées qu’autour de 2012.

Les banques systémiques sont les seules a proposer aux entreprises des contrats de produits dérivés.  Ces contrats permettent d’assurer contre les risques que représentent les variations de prix de produits dits sous-jacents, comme le cours des actions, le prix de matières premières, les taux de change. La valeur des produits assurés par ces contrats (dites valeurs notionnelles) représente des sommes astronomiques – en 2013, ce montant était de 710 000 milliard de dollars, soit 10 fois le PIB mondial.  Ces contrats fournissent une sorte de stabilité des prix, ce qui est absolument necessaire à la poursuite de leurs activités.

On sait que la création et la gestion de la monnaie dans le monde développé sont uniquement le fait de banques privées et de banques centrales indépendantes. Cela signifie que les états ont abandonné au cours des 40 dernières années toutes souverainetés en matière monétaire.

Depuis le milieu des années 90, les crises systémiques se sont enchainées ; leur cause est chaque fois la spéculation à base de produits dérivés crées par les grandes banques systémiques.

La crise de la dette publique ne tient pas à une soi-disant gabegie des finances publiques depuis 30 ou 40 ans. Le surendettement est dû à la réparation des dégâts toujours plus considérables causés par cette finance globalisée et l’oligopole qui en est le cœur.

Si l’on veut éviter le prochain cataclysme financier…il faut militer d’urgence pour un nouveau Bretton Woods qui permettrait de mettre en place une monnaie commune (et non unique) par rapport à laquelle toutes les autres monnaies pourrait se référer dans des rapports stables.

7 top banks in 2013:  JP morgan, Bank of America, Citigroup, HSBC, Deutsche Bank, Credit Agricole and BNPParibas.  Dans les 28 banques systémiques: Poids prééminent des acteurs bancaires occidentaux (30% US, 30% EU avec 8 banques chacun) et seulement 4 banques asiatiques (3 du Japon, une de Chine).

En 2013, les banques ont généré 200 milliard de profit, un chiffre d’autant important qu’il est réalisé en pleine crise économique.  Les rémunérations des dirigeants des 8 banques américaines concentre 50% des rémunérations de ce panel.  Ces hausses vertigineuses (pour Goldman Sachs l’écart entre le revenu du dirigeant principal au salaire moyen est de 400 (il est de 20 chez Sumitomo, Japon) de revenu des dirigeants est un phénomène récent, qui s’est accélérée seulement a partir des années 1980.


Endettement public mondial (200 pays) est de 48 000 milliard de dollars en 2012. Le bilan total des 28 banques systémiques est de 50 000 milliard de dollars.

Pour les seules produits dérivés, les hors bilans des banques systémiques sont près de 15 fois supérieurs à leurs bilans (et presque 10 fois le PIB mondiale en 2012). L’encours de valeurs notionnelles (710 000 milliards) apparait comme une mesure significative de capitaux qu’il convient de protéger pour combattre l’instabilité monétaire et financière internationales. Et le 14 premières banques gèrent 90% du total des encours notionnelles. Les 5 banques américaines ont un part de 38%, les 4 de la zone Euro représentent 26%, 3 banques britanniques 21% et 2 banques suisse (13%).

La BRI estime régulièrement qu’un peu plus de 90% des échanges de produits dérivés sont réalisés entre institutions financières. Il n’y a qu’une très faible proportion de ces échanges qui servent a la couverture de risques pour les acteurs de l’économie réelle.  Ceci est déjà un indice de l’existence d’une interconnexion périlleuse.

Les produits dérivés apparaissent ainsi comme le plus important vecteur de l’interconnexion financière des banques, et donc comme le principal facteur de fragilisation du système en cas de choc.

Il existe 5 institutions internationales (Global Financial Market Association pour les banques systémiques uniquement, Institute of International Finance, une source de recherche économique et la tête pensante de la finance globalise, International Swaps et Derivatives Association avec 800 membres…) à l’intérieur desquelles s’exprime la volonté de l oligopole dans la défense de ses intérêts dans le monde de la finance globalise. Les banques systemiques sont majoritaires dans les organes dirigeants de chacune d’elles et 4 en président un des conseils d’administration (JP Morgan Chase, HSBC, Société Générale et BNP Paribas). Ces institutions sont dévouées à la défense de l’intérêt collectif du secteur bancaire.


La majorité des exchanges sur les marche des changes (30 fois le PIB mondiale chaque annee): 80% des exchanges sont inities par les 10 premiers intervenants sur ce marche – ces derniers sont tous des banques systémiques. On peut conclure que la formation des taux de change des devises relève à l’évidence de l’action d’acteurs oligopolistiques mondiaux. Et la plupart des taux courts (Libor, Euribor, Tibor) sont des taux de marche qui dépendent principalement de relations directes entre les banques. Les banques centrales fixent toutefois certains de ces taux: les taux directeurs (les taux qu jour le jour par exemple)

Le dollar Libor a 3 mois : chaque jour 18 banques participant à l’élaboration du taux en annonçant les taux pratiques la veille. On en retire les 4 estimations les plus hautes et les 4 les plus basses et on calcule la moyenne des 10 restantes.  Or 14 des 18 banques sont des banques systémiques qui ont donc une capacité réelle d’exercer une influence sur la formation du taux d’intérêt Libor USD. Et ce marché sert aussi de référence pour un nombre important de produits financiers.

Les marchés obligataires sont dits aussi marchés de la dettes publiques.  Depuis que les banques centrales sont indépendantes de Etats, la seule voie de financement pour ces derniers est l’appel au marche obligataire. Toute dette publique est de lors compose a peu de chose près d’obligations. En raison de l’importance des besoins, les Etats font appel a des panels de grandes banques stables, les Primary Dealer, qui sont majoritairement des banques systémiques.

Depuis quelques annees, s’est développé le trading a haute frequence, qui confie a des logiciels ayant des temps de réponses extrêmement bref et qui s’accaparent désormais la majorité des ordres en bourse.  La part des transaction au comptant (38 pour cent des transactions mondiales) a bondi de 9 a 35% entre 2008 et 2013. Ce trading est devenu la nouvelle mine d’or des plus grandes banques (5 banques américaines représentant 54% des activités, Goldman Sachs en tête).

Entre 2007 et 2011, la dette publique mondiale s’est accrue de 54%, soit un rythme annuel deux fois plus grand qu’avant la crise financière: il a fallut recapitaliser des banques et soutenir l’activité économique (qui n’a elle progressée que de 26%). Ratio de dette publique sur PIB: US 111%, Japon 243% RU 90%, Allemagne 78%, France 93%, Italie 132%. Zone Euro 92% (alors que le critère de convergence est a 60%). Le surendettement est fondamentalement liée a la crise financière, et non pas à une gestion délétère des finances publiques.

Comparaison des bilans des trois principales banques (de 3 pays US,UK, France) par rapport a la dette de ces pays: BNP Paribas et Barclays gèrent des totaux de bilan supérieurs a la dette publique de leur pays: la force des banques révèle et accroit la faiblesse de leur Etats. Le résultat est moins marqué pour JP Morgan Chase dont le total de bilan n’est que de 24% de la dette publique américaine.

En 2014 le FMI a reproché au secteur bancaire de bloquer les reformes nécessaires a son assainissement (en matière  de produits dérivés, du principe de ‘too big to fail’…)

Du blanchiment d’argent aux affaires de manipulation de taux (Libor, Euribor) en passant par la vente de produit financiers toxiques, on ne compte plus les procédures judiciaires dans lesquels HSBC le groupe est impliqué (valable pour toutes les grandes banques). Ces mastodontes bancaires se relevant toujours indemnes des pires scandales due à la place central de ceux-ci dans le financement de l’économie.



The Hidden Wealth of Nations, Gabriel Zucman, 2015


Tax havens are at the heart of financial, budgetary, and democratic crisis.

On a global scale, 8% of the financial wealth of households is held in tax havens. In the spring of 2015 foreign wealth held in Switzerland reached $2.3tn.  Since April 2009, when countries of the G20 held a summit in London and decreed the ‘the end of bank secrecy’, the amount of money in Switzerland has increased by 18%. For all the world’s tax havens combined, the increase is close to 25%. And we are only talking about individuals here. 55% of all the foreign profits of US firms are now kept in such havens.

To fight offshore tax avoidance, the first measure is to create a worldwide register of financial wealth, recording who owns what. Financial registry exist but they are fragmentary (Clearstream).

In France, on the eve of the 1914-18 war, a pre-tax stock dividend of 100 francs was worth 96 francs after tax. Throughout the 19th century, European families paid little or no tax. In 1920 the world changed. Public debt exploded. That year the top marginal income tax rose to 50%, in 1924 it reached 72%. The industry of tax evasion was born.

In 1920, the wealth was made up of financial securities: stock and bonds payable to the bearers. Owners looked for safe places to keep them.  The bank then took the responsibility for collecting dividends and interest generated by those securities. Many banks could do this but Swiss bank offered the possibility of committing tax fraud. Off-balance sheet activities are the holding of financial securities for someone else (they don’t belong to the bank but to clients). The most rapid growth of assets in Swizerland were in 1921-22 and 1925-27. Swiss bank secrecy laws followed the first massive influx of wealth (from France mostly), not the reverse.

For the most part, non-Swiss residents who have accounts in Switzerland do not invest in Switzerland – not today, not in the past. Swiss bank offshore successes owes nothing to the strength of the Swiss francs. It has to do with tax evasion.

Charles de Gaulle imposed a condition on the rapprochement between Switzerland and the allies in 1945: Berne was to help identify the owners of undeclared wealth. For Congress it was out of the question to send billions of dollars via the Marshall Plan without trying to tax French fortunes hidden in Geneva. Berne then engaged in a vast enterprise of falsification: they certified that French assets invested in US securities belonged not to French people but to Swiss citizens or to companies in Panama.

Recent policy changes are making it more difficult for moderately wealth individuals to use offshore banks to dodge taxes: for them the era of banking secrecy is coming to an end. The decrease of little account is more than made up for by the strong growth of assets deposited by the ultra-rich, in particular coming from developing countries.

In Switzerland, banks managed $2.3tn belonging to non-resident. $1.3tn belong to Europeans (DE,FR,IT,UK), mostly through trust and shell corporations domiciled in the British Virgin Islands. 40% is placed in mutual funds, principally in Luxembourg.  With more than $150bn in Switzerland – more than the US has, a country with a GDP 7 times higher – the African economy is the most affected by tax evasion.

If we look at the world balance sheet, more financial securities are recorded as liabilities than as assets, as if planet Earth were in part held by Mars. This amount to $6.1tn in 2014 and the bulk of the imbalance comes from Luxembourg, Ireland and Cayman Islands. This imbalance is a point of departure for estimate of the amount of wealth held in tax havens.  I estimate that $7.6tn (8% of global household financial assets) is held in accounts located in tax havens (this includes $1.5bn of bank deposits). The true figure, all wealth combined, is 10% or 11%.

It is one of the great rules of capitalism that the higher one rises on the ladder of wealth, the greater the share of financial securities in one’s portfolio. Corporate equities – the securities that confer ownership of the means of production, which leads to true economic and social power – are especially important at the very top.

On a global level, the average return on private capital, all class of assets included, was 5% per year during the last 15 years. Slightly decreased since the 1980-90, when it was closer to 6%. This is real rate, after adjusting for inflation.  Prudent funds, with 40% low risk bonds, have earned on average 6% per year. Those who invest in international stocks have returned more than 8%. As for Edge funds, reserve for the ultra-rich, their average performance has exceeded 10%.

Africa :30% of wealth held abroad; Russia:52%; Gulf countries: 57%; Europe:10%; US and Asia:4%

Foreign Account Tax Compliant Tax (FATCA): passed by Congress and Obama’s administration in 2010 – Financial institutions throughout the world must identify US clients and inform the IRS to ensure that tax on interest income, dividends and capital gains are paid. Foreign banks refusing to disclose accounts held by US taxpayers face sanctions: a 30% tax on all dividends and interest income paid to them by the US. Tax havens can be forces to cooperate if threatened with large-enough penalties.

To believe that tax havens will spontaneously give up managing the fortunes of the world’s tax dodgers, without the threat of concrete sanctions, is to be guilty of extreme naïveté.

The IRS signed a check for $104 million to the ex-banker of UBS, Bradley Birkenfeld, who revealed the practice of his former employer.  But one may well doubt the effectiveness of this strategy as to rely exclusively on whistle blowers to fight against tax-havens is not strong policy.

The EU saving tax directive, applied in the EU since July 2005 is to fight against offshore  tax evasion by sharing information between countries about clients. Yet this was a failure: Lux and Austria were granted favourable terms and do no exchange information with the rest of Europe. Lux could give the persistence of banking secrecy in Switzerland to block any revision of the directive. Lux and Austria instead of sharing information must apply a withholding tax (35%) which is less than the top marginal income tax in France. Then the tax applies only to EU owners, not to accounts held by shell corporations, trusts or foundations. And the directive applies only to interest income, not dividends. Why? This is a mystery. Was it incompetence? Complicity? The main effect has been to encourage Europeans to transfer their wealth to shell corporations (+10% in Switzerland, in the months that followed the entre into force of the Directive). Swiss bankers have deliberately torpedoed the saving tax directives. No sanctions, no verifications foreseen…it is high time to wake up to reality.

Currency Wars, James Rickards (2011)

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Applied Physics Lab : the Pentagon was about to launch a global financial war (simulation) using currencies and capital markets instead of ships and planes.

During the first part of the depression that began in 2007, sovereign wealth funds were the primary source of bailout money. SWF invested over $58bn (in Citigroup, Meryll Lynch, Morgan Stanley). These investments were decimated by the panic of 2008 – SWF lost vast amount of money (which propped the US government to step in later on to avoid those losses) yet influence that came with them remained. SWF could then be used to exercise malign influence over target companies, to steal technology, sabotage new projets, stifle competition, engage in bid rigging, recruit agents or manipulate markets (including those in strategic commodities such as oil, copper etc.).  Such activities were not common, let alone the norm, but they were possible.

The president has nearly dictatorial powers to freeze any accounts that try to disrupt the financial market (by dumping Treasury notes on the open market in vast quantities). Destroying confidence in the dollar would be far more effective than dumping a particular dollar denominated instrument. If the dollar collapse, all dollar denominated markets would collapse with it. And the president’w power to freeze accounts would be moot.

A currency war, fought by one country through competitive devaluations of its currency against others, is the most destructive and feared outcomes in international economics. It revives the ghosts of the Great Depression, the 1970s, the crises of the UK pound in 92, Russian rubles in 98 a.o.

Two currency wars : 1921 to 1936 and 1967 to 1987. Classic gold standard 1870-1914, creation of Fed 1907-1913 and WWI and treaty of Versailles 1914-1919.

1870-1914: golden age in terms of noninflationary growth coupled with increasing wealth and productivity in the industrialized and commodity producing world.

1907-1913: 1907 the failure of Knickerbocker Trust to corner the copper market led to a run on the bank in a market that was already nervous and volatile after massive caused by the 1906 earthquake. This led a more general loss of confidence, which led to a stock market crash and further bank runs and finally a full scale liquidity crisis and financial crisis. The threat was stemmed only by collective action of the leading bankers in the form of a private financial rescue organized by JP Morgan. A central bank to act as an unlimited lender of last resort to private banks was needed before panic arose.

Currency war 1 : Germany moved first in 1921 with a hyperinflation designed initially to improve competitiveness and then taken to absurd lengths to destroy an economy weighed down by the burden of war reparations. France moved next in 1925. The US moved in 1933…then England.  In round after round of devaluation and default, the major economies of the world raced to the bottom, causing massive trade disruption, lost output and wealth destruction along the way.

Germany destroyed it currency to get out from under onerous war reparations demanded by France and England. In fact, those reparations were tied to gold mark and subsequent treaty protocols were based on a % of German exports regardless of the paper currency value.

Hyperinflation in Germany:  diners offered to pay for meals in advance the price would be vastly higher by the time they finished. The demand for banknote was so great that, by 1923, the notes were being printed on one side only to conserve ink.  The currency collapse also strengthened the hand of German industrialists who controlled hard assets in contrast to those relying solely on financial assets. Hyperinflation can be used as policy lever: it produces fairly predictable sets of winners and losers and can be used to rearrange social and economic relations among debtors, creditors, labor and capital (while gold is kept to clean up the wreckage if necessary).

I don’t give a shit about the lira – Richard Nixon, 1972.

Although conceived in the form of a grand international agreement, the Bretton Woods structure was dictated almost single-handedly by the United States at a time when US military and economic power was at a height not seen again until the fall of the Soviet Union in 1991.

In Jan 1965, France converted $150 million of dollar reserve into gold and announced plan to cover another $150 million soon (that is equivalent to $12.8bn as at 2011). De Gaulle helpfully offered to send the French navy to the US to ferry the gold back to France. This came at a time when US businesses were buying up European companies and expanding operations in Europe with grossly overvalued dollars, something De Gaulle referred to as ‘expropriation’. The redemptions of dollars for gold had enable France to become a gold power, ranking behind only the US and Germany, and it remains so today.

In 1969 the IMF took up the ‘gold shortage’ cause and created a new form of international reserve asset called the special drawing right (SDR). SDR was manufactured out of thin air without tangible back up and allocated among members in accordance with their IMF quotas.  There were small issuance in 1970-72, then in 1981 (as a response to oil price and global inflation) and then in 2009, as a response the deep depression which followed the financial crisis of 2007-8.

On Sunday, august 15, 1971, President Nixon preempted the most popular show in America, Bonanza, to present a live television announcement of what he called his New Economic Policy consisting of immediate wage and price controls, a 10% surtax on imports and the closing of the gold window.  The announcement was referred ever since as the Nixon Shock.

Stagflation – a combination of high inflation and stagnant growth in the US – which lasted from 1973 to 1981 was the exact opposite of the export led growth that dollar devaluation was meant to achieve. The proponent of devaluation could not have been more wrong. The fact that the policy failed spectacularly in 1973 did not deter the weak-dollar crowd. The allure of quick fix for industries in decline and those with structural inadequacies is politically irresistible.

By 1987, gold was gone from international finance, the dollar had devaluated, the yen and the mark were ascendant, sterling had faltered, the euro was in prospect and China had not yet taken its own place on the stage. The relative peace in international monetary matters rested on nothing more substantial than faith in the dollar as a store of value based on a US growing economy and stable monetary policy by the Fed. These conditions largely prevailed through the 1990s.  Currency crisis did arrive (Sterling in 1992, Mexican peso in 1994, Asia-Russia crisis in 97-98) but did not threatened the dollar. The dollar was typically a safe haven when they arose.


The main battle lines being drawn are a dollar-yuan theater across the Pacific, a dollar-euro theater across the Atlantic and a euro-yuan theater in the Eurasia landmass.

Participation in currency war today is no longer confined to the national issuers of currency and their central banks. Involvement extends to IMF, World Bank as well as hedge funds, global corporation and private family offices of the superrich. (George Soros “broke the Bank of England” in 1992).

Today the risk is the collapse of the monetary system itself – a loss of confidence in paper currencies and massive flight to hard assets.

The low rate policy of the Fed was justified initially  as a response to challenges of the 2000 tech bubble collapse, the 2001 recession, the 9/11 attacks and Greenspan’s fear of deflation (the last being the main determinant for the Fed). China was now exporting its deflation to the world, partly through a steady supply of cheap labour and the low rate policy was to offsets the effects in the US.

Lower rates meant that all types of dubious or risky deals could begin to look attractive, because marginal borrowers would ostensibly be able to afford the financing costs. The sub-prime residential loan market and commercial real estate market both exploded in terms of loan originations, deal flow, securitisations …due to Greenspan’s low rate policies.

The process of absorbing the surplus of dollars entering the Chinese economy, especially after 2002, produced a number of unintended consequences. The yuan is pegged to the dollar, it does not trade freely and its use and availability are tightly controlled by the Central Bank of China. The Chinese central bank did not just take the surplus dollars, but rather purchased them with newly printed yuan. This meant that as the Fed was printing dollars, the Chinese central bank printed Yuans to maintain the pegged exchange rate.

The central bank of China (like all others) prefer highly liquid government securities issued by the US treasury. As a result, the Chinese acquired massive quantities of US treasury obligations. By 2011 Chinese foreign reserve were approximately US$2.85tr, US$950bn in US government obligations (32%).  (US$ 3.2tr in Nov 2016; US$1.15tr in US obligation – 36%). A monetary powder keg that could be detonated by either side if the currency wars spiraled out of control.

The principal accusation leveled by the US against China, since 1994, is that China manipulates its currency in order to keep Chinese export cheap for foreign buyers. But China’s export is not an end in itself. The real end of Chinese policy is jobs for the young workers in coastal factories, assembly plants and transportation hubs.

The US has now chosen the G20 as the main arena to push China in the direction of revaluation (Chinese are more deferential to global opinion than to US opinion alone. Chinese are attentive to the G20 in ways that they may not be when it comes to other forums.

The relationship between Euro and Dollar is better understood as co-dependence rather than confrontation.

Although the bankruptcy of Leman Brother was filed in US federal courts after bailed out attempt failed, some of the largest financial victims and worst-affected parties were European hedge funds that had done over-the-counter swaps business (ie. Directly between parties, without any supervision as provided by exchange trading for instance) or maintained clearing accounts at Lehman’s London affiliates.

Investors happily snapped up billions of euros in sovereign debt from the likes of Greece, Portugal, Spain, and Ireland at interest rates only slightly higher than solid credits such as Germany. This was done on the basis of high ratings from incompetent rating agencies, misleading financial statements from government ministries and wishful thinking by investor that a euro sovereign would never default.

2010 Euro debt crisis: banks would buy sovereign bonds in the belief that no sovereign would be able to fail. Sovereigns happily issued bonds to finance no sustainable spending.  European banks gorged also on debt issued by Fannie Mae and other collateralized debt obligations (CDO). The European banks were the true weak links in the global financial system.

In 2010, of the $236bn of Greek debt, 15bn was owed to UK, 75 to France and 45 to German entities. Of $867 billion of Irish debt, 60bn was to France, $188 to UK and $184 to Germany. Of the 1.1tn of Spanish debt, 114 was to UK, 220 to French entities and 238 to German. The mother of all inter-European debt was the $511bn that Italy owed to France.

The sovereign debt was owed to other countries’ banks. This was the reason for the Fed’s secret bailout of Europe in 2008. This was the reason Fannie Mae and Freddy Mac bondholders never took any losses when those companies were bailout by the US taxpayers in 2008. The European banking system was insolvent so subsidizing Greek pensioners and Irish banks was a small price to pay to avoid watching the all edifice collapse.

The relationship between euro and yuan is simply dependent. China is emerging as a potential savior of Greece, Portugal and Spain, based on self-interest and cold calculation. China has an interest in strong euro as EU is its largest trading partner: a devaluation of the Euro would be costly for China. China interest in supporting the Euro is as great or greater than its interest in maintaining the Yuan peg against the dollar. China’s motives include diversifying its reserve position to include more euros, winning respect of friendship in Europe, gaining access to sensitive infrastructure through foreign direct investment. By buying sovereign bonds from peripheral countries, China help Germany to bear the costs of European bailouts and avoid the losses it would suffer if the euro collapsed. China stabilize the Eurasia flank while it fights the US, its main front in the currency war.

The G20 is perfectly suited to US treasury secretary Timothy Geithner’s modus operandi, which he call ‘convening power’.

Government spending and business investment might play a role, but American consumer, at 70% or more of GDP, has always been the key to recovery.  In 2008, 2009 the G20 summits had also been preoccupied with plans to rein in the banks and their greed-based compensation structures, which provided grotesque rewards for short term gains but caused long term destruction of trillions of dollars.

The IMF: in the 1980s and 1990s it had assisted developing countries’ economies suffering foreign exchange crises by providing finance conditioned upon austerity measures designed to protect foreign bankers and bondholders. Yet with the elimination of gold, the rise of floating exchange rates and pilling up of huge surpluses in developing countries, the IMF entered the 21st century with no discernable mission. And suddenly the G20 breathed new life into the IMF….

Quantitative Easing which consist of increasing money supply to inflate asset prices and weakening the dollar through inflation. In its simplest form, QE is printing money. Fed buys treasury debt securities from a select group of banks called primary dealers. The primary dealer have a global base of customers, sovereign funds, other central banks, pensions funds, institutional investors and high net worth individuals. When Fed want to reduce money supply, they sell securities to the primary dealers. Securities go to the dealers and the money paid to the Fed simply disappears. Conversely, to increase money supply, Fed buy securities from the dealers and pay with fresh printed money (which then support further money creation by the banking system).

China’s policy of pegging the Yuan to the dollar was based on the mistaken belief that the Fed would not abuse its money printing privileges. Now the Fed was printing with a vengeance (through QE in 2009-10)

Collateral damage of the currency war:  through a combination of trade surpluses and hot money flows seeking higher investment returns, inflation caused by US money printing soon emerged in South Korea, Brazil, Indonesia, Thailand

This is the down side of Convening power. The absence of governance can be efficient if people in the room are likeminded of if one party has the ability to coerce the others, as it was the case when the Fed confronted the 14 families at the time of the LTCM bailout (Long Term Capital Management was a very successful hedge funds (40+% return) with almost $100bn investment in derivatives in 1998 when the default of Russia caused panic in the market.  LTCM highly leveraged investment started to crumble and banks and funds that had invested in LTCM wanted their money back. To save LTCM and avoid a collapse of the banking system, the Fed convinced 15 (or 14) banks to bail out LTCM (in return for 90% ownership of the Fund) with Fed lowering funds rate to make this easier. Once financial firms realized the Fed would bail them out, they become more willing to take risk, and this contributed to a situation that led to the financial crisis in 2007-8).

March 11, 2011 the earthquake in Japan. The yen surged against the dollar, bolstered by expectation of massive yen repatriation to fund reconstruction. Some portion on Japanese reserve outside the country ($2tn) would have to be converted back in Yen and brought back home: this led the price surge. This seemed to fit nicely with US goals but Japan wanted the opposite (a cheap yen would help promote japan export and help recovery). With no G20 to agree on a plan, the three US, Japan and European central banks would work together, under the banner of the G7 french minister Lagarde to coordinate an attack on the yen that consisted of massive dumping of yen by central banks and corresponding purchases of dollars, euros, Swiss francs etc. The attack continued across time zones as European and New York Markets opened. Lagarde deft handling on the yen crisis led her to replace Strauss-Khan as head of IMF in June 2011.

Keynes’s theory: stimulus programmes work better in the short term than the long term. They work better in a liquidity crisis than solvency crisis and better in mild recession than in severe one. And they work better in economies that have low debt level.

The Value at Risk is a method used by Wall Street to manage risk: it measure risk of a portfolio with certain risk offset against others. This is the VaR that gave the all clear to high leverage and massive off-balance sheet exposure before the crisis (and it is still in use today). But the flaws  and limitations were well known (notably it does not guarantee against all positions to fall at the same time) but were ignored as VaR permitted the pretense of safety that allows firms to use high leverage and make larger profit while being backstopped by tax payers when things went wrong.

The destructive legacy of financial economics is hard to quantify but $60tn in destroyed wealth in the months following the panic of 2008 is a good estimates. Derivative contracts did not shift risks to strong hands, instead it concentrated risk in the hands of the too big to fail.

Today government spending has grown so large and sovereign debt burdens so great that citizen rightly expect that some combination of inflation, higher taxation and default will be required to reconcile to debt burden with the means available to pay it.

Thought emerges from the human mind in the same complex, dynamic way that hurricanes emerges from the climate.

Between June 2000 and June 2007, the amount of over the counter foreign exchange derivatives went from $15tn to $57tn, a 367% increase. Interest rates derivative went from $64tn to $381tn, a 589% increase. Equity derivatives went from $1.9tn to $9.5tn, a 503% increase.

Actual mortgage losses are still less than $300bn. When derivatives and other instruments are included, total losses reached over $6tn, an order of magnitude greater than actual losses.

Next time it will be different. Based on theoretical scaling metrics, the next collapse will not be stopped by governments, because it will be larger than government.

It is well understood that the sun uses far more energy than a human brain. Yet the sun is vastly more massive than a brain. When differences in mass are taken into account, it turns out that the brain uses 75,000 times as much energy as the sun (in Chaisson’s standard units).

China would never dump it Treasury securities because it has far too many of them. The Treasury market is deep, but not that deep, and the price of Treasuries would collapse long before more than a small fraction of China’s bond could be sold. Resulting losses would fall on the Chinese themselves. Between 2004 and 2009, China secretely doubled it official holding of gold. China argues that secrecy was needed to avoid running up the price of gold… China’s posture toward the US dollar is likely to become more aggressive as its reserve diversification becomes more advanced.

Marc 30, 2009 AFP reports that China and Russia are cooperating in a creation of a new global currency. Dec 13, 2010 Sarkozy calls for the consideration of a wider role for SDR. Dec 15, 2010 Russia and China are launching a yuan-ruble trade currency settlement.

America has become a nation of guinea pigs in a grand monetary experiment, cooked up in petri dish of the Princeton economics department.

Easy money and dollar devaluation are designed to work together to cause actual rates low to get the lending and spending machine back in gear.

Fundamentally monetarism is insufficient as a policy tool not because it gets the variables wrong because the variables are too hard to control. Velocity is a mirror of consumer confidence and cand be highly volatile. The money supply transmission mechanism can from base money to bank loans can break down because of lack of certainty, lack of confidence on the part of the lenders and borrowers.

Because debt and deficits are now so large, the US has run out of dry powder. If struck by another financial crisis, its ability to resort to deficit spending would be impaired.

As long as profits continue on Wall Street, the hard questions will not be asked, let alone answered.

In 2011 US dollar is 61% of identified reserves. The next largest is the euro with just over 26%. The IMF reports a slow but steady decline of the dollar over the last 10 years (from 71%). [from internet in 2016: In 2014, USD dollar is up to 63% and Euro down to 22%].

Eichenberg research led to a plausible and fairly benign conclusion that a world of multiple reserve currencies, with no single dominant currency, may once again be in prospect. It is a world of reserve currencies adrift. Instead of a single central bank like the fed abusing its privileges, it will be open season with several central banks to do the same.  There would be no safe harbor reserve currency and markets would be more volatile and unstable.

SDR is world money, controlled by the IMF, backed by nothing and printed at will. Experts object to use the word money for the SDR as citizen can’t obtain them. They are a medium of exchange : nations can settle their local currency trade balances with other nations in SDR.

Smaller is safer – the correct approach is to break up big banks. Gold standard will bring more certainty, greater stability in inflation, interest rates and exchange rates . This will promote investment.

Early 2012, by unilaterally excluding Iran from the dollar payment system, the US caused the a currency collapse, hyperinflation and sky-high interest rate in a matter of days.  Later US pressured the SWWIFT governing board to exclude Iranian banks from its facilities.  While smuggling of dollars (from Iraq) to help make payment kicked in rapidly, this was only a fraction of the global commerce Iran lost. Iran was too important to remain a complete pariah and ideas for trade financing mechanisms that did not involve the dollar were proposed. And later in 2012 BRICs suggested the creation of a multilateral bank to facilitate lending and payments among emerging markets. An unintended consequence of US sanctions on Iran.