“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!
The COVID-19 crisis has laid bare systemic inequities that will have to be addressed if we are ever going to build more sustainable, resilient, and inclusive societies. Join us on June 23, 2021, for our latest live virtual event, Back to Health: Making Up for Lost Time, where leading experts will examine the immediate legacy of the pandemic and explore solutions for bringing all communities and societies back to health.
With new variants emerging rapidly and new outbreaks in places that had seemed to have the virus under control, COVID-19 remains a global problem. But the recent sharp increase in vaccine supplies indicates that the global solution we need is well within reach.
shows that the world is on track to immunize 80% of all adults against COVID-19 by as early as January 2022.
The COVID-19 pandemic has shown that we will conquer the virus by focusing on a common goal, cooperating, and allowing people the freedom to innovate. We will overcome the threat of global warming the same way.
argues that our best hope lies in the curiosity, ingenuity, and innovation we tapped to overcome the pandemic.
“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!
Back to Health: Making Up for Lost Time
The COVID-19 crisis has laid bare systemic inequities that will have to be addressed if we are ever going to build more sustainable, resilient, and inclusive societies. Join us on June 23, 2021, for our latest live virtual event, Back to Health: Making Up for Lost Time, where leading experts will examine the immediate legacy of the pandemic and explore solutions for bringing all communities and societies back to health.
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