“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!
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With an economy the size of South Korea’s and military capabilities that are no match for America's, Russia lacks the tools required to act as an uncontested hegemon in the Middle East. When the United States decides to take up the mantle of democracy and peace again, Russia will be no match for it.
Events in the country remain exceptionally fluid following the ouster of President Evo Morales, who has been given political asylum in Mexico. Nonetheless, three preliminary conclusions can already be drawn.
“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!
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