An Integrated Framework for Financial Positions and Flows on a From-Whom-to-Whom Basis: Concepts, Status, and Prospects

The interpretation of sectoral debt data is a major issue in understanding the Irish economy – this new IMF WP should be helpful.

Summary: The global crisis of 2008 highlighted the need to understand financial interconnectedness among the various sectors of an economy and between them and their counterparties in the rest of the world. However, application of this kind of analysis has been hampered by the lack of adequate data. This paper sets the background for promoting internationally coordinated efforts for compiling and disseminating data on sectoral financial positions and flows on a from-whom-to-whom basis within the framework of the System of National Accounts. It draws on actual experiences in compiling these kinds of data and provides guidelines for their development in the future.

12 thoughts on “An Integrated Framework for Financial Positions and Flows on a From-Whom-to-Whom Basis: Concepts, Status, and Prospects”

  1. Was this sort of data not previously available for the Eurozone ?
    Or was the whole system run like Anglo Irish bank ?

  2. Whow – too complicated for a Dork with Beamish or indeed not under the influence.
    I just think there is too much credit and not enough money……..just saying like.
    Dendritic credit flows can well flow anywhere the lie of the land takes it – but if it hits a Dam and backs up what do we do with all that water ?
    Do we flood the villages below in a cataclysmic flood, turn the water into something useful ? or just simply watch the stuff evaporate over a generation.

    Something both heroic & imaginative is missing from the western mind me thinks…………

    http://www.youtube.com/watch?v=dp7z8Gvexas

    But the banking system has a built in inertia now –

    http://www.youtube.com/watch?v=jixlPeT-EnE

    The West could have junked its self doubt syndrome but choose a deliberate debt trap over the risks of opening ones mind to dangerous possibilities.

    http://www.youtube.com/watch?v=3l2QopJbDBs

    I guess most of us well never know why the system changed tack in the 60s.

  3. I’m pretty sure the major investment banks and hedgies had models crunching all these data and calcs – so they could play both sides of any deal that was going down. It just goes to show how far off the pace bank supervisors, financial regulators and policy-makers were.

    The efficient market hypothesis, my arse.

  4. ITs an interesting document:

    ” The SNA uses a set of economic flows and stocks for describing the economic and financial activities of resident economic entities and of the rest of the world. ”

    I’m sure its prompted among other things by the failure of accountancy procedures in Greece in some years past.

    But the recommended accountancy procedures would I’m sure be especially relevant in third world scenarios where funds eg NGO funds can go mysteriously awol.

    Unfortunately, due to the overview nature and abstract nature of the doc being able to drill down to a simples examples wasn’t given 🙂

  5. @ PH

    Paul Volcker was quoted in the FT the other day – awake at night wondering how the banks would game whatever regulatory rules his side came up with .

    The financial sector can’t be regulated until the regulators understand it properly.

  6. @Seafoid,

    The regulators won’t understand it until they pay enough to entice some of the poachers over to their side. FDR had the inspired idea to appoint Joe Kennedy as the first chairman of the SEC. In response to the horror of his Brahmin aides and advisers he said: “Set a thief to catch a thief”.

  7. @ Philip Lane, and all

    On the vexed issue of what is the irisheconomy for I like these posts with proper working papers.

    A question for you or others who would know: not too foolish or clumsily expressed, I hope.

    On page 15 chart 1, if the “Central Bank” in the first line was the ECB, and it was issuing a liability to an entity (say another CB, or a bank), within the Euron zone – would this come up as being “domestic” or “foreign” currency on either side of the transaction?

    Observation. On the knowledge is power front, this database would be incredibly useful for any public or private actor who could access it. The paper seems to assume that the force of the ring would only be used for good. I think it would be important to work out who gets access to this.

    @ Paul Hunt

    Morning Paul.

    The latest press relief from the IMF about Ireland is here.

    There’s lots that can be said about it, for example, I note its says: “This result [fiscal consolidation] was attained despite weaker domestic demand” without any note that this “weaker domestic demand” is a consequence of the fiscal consolidation and not some strange thing that just happened.

    But it also says: “Continued strong implementation of fiscal consolidation, and financial and structural reforms by the Irish authorities will be critical for the government to regain timely and substantial access to market funding.”

    I’m afraid I simply still don’t understand what these “structural reforms” are. Has the IMF said anywhere: here is a list of structural reforms you need to enact? What’s you’re take on it?

    It’s not labour flexibility I think – which the module on unemployment at the Croke Park day suggested wasn’t an Irish problem anyway when it comes to unemployment – in spite of the usual self-destructive poke to cut wages which is mentioned separately by the IMF.

    http://www.imf.org/external/np/sec/pr/2012/pr1260.htm

  8. @ PH

    It’s about more than pay. They need full access to data. They need power to sanction companies. Otherwise you end up with a September 2008 type scenario where there are 2 or 3 hours to make a decision (without any data) that will scar a country for the next 20 years.

  9. @Gavin,

    Que Sera, Sera

    Re “was attained despite weaker domestic demand”

    The puppet masters tied to banking institutions have this rather strange dysfunctional bifurcation between financial system, banking institutions, and the economy.

    For them, they are two completely distinct economic entities.

    Mario Draghi made a similar point recently re LTRO inferring they were doing all they could re LTRO roll outs for liquidity purposes, but economic growth was required.

    He made the comment as if the two were unrelated. Only one could be controlled, the other, the economy was http://www.youtube.com/watch?v=xZbKHDPPrrc

    The truth of the matter is for these guys they are unrelated.

    Their main and only concern is that banks and financial institutions get their money. They will find out however they are very related. Detailed economic data publicly available that is reliable and informed by standard accountancy procedures
    should show the relationship of debt to economic development in ways that need to be better developed as in those guidelines.

  10. @Gavin Kostick,

    Very naughty of you. You’re encouraging me to go way off-piste and to play in my favourite sand-pit – to mix metaphors again.

    These reviews, statements, press releases, etc are just part of the narrative of what I call the official ‘bullshit-honey’ story. This is the key passage:

    “Steps to support growth and job creation are being put in place. Reforms of sectoral wage agreements have been submitted to parliament to make wage-setting in occupations hard hit by recession more responsive to economic conditions. The authorities are also strengthening the effectiveness of activation and training policies to help job seekers get back to work. The government recently announced the disposal of €3 billion in state assets to enhance competitiveness while securing value for the state and reinvesting one-third of the proceeds.”

    This deserves a bit of parsing to scrape away, archeology-style, the layers of political, self-serving cant and hypocrisy. The main thing to note is the espousal of this ‘labour theory of cost’. It is an a priori assumption that labour is the dominant factor of production and that the labour market is the only factor market that is subject to egregious inefficiencies and rigidities. The markets in all other factors of production are generally fine – and, insofar as they mightn’t be, all they need is a few tweaks here and there.

    Therefore, growth-enhancing increases in efficiency and productivity may be secured primarily in the labour markets by battering workers. If workers didn’t have this unfortunate habit of demanding a living wage and were prepared to accept much lower wages and work harder and longer then there would be huge increases in output and plenty of work for everybody.

    This is total and utter bollocks. But, unfortunately, it appears to be how the Washington Consensus has mutated during this crisis – and it seems to have quite a following among professional Irish economists. There are, of course, inefficiencies in the labour market, but they exist as a result of workers defending their pay and conditions to compensate for inefficiencies and excessive costs in the other factor markets that massively reduce their disposable incomes. Genuine, self-sustaining growth will only come from increased productive, allocative and dymanic efficiencies in all sectors and in all factor markets. Singling out the labour market is totally counter-roductive and self-defeating. Labour cannot – and should not – be expected to respond to changed economic circumstances (in terms of price and supply) at the same pace as other factors of production. The sequence is simply totally wrong. Sort the other factors of production first and then sort labour.

    The final assrtion in this passage that the proposed €3 billion disposal of state assets will enhance ‘competitiveness’ is final proof, if any is needed, that all of this it total bollocks. These privatisation proposals have been crafted with huge effort behind the scenes – squaring all the narrow sectional economic interests – to ensure that the existing inefficiencies and dysfunction will remain intact.

    I once looked forward to the IMF getting stuck in to the dysfunction in the sheltered sectors. Now they have become part of the problem.

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