Jackson Hole 2013

The symposium papers are here.

21 replies on “Jackson Hole 2013”

Does anyone have any thoughts on tapering and whether it means that QE doesn’t work /the US economy is really getting better .

There is a lot of money being pulled out of EM on the assumption of the latter.

Hope The Guv’nor enjoyed the break and the .. er .. ‘costly continental’ breakfasts.


ON Write_downs

‘Will Athens’ debt be written off?’
26 August 2013 Presseurop Die Welt

Remarks made by German Finance Minister Wolfgang Schäuble on further aid to Greece have triggered a debate on the cancellation of Athens’ debt, notes Die Welt.

In an interview European Energy Commissioner Günther Oettinger gave to the daily, the German politician points out that cancellation is ”not on the agenda, but may not be ruled out in the future”. At the same time, ECB board member Jürgen Stark said it ”appears inevitable” that Greece’s public creditors will end up losing some of their money.


I .. er .. agree with Jürgen Stark.

@Jürgen Stark

IMHO, it certainly appears inevitable that Ireland’s public creditors will end up losing some of their money.

fyi – interesting take …

Monday, August 26, 2013
Fed’s Jackson Hole Participants to QE-Exit Whacked Emerging Economies: Drop Dead

The latest Fed confab at Jackson Hole is demonstrating that central bankers were so keen to avoid taking much blame for the global financial crisis that they also failed to learn critical lessons from it. That lapse in turn is directly related to the present emerging markets upheaval that has the potential to morph into something worse

Read more at http://www.nakedcapitalism.com/2013/08/feds-jackson-hole-participants-to-qe-exit-whacked-emerging-economies-drop-dead.html#BW32RIEpwtAfDb0e.99

@ DO’D: Thanks for that NC link. This latest episode of financial exuberance has all the immutable characteristics of a slow-moving, grinding pyroclastic flow. It obliterates all in its path (and it can even flow uphill!).

Moral: Do not build on the slopes of an active volcano. But folk do!

@Brian Woods Snr.

Geologically speaking, when the core melts at the confluence of two tectonic plates we will witness the financial equivalent of the China Syndrome; and methinks the financial system of odious debt needs to wipe most of itself out. Pity the humans …

fyi – more of it

Capital Flight: Currencies Plunge Rapidly in Asian Economies
By Wieland Wagner

As the credit glut in the US nears an end, the currencies of developing countries like India, Thailand and Indonesia are plummeting. Now there are fears that a redux of the 1997 market crash is on the horizon.

[…] Until recently, the so-called BRICS countries — Brazil, Russia, India, China and South Africa — were seen as winners in the 2008 global financial crisis. Economists even predicted that these ascending countries would be able to “decouple” themselves economically from crisis-ridden Europe and the US. Instead, those countries are now quaking at the prospect of an end to the flow of so-called “hot money” from the US.


Helene Rey’s paper is on the money, IMHO. Read it together with this one, which demonstrates exactly why John Stephens, in today’s FT, is a banker’s stooge. This crisis is not about current account balances, or ‘walls of savings’, it’s about egregious, unprecedented abuse of the credit system.


@ Paul Quigley

The conclusion of the BIS paper sums up the situation rather well.

“We have argued that the fundamental weaknesses in the international monetary and financial system stem from the problem of “excess elasticity”: the system lacks sufficiently strong anchors to prevent the build-up of unsustainable booms in credit and asset prices (financial imbalances) which can eventually lead to serious financial strains and derail the world economy. Reducing this elasticity requires that anchors be put in place in the financial and monetary regimes, underpinned by prudent fiscal policies.

Analytically, this paper is a plea for a more systematic inclusion of monetary and financial factors in current macroeconomic paradigms. The distinguishing characteristic of our economies is that they are monetary economies, in which credit creation plays a fundamental role. The financial system can endogenously generate financing means, regardless of the
underlying real resources backing them. In other words, the system is highly elastic. And this elasticity can also result in the volume of financing expanding in ways that are disconnected from the underlying productive capacity of the economy. In macroeconomic models, the role of money and credit should be essential, not ancillary. This calls for a revival of an old and highly respected tradition in macroeconomics – one which, sadly, has been largely neglected in the current prevailing paradigm. ”

The debate should clearly be about the nature of the “anchors” required. These should include not a banning of surpluses but of distorting government administrative actions which favour export sectors at the expense of other sectors of the domestic economy. Maybe this is what Robert Harding had in mind? And he does mention the other actions that are necessary.

Thanks but it’s not a balance of trade problem, it’s primarily a balance of money and credit problem. Michael Pettis has got it.

Harding entirely disregards the damaging effects of unregulated leveraged speculation, which both banks and shadow banks continue to practice and promote. QE is feeding this global monster.

One way or another, Godzilla has got to be brought down. Just a question of how hard the landing is going to be, and who is going to take the hits.


@ Paul Quigley

I do not disagree. But an appropriate weight has also to be given to the balance of trade aspect or, rather, the competition and state aids aspect thereof. Both the EU and the WTO have been assigned roles, that of the EU being primordial as the authors of the original treaty establishing the EEC knew full well. That they did a good job is evident from the fact that the relevant chapters are still those in use; aided by an extensive jurisprudence of the ECJ and nationally (a recent example of the latter being the decision of a French court to intervene in the emissions dispute blocking the import of certain makes of Mercedes on environmental grounds).

There is also the point that the holders of assets accumulated “honestly” abroad i.e. on the basis of un-subsidised exports, feel particularly sore when they are taken to the cleaners by Wall Street, German banks and the taxpayers that had to bail them out in particular.

Merkel is on to a winner domestically on that one.


The book you link to is a significant contribution but I wonder will it make much difference. Cranking up the carousel is a much more attractive option for most of the players.

@ Paul Quigley

Or maybe not!


If the problem of “too big to fail” is to be addressed, banks must be responsible collectively for their own salvation. The existential question is whether governments would really relish a situation when their relationship with them would then be akin to that of sovereigns – the real kind – with their medieval bankers. I do not think so when they are themselves, through the generous distribution of bonds, in the same line of business.

@ seafóid

When it comes to banks “can’t live with them, can’t live without them” is the motto. That is also currently the level of their social utility.

The paper on “Equity Resource Notes” – authored by people who clearly know what they are talking about – seems to me to be one answer to making cohabitation more tolerable.

@ All

Professor Sinn in the Guardian.(H/T Eurointellgence).


The views expressed in relation to capital markets will come as a bit of a surprise to most observers.

“Instead, by weakening safety standards, bailing out foreign investors, and financing current-account deficits, the ECB has undercut and replaced the private European interbank market.”

He refers later to the ECB “under-cutting capital markets”(!).

One had assumed that it was the collapse of these markets that prompted EU government and ECB intervention.


‘How much of modern finance is socially useful?

Great question. At a guess, a rough estimate, an experiential hunch … < 10%

Blogs review: Takeaways from Jackson Hole
By Jérémie Cohen-Setton on 28th August 2013

What’s at stake: Although Jackson Hole was relatively calmer this year in the absence of market moving speeches, it featured a number of provocative research papers. Robert Hall suggested that the tradition of regarding high unemployment as a disequilibrium may rest on a misunderstanding. Arvind Krishnamurthy argued that the portfolio balance channel of QE works largely through narrow channels contrary to what the Fed thinks. And Helene Rey argued that the global financial cycle transforms the monetary policy trilemma into a “dilemma”. In this review, I focus on the first two contributions


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