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Unsanitized: Pandemic Recovery in a Plutonomy

Published by Anonymous (not verified) on Wed, 06/01/2021 - 6:14am in

First Response The economic outcome from the coronavirus crisis hinges on a big if about vaccine distribution. But let’s think positive for a moment and play out the best-case scenario. We passed bridge funding for the unemployed and low-value checks (maybe they’ll … Continue reading

The post Unsanitized: Pandemic Recovery in a Plutonomy appeared first on BillMoyers.com.

Wall Street Mega-Landlord Blackstone Prepares to Reap the Spoils of Another Crisis

Published by Anonymous (not verified) on Tue, 29/12/2020 - 10:31pm in

Blackstone was a big winner of the last crisis. Now, it hopes to repeat the feat, albeit using a somewhat different playbook. 

Macroeconomics, Money (MMT Style) and Post-Brexit Recovery, All in One Twitter thread

Published by Anonymous (not verified) on Mon, 14/12/2020 - 7:49pm in

Money, lending, government spending, QE....all explained in one tidy post!

Judy Shelton at the Bank of Canada? No thanks

Published by Anonymous (not verified) on Mon, 07/12/2020 - 2:18am in

How would I feel if Judy Shelton was a candidate for Governor of the Bank of Canada? Here are my thoughts.

A bit of background first. Judy Shelton was a Trump appointee to a key spot on the Federal Reserve board, the U.S.'s central bank. A President's appointees must be confirmed by Congress, and this was probably the most heated confirmation process I've ever followed. Shelton has espoused several controversial view points, including a return to the gold standard

The reason this appointment is so important is because Federal Reserve board members determine American monetary policy. That is, they decide whether to pluck interest rates up or down in order to ensure that the central bank is hitting its mandated targets.

That's a pretty important job! Not only would Shelton have been in the monetary policy hot-seat, she would have been on track to become the next head of the Federal Reserve. But it was all for naught. Shelton narrowly lost the spot as several Republican senators, including Mitt Romney, dissented.

So Shelton for Bank of Canada? Here's a simple set of guidelines I'd suggest Canadian voters adopt when they consider what sorts of people should be at the helm of the Bank of Canada. 

First, I'd suggest that anyone being considered for the Canadian monetary policy cockpit have a PhD in economics, preferably one in macroeconomics. And second, they should have administrative experience. (I'd be willing to accept a master's degree in economics as a substitute, with sufficient time spent working up the rungs of a central bank. The administrative experience is important because candidates will be in a management position.) Once they've passed those two hurdles, the finer points of their candidacy can be discussed.

A quick scan of Shelton's background reveals that she has a PhD in an unrelated discipline and no prior central banking experience. So if she was being floated for the job of Bank of Canada governor she wouldn't have passed through my filter. (Current Fed governor Jerome Powell, who is a lawyer, wouldn't have got through either.) 

Some readers may think I'm only stating the obvious. "Of course the most important people at a nation's central bank should have high-level economics degrees." But other readers will be disappointed in my criteria. I mean, here I am, an independent blogger—one who doesn't have a graduate degree—advocating an elitist sclerotic filtering mechanism.

Note that I'm not criticizing Shelton for her controversial stance on the gold standard. If she was a trained economist whose gold standard views had survived through years of rigorous training, she'd pass through my basic filter. Nor am I criticizing Shelton because she was a Trump appointee. Christopher Waller, another recent Trump appointee, would have easily passed through my filter.

Here's why I think my filter makes sense for Canadian voters. Monetary policy is complicated. Luckily we have an institution that teaches it: economics departments. Once someone has attained a PhD (or Masters + experience) in macroeconomics, odds are they'll be better than most at understanding how to operate the levers of a central bank. 

Why not draw central banking talent from other venues like the media, activism, think tanks, law, finance, business, or the blogosphere (ahem)? These venues don't attack the problems of central banking in as disciplined a manner as an economics department does. And so the average quality of these talent pools will not be as high.

In particular, I want to comment on the idea of drawing central bankers from the business/finance community. Many voters may think that Canadian business personalities like Kevin O'Leary, investor Prem Watsa, or banker David McKay would be uniquely qualified to run the Bank of Canada. I disagree. Sure, these titans of business will have good administrative experience (although no better than anyone else at the top of their field). 

But running monetary policy has little in common with running a business. Like the litre, second, and meter, the Canadian dollar is one of Canada's most important weights & measures. We put well-trained physicists at the National Research Council (NRC) in charge of maintaining our key physical measurements, not business people. (In fact, NRC scientists recently guided us onto a new standard for the kilogram.) Likewise, we need people with proper scientific training to manage our key economic measuring unit, the $.

Will my filtering system leave out a lot of good candidates? Yes. Will it bring in some bad ones? Certainly. Economics departments have tons of problems. Trust me, I've heard stories from insiders.

But even if it's not a great filtering system, it's still the best filtering systems we've got. Imagine that the plane you're on has lost its pilot in mid-air and needs a replacement. If one of the passengers has been to flight school, that person is probably going to be the best pick for flying the plane.

The WSJ marketed Shelton's candidacy on the basis of diversity. Yes, diversity of opinion is important. We want the co-pilot on our plane to criticize the pilot when one sees him/her make a mistake. But we still want both to be trained pilots with solid skills. They need to know exactly what that little red button above and to the left of their heads does when pressed. We wouldn't put a cake decorator, a plumber, and psychologist in the cockpit, just for the sake of diversity.

It's interesting to contrast U.S. and Canadian central banks on my very simple filter. Going back to 1970 the U.S. has missed twice: Jerome Powell and William Miller. The hits include Janet Yellen, Ben Bernanke, Alan Greenspan, Arthur Burns, and Paul Volcker.

Canada hasn't missed once. Everyone from Louis Rasminsky and James Coyne to Mark Carney, Stephen Poloz, and Tiff Macklem qualify.  

Nathan Tankus: What the Hell is Going On With CARES Act “Funds”?

Published by Anonymous (not verified) on Thu, 26/11/2020 - 6:24pm in

Trying to make sense of CARES Act gimmickry.

Unsanitized: Being Thankful in a Pandemic

Published by Anonymous (not verified) on Thu, 26/11/2020 - 4:47am in

The pandemic has made us a more social people. That sounds paradoxical, given the fact that so many of us have locked away in our homes for the past eight months. Continue reading

The post Unsanitized: Being Thankful in a Pandemic appeared first on BillMoyers.com.

Janet Yellen: A Popular Choice

Published by Anonymous (not verified) on Thu, 26/11/2020 - 3:05am in

Janet Yellen’s expected nomination is yet another Biden pick that emphasizes stability and a return to a government to which Americans had become accustomed before Trump’s election. Continue reading

The post Janet Yellen: A Popular Choice appeared first on BillMoyers.com.

How Bank Reserves Are Distributed Matters. How You Measure Their Distribution Matters Too.

Published by Anonymous (not verified) on Tue, 24/11/2020 - 11:00pm in

Gara Afonso, Marco Cipriani, Steph Clampitt, Haitham Jendoubi, Gabriele La Spada, and Will Riordan

Changes in the distribution of banks’ reserve balances are important since they may impact conditions in the federal funds market and alter trading dynamics in money markets more generally. In this post, we propose using the Lorenz curve and Gini coefficient as a new approach to measuring reserve concentration. Since 2013, concentration, as captured by the Lorenz curve and the Gini coefficient, has co-moved with aggregate reserves, decreasing as aggregate reserves declined (such as in 2015-18) and increasing as aggregate reserves increased (such as at the onset of the COVID-19 pandemic).

How Do We Traditionally Measure Reserve Concentration?

A widely used measure of reserve concentration is the share of reserves held by the largest reserve holders. This share is close to zero if reserves are evenly distributed among the several thousand institutions holding reserves (that is, when concentration is low) and close to 100 percent if the largest holders hold almost all reserves (that is, when concentration is high). The selection of the number of institutions to include among the largest reserve holders is arbitrary; often, the share of the top five or top twenty reserve holders is used as the concentration measure. Indeed, that is what we used in a recently published post.

Of course, when concentration is measured as the share of reserves of a few top holders, its evolution over time depends on the number of institutions selected for its computation: for example, the share of reserves of the top five holders increased between 2015 and 2018, whereas that of the top twenty holders remained flat. Moreover, when measuring concentration as the share of reserves held by the largest holders, one fails to capture changes in the distribution of reserves both within the subset of the smaller institutions and within that of the larger ones.

A Novel Way of Measuring Reserve Concentration: The Lorenz Curve

The Lorenz curve is a graphical representation of a variable’s distribution widely used in the analysis of income inequality. The Lorenz curve provides a simple way to characterize the distribution of reserves across all reserve holders, without focusing on a specific set of institutions. It plots the cumulative percentage of aggregate reserves against the cumulative percentage of reserve holders, ranked by increasing share. For instance, in the chart below, the point on the Lorenz curve corresponding to x=20 percent reports the cumulative share of reserves held by those institutions in the bottom 20 percent of the reserve distribution (5 percent of reserves in the example below).

Example of a Lorenz Curve

The 45-degree line is the Lorenz curve for a hypothetical economy in which reserves are distributed evenly across reserve-holding institutions (the line of equality): in such an economy the bottom 20 percent of reserve holders holds exactly 20 percent of reserves. In contrast, if all reserves are held by one institution, the curve is flat for all percentiles except for the last percentile, which contains the institution holding all the reserves.

The Evolution of the Distribution of Reserves

The chart below presents the Lorenz curves of reserves for two periods: July 2013-December 2014 (blue) and January 2015-December 2018 (red), corresponding to expansion and decline of reserves. As the left-hand panel shows, in both periods, reserves are very concentrated: the curve is practically flat until, at the least, the 99th percentile and becomes very steep afterwards.

LSE_2020_reserves-concentration_cipriani_ch1rev_art-01

The right-hand panel zooms into the right portion of the curve, focusing on the top 3 percent of reserve holders. Overall, reserves were less concentrated in January 2015-December 2018 than in July 2013-December 2014, as indicated by the upward shift of the Lorenz curve (from blue to red). Note that this upward shift of the Lorenz curve during the 2015-18 period contrasts with the fact that the share of reserves held by the top five institutions actually increased during that period. This highlights the differences between using a measure of concentration that focuses on the share of a specific set of institutions and a measure that summarizes the entire distribution.

Higher Reserves, Higher Concentration?

Since the Federal Reserve primarily interacts with large market participants when conducting open market operations, one could imagine that, as a result, increases in the level of reserves are accompanied by increases in the concentration of reserves, whereas decreases in the level of reserves are accompanied by a reduction in the concentration.


A common way to summarize the degree of concentration of a Lorenz curve is through the Gini coefficient, which is the ratio of the area between the line of equality and the Lorenz curve to the area below the line of equality. This can be seen in the first chart above, where the Gini coefficient is the ratio between the orange-shaded area and the sum of the orange-shaded and the grey-shaded areas. The Gini coefficient takes a value between zero (full-equality) and 100 percent (one institution holds all reserves).
As the left-hand panel of the chart below shows, the Gini coefficient has been highly correlated with the level of aggregate reserve balances since late 2013: for instance, it fell sharply in 2018 and 2019 as reserves declined due to the Federal Reserve’s balance-sheet normalization and spiked up in early 2020 (although not to the same levels observed over 2014-17) as reserves increased during the early stages of the COVID-19 pandemic. Indeed, the daily correlation between reserves and the Gini coefficient during 2014-19 is 0.81.

How Bank Reserves Are Distributed Matters. How You Measure Their Distribution Matters Too.

By contrast, as the right-hand panel shows, there is no clear relationship between aggregate reserves and the share held by the top five institutions: indeed, as reserves were declining between 2014 and 2019, the share held by the top five institutions actually increased.

Conclusions

The Lorenz curve and the Gini coefficient are useful tools for characterizing reserve concentration based on the entire distribution of reserves and not just on the share of reserves held by the largest institutions. Since 2013, the Gini coefficient of the reserve distribution has broadly moved in tandem with aggregate reserves: reserves became less concentrated as the Federal Reserve normalized its balance sheet, and they became more concentrated as reserve balances increased during the early stages of the COVID-19 pandemic.

Gara Afonso

Gara Afonso is an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Marco Cipriani

Marco Cipriani is an assistant vice president in the Bank’s Research and Statistics Group.

Steph Clampitt

Steph Clampitt is a senior research assistant in the Bank’s Research and Statistics Group.

Haitham Jendoubi

Haitham Jendoubi is a senior associate in the Bank’s Markets Group.

Gabriele La Spada

Gabriele La Spada is a senior economist in the Bank’s Research and Statistics Group.

Will Riordan

Will Riordan is an assistant vice president in the Bank’s Markets Group.

How to cite this post:

Gara Afonso, Marco Cipriani, Steph Clampitt, Haitham Jendoubi, Gabriele La Spada, and Will Riordan, “How Bank Reserves Are Distributed Matters. How You Measure Their Distribution Matters Too.,” Federal Reserve Bank of New York Liberty Street Economics, November 24, 2020, https://libertystreeteconomics.newyorkfed.org/2020/11/how-bank-reserves-... .




Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Stablecoins as a route into Venezuela?

Published by Anonymous (not verified) on Mon, 23/11/2020 - 9:57pm in

Over the last decade, few nations have experienced as much monetary and payments chaos as Venezuela has. Fans of bitcoin, Dash, and other cryptocurrencies have all tried to help by introducing Venezuelans to their preferred coin. But even with Venezuela's bolivar currency entering hyperinflation stage, cryptocurrency adoption never happened

Circle, a U.S.-based company that issues the stablecoin USDC, is the latest to join the Venezuelan crusade. Last week it belatedly announced that it had partnered with the opposition Guaidó government  to deliver financial aid to Venezuelan health care workers. Here is Circle's CEO, Jeremy Allaire:

In its blog post, Circle says it helped to get million of dollars to Venezuelans by leveraging "the power of USDC...to bypass the controls imposed by Maduro over the domestic financial system." Allaire suggests that in his tweet that stablecoins have now become a "tool of US foreign policy."

Did stablecoins play a vital role? I'm skeptical. If you pick through the transaction chain carefully, USDC's role was trivial. Nor does the wider claim made in Circle's post, that stablecoins have somehow arrived on the world stage as a foundational infrastructure in the future of the international monetary system, hold much water. 

For those who don't know, stablecoins are sort of like bank accounts with U.S. dollars in them, the difference being that they are hosted on a blockchain like Ethereum. Yes, they are a new and rapidly growing segment of the payments ecosystem. But if any payments instrument has helped Venezuela over the last few years, it's not stablecoins. Rather, it's the twin combination of old fashioned U.S. paper money and regular U.S. dollar bank accounts. More on that later.

A bit of background. The U.S. has declared the Maduro-led government to be illegitimate and thrown its support behind the Venezuelan opposition government led by Juan Guaidó. In 2019, U.S. officials cut off Maduro's access to Venezuela's U.S.-based bank accounts and put Guaidó in control. To give credence to the Guaidó opposition, an idea was hatched to take $19 million from these U.S. bank accounts and somehow airdrop it into the pockets of poorly paid Venezuelan health care workers. Each health care worker was to get $100 a month for three months.

Airtm, a money services business that offers U.S. dollar accounts, was recruited by the U.S. government to be the distribution agent for this $19 million airdrop. Airtm is a traditional e-wallet, much like PayPal or Skrill. People can get an Airtm account after going through a know-your-customer process, submitting ID and such. Having been approved, they can then transfer funds between their bank account or other wallets like Neteller. The money can also be spent using a virtual MasterCard debit card.

The first step in the Venezuelan campaign: move Guaidó's $19 million from his U.S. bank account to Airtm's U.S. bank account so that Airtm could distribute the funds. 

This is an easy step, right? It's just a US-to-US transfer, after all. Guaidó's bank simply initiates a wire transfer via Fedwire, the Federal Reserve's large value payment system, upon which the $19 million arrives in Airtm's U.S. bank account. It shouldn't take more than a few minutes. With that step out of the way, Airtm can now create $19 million in Airtm deposits for distribution to Venezuelan health care workers.

Instead, USDC stablecoins were substituted (either fully or partially) for Fedwire. Guaidó's bank bought $19 million in USDC stablecoin tokens (or maybe just a portion of that), and then sent these tokens to Airtm. Now Airtm could create $19 million in Airtm deposits for distribution.

By inserting itself into the US-leg of a transaction, Circle gets to make the claim that it was part of a stirring effort to bypass "censorship by the Maduro regime." But really, all it did was take the place of a very plain vanilla Federal Reserve transaction, one that never faced any obstacle anyways. The tough part isn't state-side, it's getting the fund to Venezuelans, In effect, USDC's role in this chain of transactions is superfluous (a point that Cas Piancey also makes here). Mind you, it certainly does make for good marketing.

Once Airtm had received the $19 million (via Fedwire or USDC), it could now embark on the tricky Venezuelan leg of the campaign. This involved signing up Venezuelan health care workers for Airtm accounts and then crediting their new account with U.S. dollar balances. (Nope, it didn't credit the workers with USDC. Airtm created internal database entries representing U.S. dollars for distribution to health care workers). From the sounds of it, this process didn't always go smoothly. The Maduro regime blocked Airtm's website, which meant that Venezuelans would have to use a VPN to connect. After talking to a number of medical workers, José Rafael Peña Gholam described the payouts as "somewhat chaotic."

I suspect this is why PayPal, which has much wider usage in Venezuela, probably opted out of the airdrop and let Airtm conduct it. PayPal didn't want to put its existing business at risk of being sanctioned or blocked by the Maduro government.  

If Airtm is to be the deployment vehicle for future Guaidó airdrops, it will have to refine its process. This isn't Airtm's first attempt to airdrop funds into Venezuela. Leigh Cuen chronicled an earlier attempt by Airtm to airdrop cryptocurrencies to Venezuelans for charity purposes. Only 57% of recipients ever engaged with the funds.

Now for my second criticism. The Circle press release describes Airtm's U.S. dollar accounts, or AirUSD, as a stablecoin-backed dollar token. And thus it can boldly claim that thanks to the combination of AirUSD and USDC, the world has just witnessed a "global first with use of stablecoins for foreign aid."

But Airtm's so-called stablecoins are not stablecoins. That is, U.S. dollars held at Airtm are not U.S. dollars held on a blockchain. Rather, they are very much like U.S. dollars held at PayPal or Skrill or Neteller. You know, good ol' fashioned centralized money. So for each Venezuelan that did succeed in connecting to Airtm to claim their dollars, they were getting non-blockchainy stuff.

So much for a "historic moment" in which "economic and political leaders have turned to stablecoins." USDC played a bit role, and AirUSD aren't stablecoins. 

That being said, stablecoins like USDC could be part of future relief programs. We'll have to see. One problem with using stablecoins for these sorts of airdrops is the massive customer due diligence requirements. The airdrop required vetting 60,000 Venezuelans to determine that each one was indeed who they claimed to be. But compared to e-wallets like PayPal and Airtm, stablecoins issuers have incredibly lax know-your-customer standards. Circle probably just doesn't have the staff to pull a carefully targeted airdrop off.

For now, no payments product has been more helpful for Venezuelans than classic U.S. paper dollars. So much U.S. currency has flooded into the country that it has effectively dollarized. An honourable mention goes to Arizona-based Zelle, a network that allows for instant transfers between U.S. bank accounts. Venezuelan retailers have adopted Zelle as an electronic payments method, although this surely goes against Zelle's terms of service:

I've written about Zelle usage in Venezuela before. Just as there is nothing blockchainy about paper dollars, there is nothing blockchainy about Zelle either.

The Mnuchin-Powell Affair Over the Fed’s “Special Purpose Vehicles” in Dollars & Effects

Published by Anonymous (not verified) on Mon, 23/11/2020 - 8:50pm in

The Treasury and Fed set up junk-buying SPV programs The unwind is oddly controversial given that they never should have been created.

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