Juggling Dynamite

One of the greatest myths about monetary policy is the presumption that pumping liquidity into the banking system will drive lending, money velocity and a multiplier effect through the real economy. Businesses (at least wise ones) only borrow and invest in people and capacity when they see demand for their product or service. And global demand has been weak and weakening further over the past many months. This is the real reason that monetary policy and even relentless attempts at “quantitative easing” are not translating into economic growth.

This clip offers a lucid discussion of these issues in the UK context but is broadly relevant. Erik Nielsen, chief global economist at UniCredit SpA, talks about U.K. bank lending and Bank of England policy. Here is a direct link.

“The unregulated multi-trillion dollar derivatives market exceeds global GDP [by an estimated 10x +] and poses a clear danger to the global economy, Chris Whalen, Senior Managing Director at Tangent Capital Partners, and Barry Ritholtz, CEO at Fusion IQ, tell Bloomberg Law’s Lee Pacchia.

“The fix is very simple,” says Ritholtz, “repeal the Commodities Futures Modernization Act and suddenly this becomes like every other financial instrument.”

Whalen notes that the financial industry is reluctant to change the way derivatives are managed because they generate large returns at a time when banks are less profitable than before. “The super normal returns that they earn from derivatives subsidize the rest of the business,” he says.”

Here is a direct link.

“Nearly two years after Wall Street waged a successful campaign to keep consumer advocate Elizabeth Warren from running the Consumer Financial Protection Bureau, the incoming senator will be tapped to serve on the Banking Committee, according to four sources familiar with the situation. It’s a victory for progressives who battled to win her a seat on the panel that oversees the implementation of Dodd-Frank and other banking regulations.

Warren knocked out Republican Sen. Scott Brown of Massachusetts in the most expensive Senate contest of 2012, with Wall Street spending heavily to beat Warren, a former Harvard law professor.”

Here is a direct link.