The Illusion of the Perpetual Money Machine

We argue that the present crisis and stalling economy continuing since 2007 are rooted in the delusionary belief in policies based on a "perpetual money machine" type of thinking. We document strong evidence that, since the early 1980s, consumption has been increasingly funded by smaller savings, booming financial profits, wealth extracted from house price appreciation and explosive debt. This is in stark contrast with the productivity-fueled growth that was seen in the 1950s and 1960s. This transition, starting in the early 1980s, was further supported by a climate of deregulation and a massive growth in financial derivatives designed to spread and diversify the risks globally. The result has been a succession of bubbles and crashes, including the worldwide stock market bubble and great crash of October 1987, the savings and loans crisis of the 1980s, the burst in 1991 of the enormous Japanese real estate and stock market bubbles, the emerging markets bubbles and crashes in 1994 and 1997, the LTCM crisis of 1998, the dotcom bubble bursting in 2000, the recent house price bubbles, the financialization bubble via special investment vehicles, the stock market bubble, the commodity and oil bubbles and the debt bubbles, all developing jointly and feeding on each other. Rather than still hoping that real wealth will come out of money creation, we need fundamentally new ways of thinking. In uncertain times, it is essential, more than ever, to think in scenarios: what can happen in the future, and, what would be the effect on your wealth and capital? How can you protect against adverse scenarios? We thus end by examining the question "what can we do?" from the macro level, discussing the fundamental issue of incentives and of constructing and predicting scenarios as well as developing investment insights.Comment: 27 pages, 18 figures (Notenstein Academy White Paper Series

Fear of Hazards in Commodity Futures Markets

We examine the commodity futures pricing role of active attention to weather, disease,geopolitical or economic threats or “hazard fear” as proxied by the volume of internet searches by 149 query terms. A long-short portfolio strategy that sorts the cross-section of commodity futures contracts according to a hazard fear signal captures a significant premium. This commodity hazard fear premium reflects compensation for extant fundamental, tail, volatility and liquidity risks factors, but it is not subsumed by them. Exposure to hazard-fear is strongly priced in the cross-section of commodity portfolios. The hazard fear premium exacerbates during periods of adverse sentiment or pessimism in financial markets

Triennial Review of the Health and Safety Executive. Submission to the Department for Work and Pensions

In this response we have chosen not to address the guided questions specifically, but rather to respond to the general coverage of the document, not least that set out at Annex E, “Background to the Health and Safety Executive”, where it is stated that: HSE’s functions are undertaken in the pursuit of four headline aims that support delivery of its mission. These aims, set out in the HSE’s Business Plan for 2012-15, are to: Lead others to improve health and safety in the workplace; Provide an effective regulatory framework; Secure compliance with the law; and, Reduce the likelihood of low frequency, high-impact catastrophic incidents. (Department for Work & Pensions, 2013: Annex E, 14) Our response addresses many of the claims made in that Annex regarding enforcement and inspection. We welcome this review of the HSE since, as the evidence set out in this response demonstrates, it is clear that the regulator is increasingly unfit for purpose. It is presently unable to provide either minimal inspection coverage or a credible threat of enforcement, and is therefore in no position to secure compliance with the law

Fiscal-monetary-financial stability interactions in a data-rich environment

In this paper, we shed some light on the mutual interplay of economic policy and the financial stability objective. We contribute to the intense discussion regarding the influence of fiscal and monetary policy measures on the real economy and the financial sector. We apply a factor-augmented vector autoregression model to Czech macroeconomic data and model the policy interactions in a data-rich environment. Our findings can be summarized in three main points: First, loose economic policies (especially monetary policy) may translate into a more stable financial sector, albeit only in the short term. In the medium term, an expansion-focused mix of monetary and fiscal policy may contribute to systemic risk accumulation, by substantially increasing credit dynamics and house prices. Second, we find that fiscal and monetary policy impact the financial sector in differential magnitudes and time horizons. And third, we confirm that systemic risk materialization might cause significant output losses and deterioration of public finances, trigger deflationary pressures, and increase the debt service ratio. Overall, our findings provide some empirical support for countercyclical fiscal and monetary policies.Web of Science18322419

The CIS - Does the Regional Hegemon Facilitate Monetary Integration?

We consider the likely economic impact and prospects for monetary integration among Belarus, Kazakhstan, the Russian Federation and Ukraine as part of the Single Economic Space they have agreed to set up. A monetary union among these countries poses three interesting issues for the structure and process of integration: they have already been members of a wider cur-rency union that collapsed, so it is necessary to handle the problems of his-tory; secondly the union would be of very unequal size with the Russian Federation outweighing the others taken together, so we must consider how the national interests would be balanced; lastly natural resources, particu-larly oil and gas pose problems for dependence and for the determination of the external exchange rate