JGBs nearing 1% ...

... You've got to be joking!

SSRN-The Future of Public Debt: Prospects and Implications by Stephen Cecchetti, Madhusudan Mohanty, Fabrizio Zampolli

SSRN-The Future of Public Debt: Prospects and Implications by Stephen Cecchetti, Madhusudan Mohanty, Fabrizio Zampolli: "Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age-related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability."

Here we have a classic case of authors purporting of coming to a conclusion after some analysis, but all they have done is make some assumptions and then reproduce their assumptions in a different form in their conclusions.

Jerome Kerviel again

FT.com / Companies / Banks - Kerviel team ‘frequently’ broke limits: "There was no risk-reporting system for traders on the Delta One trading desk when he joined the team in 2007, and implementing regular reporting “was not a priority”, Mr Cordelle said. One of his priorities included recruiting staff for the rapidly expanding desk"

Yep, this is what you do - take on more risk makers and don't hire risk managers. It'll work every time.

Jerome Kerviel

This is why we have problems: FT.com / Companies / Banks - Kerviel team ‘frequently’ broke limits: "Eric Cordelle, Mr Kerviel’s immediate supervisor at the French bank, denied knowledge of the €50bn of unhedged positions built up by the 33-year-old in January 2008, saying he was overworked and had neither the resources nor the tools to monitor individual traders’ positions."

Problems with LIBOR - van Deventer

Donald van Deventer has an interesting article on LIBOR here. He presents good evidence that LIBOR is being systematically underquoted.

'Rogue trader' trial opens in Paris - Europe - Al Jazeera English

'Rogue trader' trial opens in Paris - Europe - Al Jazeera English: "'Rogue trader' trial opens in Paris


The trial of Jerome Kerviel, the alleged 'rogue trader' who is accused of unauthorised deals that cost Societe Generale, the French bank, $5.85bn has started in Paris."

Watch this space.

I've just come across this report from Goldman Sachs examining 44 major fiscal corrections in the OECD since 1975. I'm not sure what to make of it, except that it seems to be getting conclusions from the data that satisfy the authors' prior beliefs.

In a review of every major fiscal correction in the OECD since 1975, we find
that decisive budgetary adjustments that have focused on reducing
government expenditure have (i) been successful in correcting fiscal
imbalances; (ii) typically boosted growth; and (iii) resulted in significant bond
and equity market outperformance. Tax-driven fiscal adjustments, by contrast,
typically fail to correct fiscal imbalances and are damaging for growth.

Their analysis includes case studies of Ireland, Sweden and Canada that show there is another possible explanatory variable - change of government. These three countries, which had large turn arounds in growth, all had change of government before the fiscal contraction was put in place. It is quite possible that the animal spirits that provoked the change in government, themselves led to renewed activity in the economy.

There's another implication for government spending that is strong in their analysis but doesn't even make it to a single phrase in their conclusion, which is what makes me suspect that they have a conclusion and interpret the data to fit that conclusion. In their regressions of average growth relative to OECD (Table 1) the strongest coefficient is for government investment i.e. government spending on capital works has a strong effect on subsequent growth than either increases in tax or reduction in current government spending.

So how to prime growth? Shift government expenditure from current spending to investment and cut taxes. But my caveat still holds - none of their regressions are believeable while we have a major regression variable not taken into account - change of government.