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☆ High bond yields challenge “Pax Americana”
▼ + stars: | 2023-11-06 | by ( Hugo Dixon | ) www.reuters.com time to read: +7 min

There are also many reasons why “Pax Americana” – the period of U.S. dominance since World War Two - is under stress. The combination of high bond yields with a large fiscal deficit and rising sovereign debt is making it harder for politicians to govern the country. If anything, they may have a tougher job to make their fiscal maths add up than the United States because their growth prospects are not as rosy. What’s more, the near-record yield gap with the United States is bringing its own headaches by putting downward pressure on the yuan. These are consolations for the United States as it grapples with the geopolitical consequences of high interest rates.

Persons: Joe Biden, Kevin Lamarque, Joe Biden’s, doesn’t, Liz Truss, haven’t, Paul Tucker, “, Fitch, Peter Thal Larsen, Thomas Shum Organizations: Air Force, Joint Base Andrews, REUTERS, Reuters, Federal Reserve, International Monetary Fund, Bank of England, AAA, AA, United, Bank for International, Initiative, Thomson Locations: Lewiston , Maine, Joint Base Andrews , Maryland, U.S, Israel, Ukraine, China, United States, Europe, Asia, Russia, Britain, Washington, Republic

☆ The insurance limit on your savings has become a hot global debate
▼ + stars: | 2023-04-28 | by ( Julia Horowitz | ) edition.cnn.com time to read: +8 min

The US Federal Deposit Insurance Corporation insures deposits up to $250,000 per person, per account, using a fund that banks pay into. “I don’t think that’s served us well.”Some argue the US deposit insurance limit should be 100 times higher. What is deposit insurance? Deposit insurance is aimed at calming fears, giving customers less reason to pull their cash out in a hurry. The debate over deposit insurance taps into bigger questions about the state’s role in private enterprise.

☆ Economic war with China would be MAD
▼ + stars: | 2023-02-14 | by ( Hugo Dixon | ) www.reuters.com time to read: +7 min

Hopefully, fear of the economic equivalent will do a similar trick when it comes to a showdown with China. To see whether MAD will be enough to prevent war between America and China, look at just how disastrous such a conflict – which could be triggered by a Chinese invasion of Taiwan - would be. THREE SCENARIOSA Chinese invasion of Taiwan would lead to economic repercussions of a totally different order. A Chinese invasion of Taiwan would be hellish, but some scenarios would be especially ghastly from an economic perspective. Despite all these concerns, America might run the risk of economic war.

Commercial banks are paid interest on the reserves by the BoE at whatever is the BoE's current interest rate - just 0.1% a year ago, but 3% now and likely to rise further. But now the BoE makes losses because the interest paid on reserves exceeds income from its QE bond holdings. Bailey said the current structure of paying interest fully on all reserves was the simplest way for the BoE to ensure its interest rate changes are transmitted through the financial system. He disagreed with descriptions that this was free money for banks, since they had their own funding costs to meet that also rose with central bank interest rates. Another former BoE rate-setter, Gertjan Vlieghe, on Thursday said it would be a "disaster" to stop paying interest on reserves, even partially - akin to a default on debt.

LONDON, Nov 24 (Reuters) - The Bank of England will not accept interference with the system of paying interest to banks from reserves issued by the central bank, BoE Chief Economist Huw Pill said on Thursday, pushing back against talk that change is needed. Some former BoE officials have said the central bank should alter its system of paying interest to banks on its 950 billion pounds ($1.15 trillion) of reserves, the vast majority of which the BoE issued to finance its quantitative easing programme. Pill's comments are likely to be interpreted as a warning to the government, which ultimately decides how interest on reserves are paid. Commercial banks are paid interest on the reserves by the BoE at whatever is the BoE's current interest rate - just 0.1% a year ago, but 3% now and likely to rise further. However, another former BoE rate-setter, Gertjan Vlieghe, said on Thursday it would be a "disaster" to stop paying interest on reserves, even partially - citing recent concerns about Britain's institutional credibility.

☆ Sam Bankman-Fried did financial system a favour
▼ + stars: | 2022-11-15 | by ( Peter Thal Larsen | ) www.reuters.com time to read: +5 min

LONDON, Nov 14 (Reuters Breakingviews) - Sam Bankman-Fried has tipped the cryptocurrency industry into crisis. But the spectacular implosion of FTX, the exchange he founded, has done the broader financial system a big favour. Bankman-Fried, widely known as SBF, was eager for regulators in the United States and elsewhere to recognise crypto exchanges like FTX. In that sense, he’s done the financial system a favour. FTX founder Sam Bankman-Fried has previously told Reuters some of the transfers out of FTX were a result of “confusing internal labelling”.

For the second time in less than three years, the Bank of England has made an emergency intervention in the market for UK government bonds. Investors rushed to liquidate assets, including money market funds which held UK government bonds. The latest intervention was triggered by excessive leverage in UK pension funds, which had borrowed to boost returns using a strategy known as liability-driven investing (LDI). To prevent future blow-ups, regulators could cap money market funds’ exposure to less liquid assets, reducing the risk of a run by investors. Financial market regulators in European fund centres like Ireland and Luxembourg have stepped up surveillance of LDI strategies used by UK pension funds, the Financial Times reported on Oct. 28.

☆ The politics and economics of superpower rivalries: podcast
▼ + stars: | 2022-11-08 | by ( Peter Thal Larsen | ) www.reuters.com time to read: 1 min

LONDON, Nov 8 (Reuters Breakingviews) - Are America and China heading for a showdown, and what does it mean for the world order? In this edition of the Exchange podcast Paul Tucker, former deputy governor of the Bank of England, discusses the financial and foreign policy fallout and his new book, “Global Discord”. Listen to the podcastFollow @peter_tl on TwitterloadingEditing by Thomas ShumOur Standards: The Thomson Reuters Trust Principles. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ UK should consider interest cut on banks' BoE reserves - former deputy governor
▼ + stars: | 2022-11-01 | by ( ) www.reuters.com time to read: +2 min

LONDON, Nov 1 (Reuters) - Britain should consider changing the Bank of England's policy of paying interest to banks on the reserves they hold there, former BoE deputy governor Charlie Bean said on Tuesday. Banks are paid interest on the reserves at whatever is the BoE's current interest rate - just 0.1% a year ago, but 2.25% now and set to rise further. Those flows have reversed: now the government foots the bill for any losses the BoE makes as it pays higher interest on bank reserves issued for its QE programme. BoE Governor Andrew Bailey has said the current system is essential to transmit changes in the BoE's official interest rate through to the wider economy. However Tucker, who was deputy governor from 2009 to 2013 and is now a researcher at Harvard University, said similar effects could be achieved by paying interest on just 100 billion pounds of reserves.

The stakes are high as it potentially affects the future use and effectiveness of extraordinary monetary policies such as bond-buying 'quantitative easing' (QE) and questions the wider political independence of central bank policymaking. The European Central Bank, Bank of England and U.S. Federal Reserve are all - to differing degrees - now facing a backwash from years of policy-driven but lucrative balance sheet expansion. As they lift interest rates, that balance sheet burns a hole in their pockets - or more particularly the pockets of their governments long used to windfalls coming the other way. That will surely climb as the BoE is expected to at least double its policy rate, the rate paid on bank reserves, by May. G4 central bank balance sheetsThe easy-money era is overReuters Graphics Reuters GraphicsThe opinions expressed here are those of the author, a columnist for Reuters.

☆ Analysis: Decade of central bank largesse haunts taxpayers as losses loom
▼ + stars: | 2022-10-25 | by ( Francesco Canepa | ) www.reuters.com time to read: +6 min

Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. The British government, which received 120 billion pounds in profits from the BoE since 2009, has already earmarked a transfer of 11 billion pounds for the central bank. It will contribute to losses of around 40 billion euros for euro zone central banks next year, according to Morgan Stanley. They have all warned of upcoming losses and the Dutch central bank openly said it risked needing a bailout, although finance minister Sigrid Kaag later cautioned this was "not yet on the table". By contrast, central banks with less cash and higher-yielding bonds in Italy, Spain and Greece were likely to fare better.

☆ Bank of England bond stockpile incurs first loss for UK public finances
▼ + stars: | 2022-10-21 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 21 (Reuters) - The Bank of England's stockpile of government bonds has incurred the first loss for the public finances since the central bank launched its quantitative easing programme in 2009, data showed on Friday. The British Treasury indemnifies the BoE for its bond portfolio which until now has generated profits for the public finances. British banks hold around 950 billion pounds of reserves at the BoE, largely as a result of the 838 billion pounds of QE purchases that the central bank has yet to reverse. The BoE said earlier this year that it had transferred a total of 120 billion pounds to the Treasury in profits from QE since it began buying bonds in 2009. ($1 = 0.8984 pounds)Register now for FREE unlimited access to Reuters.com RegisterWriting by William Schomberg; Editing by Hugh LawsonOur Standards: The Thomson Reuters Trust Principles.

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