#MMF

10 05, 2022

FedFin: Fed is Cautiously Optimistic re U.S. Systemic Risk

2023-02-21T15:48:57-05:00May 10th, 2022|The Vault|

In this report, we assess the new Federal Reserve financial-stability report. Secretary Yellen is also testifying now about systemic risk and sure to get questions on the Fed’s conclusions. We will shortly send you an in-depth report on this hearing, but key to the Fed’s report is a more cautious, but still sanguine outlook. For example, banks are found to be resilient and well-capitalized despite growing Fed concern about indirect risk channels such as asset-market volatility, sanctions-related disruptions to payment…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

8 02, 2022

FedFin: Partisan Impasse Suggests Small Chance for Stablecoin Statutory Change

2023-04-05T12:06:36-04:00February 8th, 2022|The Vault|

Today’s HFSC hearing on stablecoins makes it clear that the bipartisan legislation Chairwoman Waters (D-CA) prefers is at best a long way off. Democrats generally agreed with the President’s Working Group stablecoin report (see Client Report CRYPTO21), with Under-Secretary Liang today not only describing its findings but reinforcing the need for rapid regulatory intervention in concert with substantive statutory change.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

21 01, 2022

Karen Petrou: Few Financial Fall-Out Shelters If Russia Invades Ukraine

2023-04-24T11:51:21-04:00January 21st, 2022|The Vault|

Perhaps nothing says as emphatically that market valuations are divorced from reality as the fact that equity and bond markets are essentially ignoring the increasing risk that Russia invades Ukraine.  Investors have grown used to shrugging off geopolitical risks – see just the brief chills after Russia’s previous invasions of Crimea and Georgia as cases in point.  But this time is different because this time Ukraine is a critical link in Europe’s energy supply, macroeconomic stress in Europe will have immediate global repercussions, and Vladimir Putin is making it more than clear that this time he’s not just playing around with minor nations he thinks of as vassal states.  This time, he will go to the economic map if he believes the Western response to his invasion might pose too much risk to Russia’s economy and his popularity and there’s no reason to doubt him.  As a result, I hope Treasury and the Fed are keeping a careful eye on the Treasury market and global payment system, not to mention on the cyber-security on which core market infrastructure rests.  The threat is all too real.

Treasury has long known that the “nuclear option” when it comes to economic sanctions is denying Russia access to any financial institution with any kind of domicile in the U.S. or any point of access to the U.S. payment system topped off by SWIFT sanctions blocking Russian access to the global payment system.  If Treasury fires these high-powered missiles – and it’s likely to have …

18 01, 2022

Karen Petrou: Inflation’s High Cost to Competition and Comity

2023-04-24T15:18:29-04:00January 18th, 2022|The Vault|

It’s not news that the latest inflation data are disastrous.  Even if they won’t last, as Mr. Powell again assured Congress, it sure is hard to see how the combination of pressures detailed in the inflation data lead to ta rate even close to the FOMC’s median projection for 2022 of 2.6 percent.  This means that real rates will remain negative throughout 2022 and well into 2023.  Indeed, given that the FOMC’s median projection for the near-term fed funds rate never gets above 2.1 percent, even the Fed has tacitly conceded that negative real rates may well be  prolonged absent either divine intervention or another devilishly-deep recession.  In June of last year, I predicted that U.S. inflation would not prove transitory and forecast the political impact finally understood at the highest levels of the Biden White House.  Much is also now being written about the inequality impact I described last year, but little is said about the sum total impact of these sorry facts of life on the financial system.  These may also prove anything but transitory.

The first financial-system impact of high inflation and slow growth for anything but the S&P is both political and structural.  With his back increasingly pushed to the wall by inflation’s toxic equality impact, Mr. Biden defended himself against the latest CPI numbers by arguing that many of them are due to monopolistic price controls best cured by rapid antitrust initiatives such as the one already launched against the meat industry.

Other …

18 10, 2021

FedFin on: Global MMF-Reform Options

2023-06-07T15:52:59-04:00October 18th, 2021|The Vault|

Global regulators have now finalized a framework on which national regulators may base the reforms they deemed necessary after the pandemic sparked profound disruptions in this sector.  However, as with the FSB’s proposed approach, the final framework sets few parameters for jurisdictional action beyond a strong plea for action of some sort that would meaningfully address the redemption and/or liquidity risk the FSB continues to believe presents a threat to national and even global financial stability.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

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