In December 2011 the ECB embarked on its first 3 year LTRO, or long term refinancing operations. This is basically a secured credit line available to banks posting eligible collateral. LTRO 1 was a great success raising 489 billion EUR which the banks used to purchase sovereign bonds and unwind inter Euro area current account imbalances. LTRO 2 was 529 billion EUR. These initial LTROs were unconditional except for collateral quality. The proceeds were used in the end to buy zero risk weighted assets, sovereigns, and helped Euro area governments to refinance at a time when the bonds markets threatened to close to them. At the same time it allowed banks to borrow cheaply and buy higher yielding assets that consumed little to no capital.

The later TLTROs carried conditions, namely that the banks would be limited to borrowing up to a proportion of their loans to the private sector. The purpose of these conditions was to spur private sector lending. Take up of TLTROs has been slow because for one, the capital consumption of private sector loans is high and so the cost of lending is less impacted by the cheap financing afforded by the TLTROs, and two, private sector demand for credit has been weak.

When the ECB announced QE in early 2016, it also initiated TLTRO II, similar to TLTRO I but with cheaper financing rates, again subject to conditions. Now take up has been very strong, 399 billion at the first auction on June 24. If the high take up is a sign that bank lending is about to accelerate and that demand for credit is rebounding, this would be good news for the Eurozone economy. There are reasons for caution. The TLTRO II auction was opened June 23, the day of the UK EU Referendum. It is very possible that the large take up of LTRO II.1 was simply a risk management reaction to a highly uncertain situation and banks wanted to raise as much liquidity they could.

We are seeing an easing of lending standards and some pick-up in demand for credit from households and businesses but it remains to be seen if this can be sustained. We are a long way from a general releveraging of the economy, which might tilt the balance in favour of equity from debt.

We have seen how effective QE can be. Not very. Not for Main Street at least. For Wall Street, QE has depressed bond yields and helped to camouflage the overvaluation of paper assets supporting them at inefficient levels for too long. More than that, the effectiveness of QE is wearing out like an over prescribed antibiotic. Now the global economy is still growing, not fast, but still growing. The US economy is in rude health. But the progression of inequality coupled with paltry growth means that the mass of the population is actually experiencing falling standards of living, even as aggregate data show improvement.

Lately, the talk of helicopter money has been gaining volume. The practical deployment of helicopter money is fiscal deficit spending funded not by tax but by debt monetization, in other words, QE. So far QE has been less effective probably because it was an attempt to clap with one hand. At last, this failure may be addressed. This may solve some issues and get the economy growing faster, hopefully to compensate for the rising inequality so that the masses may be raised out of their financial stagnation. However, there are a few minor side effects. The national debt will gro. Fiscal policy funded by tax is neutral and ineffective. Deficits will have to be increased. QE will have to continue. Just because it had limited impact in the absence of fiscal policy doesn’t mean we can stop now. Private investors have been happy to join their central banks in funding their governments, but only because there was some semblance of fiscal responsibility. Abandoning fiscal responsibility might result in an investor revolt meaning a backstop financier has to be found. Enter, again, the central banks. Bond yields may rise. Loose money sinks interest rates but loose budgets raises them. The loss of private investment demand will likely put a floor under interest rates. Central banks will have to be careful to not allow financing costs to rise too quickly increasing debt service for the government and for corporates. Bond yields are likely to stop falling, how quickly they will rise depends on the determination for further QE and the risk of investor revolt. Given how indebted countries are to begin with, central banks will likely be very careful to cap debt service for their masters.

Helicopters are usually the sign of a last ditch attempt. Hopefully this is not the case here.

If I told you that it was a good idea to buy a negative yielding bond because I thought the yield would get more negative, thus paying for the potential of a future capital gain, you would probably think I was mad. Or seriously dependent on a greater fool. Or bought an option.

If I told you that I would borrow in the bond market to fund dividends which I could not afford to pay out of cash flow or profits, you would probably think me a fool or a fraud.

If I told you I would borrow in the bond market to buy back my shares because funding was cheap and I didn’t know what else to do you might reasonably question my leadership qualities.

If I told you I would borrow to buy out my competitors you might question my judgment, and if you were the regulator you would certainly question the systemic competitive implications.

If I told you that stocks were cheap relative to sovereign bonds and interest rates despite slowing earnings growth and high absolute valuations you might ask how closely I monitored the bond market.

If I told you I would cut rates even into negative territory to spur lending you might reasonably ask me who wanted to borrow.

If I told you I was making banks safer by asking them to hold more capital, and apply better risk models, you might ask me how I expected them to lend.

If I told you I was going to apply more fiscal stimulus to revive our slowing economy you might ask me how I was going to pay for it.

If I told you I would buy more sovereign bonds, you might ask me where I was getting the money. Well, why do you suppose I might need to issue more sovereign bonds?

Electric vehicles need a little help. It’s no use each manufacturer pursuing their own thing. For EVs to really take off what is needed is agreement on standards.

1. Batteries should be standardized and modularized.
2. Charge the battery, not the car. Charging batteries takes too long. Battery swapping is better than car charging.
3. Batteries should be modular so that more power can be added simply by adding more batteries.
4. Replace petrol stations and charging points with battery points. Battery dispensers provide battery exchanges so depleted batteries can be swapped for fully charged batteries for a fee. This can be automated.
5. Battery dispensers take up little space and can be ubiquitous and distributed.
6. Returned depleted batteries are recharged and recirculated.
7. Cars can be designed with varying maximum battery capacities. Users can decide how many batteries to run with depending on their usage requirements.

Immigration is topical in the wake of the UK EU Referendum. In fact, slowing growth has led to increasing unhappiness over immigration the world over. Yet economists insist that immigration is a good thing for an economy. Is this true? According to a 2014 OECD report, migrants account for 47% of the increase in the work force in the US, and 70% in Europe over the past 10 years, fill important niches in fast growing as well as declining sectors of the economy, are better educated than retiring cohorts, and contribute to labour market flexibility. They also contribute more in taxes and social security than they receive in benefits. Because they contribute to the growth of the labour force, immigrants contribute to the growth potential as well as the realized growth of an economy.

The fortunes of donor countries is less clear. Remittances are a substantial part of developing countries’ GDP. Remittances reduce poverty and fund investment, counts as a credit in the balance of payments and increases the standard of living and reduce inequality between countries. On the other hand, emigration leads to a brain drain from developing countries. Over time, migrants accumulate skills which they can repatriate to their home countries increasing the knowledge base of these donor countries.

For the global economy, net immigration is of course absurd. When economists talk about immigration being good what they hopefully means is that a redistribution or relocation of labour is beneficial. Beneficial for whom is another matter. Let us take an optimistic view and assume that it is good for both destination and source countries for the above reasons. Immigration is good because it moves the global economy towards a better geographical alignment between resources, capital and labour. The distribution of the benefits might not be equitable and it is reasonable to expect that in the short term, the macroeconomic benefits accrue to the destination countries. It is hoped that a reverse osmosis occurs at some stage which compensates for the initial asymmetry of benefits.

The state of the world is never static but hypothetically, if labour was optimally distributed geographically, then immigration could no longer improve growth or productivity. What is important for the immigration argument is not net immigration for any single country or region, but the minimization of friction in labour mobility. And then again the question of for whom this is beneficial emerges. It is remarkable that in most economic commentary and literature immigration is referred to instead of two way labour mobility.