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Frances Coppola

Frances Coppola

I’m Frances Coppola, writer, singer and twitterer extraordinaire. I am politically non-aligned and economically neutral (I do not regard myself as “belonging” to any particular school of economics). I do not give investment advice and I have no investments.Coppola Comment is my main blog. I am also the author of the Singing is Easy blog, where I write about singing, teaching and muscial expression, and Still Life With Paradox, which contains personal reflections on life, faith and morality.

Articles by Frances Coppola

Shut down the ratings agencies

8 days ago

Remember Friday Night Is Downgrade Night, from the Eurozone crisis? It’s back. Last night, Fitch Ratings downgraded the UK to AA-, negative outlook. Here’s their rationale:

The downgrade reflects a significant weakening of the UK’s public finances caused by the impact of the COVID-19 outbreak and a fiscal loosening stance that was instigated before the scale of the crisis became apparent. The downgrade also reflects the deep near-term damage to the UK economy caused by the coronavirus outbreak and the lingering uncertainty regarding the post-Brexit UK-EU trade relationship. The commensurate and necessary policy response to contain the COVID-19 outbreak will result in a sharp rise in general government deficit and debt ratios, leading to an acceleration in the deterioration of public

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When is the right time for UBI and helicopter money?

9 days ago

“Give me chastity and continence, but not yet,” sighed St. Augustine in his Confessions. Today, as the world reels under the impact of coronavirus, policymakers are at last reaching for tools I have long advocated: helicopter money and Universal Basic Income. And yet, like St. Augustine, I find myself sighing, “Lord, grant us helicopter money and Universal Basic Income, but not yet.”I have spent much of the last decade advocating giving people money. Helicopter money in recessions, to boost spending and kickstart recovery: and Universal Basic Income (UBI), to set a floor under incomes and ensure that no-one is ever left without the means to live. Now, because of the coronavirus, both are for the first time being widely, and seriously, considered. The US Government is about to give

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Too Good To Be True

March 5, 2020

"USD-backed stablecoin is 10x better than your savings account," runs the headline on an unsolicited press release in my inbox yesterday. And it goes on to explain:
The average interest rate for savings accounts in the US currently stands at 0.09%, with some German banks even charging negative interest rates.

Universal Protocol, a coalition of leading blockchain organizations, including Uphold, Cred, Blockchain at Berkeley, and Bittrex Global, has recently introduced interest rates of 10% p.a. for its USD-backed stablecoin UPUSD. 
Ok, so they are issuing an altcoin at high interest rates. Why are they comparing this with FDIC-insured savings accounts?
The UPUSD is a fully-transparent digital asset that is collateralized 1-to-1 with US dollars and held at US-domiciled, FDIC-insured

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Central banks and Coronavirus

March 3, 2020

Coronavirus is scaring the world. Last weeks’ stock market crash was the worst since 2008. And yields on safe assets, especially U.S. Treasuries, are crashing as investors dump anything they see as remotely risky. I suppose if you fear sudden death, you want your assets to be safe – though I sometimes wonder if investors understand that you can’t take them with you.Anyway, central banks are of course responding to the market panic. The Fed has just announced a 50 basis points cut in interest rates. Here’s the FOMC’s mercifully brief statement in full (my emphasis):
The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the

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A tale of two halves

February 21, 2020

When the banks fell over, they knocked the stuffing out of the British economy. The UK’s productivity has been dismal ever since. Unemployment has fallen to historic lows and wages are rising, but productivity growth remains near zero. This “productivity puzzle,” as it is known, has had economists scratching their heads for best part of a decade.But UK productivity is a tale of two halves. Experimental statistics recently released by the Office for National Statistics (ONS) reveal widely varying productivity levels across the UK. “Productivity grew in half of the 12 regions and countries of the UK in 2018,” says the ONS, “with output per hour increasing in both Scotland and the East Midlands by more than 2%; in contrast, output per hour fell in Yorkshire and The Humber and in Northern

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Much Ado About Nothing

February 17, 2020

The Fed’s interventions in the repo market are attracting considerable comment. A lot of people seem to think the Fed has embarked on another QE program without Congressional approval. And the usual suspects are complaining that the Fed is pumping up stock prices and debasing the dollar.  Stocks are indeed heading for the moon – though so is the dollar, which rather undermines those who think it is being debauched. But the Fed’s interventions in the repo markets have nothing to do with stock prices. They are all about banks.Last September, sudden spikes in the Fed Funds Rate (FFR) and its repo market equivalent, the Secured Overnight Funding Rate (SOFR), caught the Fed off guard. It  acted quickly, injecting copious quantities of reserves to bring the rates down. But this was by any

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The NI Fund’s reserves don’t pay down the National Debt

January 13, 2020

The NI Fund discussed in this post covers England, Wales and Scotland only. Northern Ireland has a separate NI Fund, which is excluded from the figures given in this post. However, it works in exactly the same way as the Fund discussed here. Sometimes the government is its own worst enemy. HM Treasury’s hamfisted response to this Freedom of Information request from Trudy Baddams of the pension rights campaign group "We Paid In, You Paid Out", has caused a very silly storm.Ms Baddams asked this question:
Can you confirm that the National Insurance Fund (NIF) is presently in surplus and by
how much? Can you also please confirm how much has been paid from the fund
into the National Insurance Investment Fund in the last 10 years?
In response, HM Treasury pointed her to the NIF accounts,

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The blind Federal Reserve

December 10, 2019

Ever since the secured overnight repo rate (SOFR) spiked to 10% in September, there have been dire warnings that these exceptional movements show the financial system is fundamentally broken. The story goes that the post-crisis financial system is so dysfunctional that it is unable to operate without continual injections of money from central banks. The Fed’s attempt to reduce the $4.2tn of reserves it added to the financial system in three rounds of QE has dangerously destabilised the financial system, so it has now had to re-start asset purchases to restore the lost reserves and refloat tottering banks.It’s fair to say that much has changed since the financial crisis. Prior to 2008, banks maintained far lower levels of reserves than they do now, typically at or just above their

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Hitting the wall

November 18, 2019

It is 2.30 am, and I can’t sleep. Today I must file my final piece for American Express’s FXIP blog, which is being mothballed. Writing for that blog has been my main source of income for the last four years. Once it is gone, my income will once again become precarious and inadequate, as it has been all too often in the past. Hence my sleeplessness.To be perfectly honest, I’m not sorry that the blog is closing. I’ve done some interesting work for it, and learned a lot. And it has been a reliable source of income during the difficult times of the last three years. For that, I am grateful. But I don’t enjoy writing for it. The house style is dry to the point of desiccation, devoid of all opinion, emotion and metaphor. It is also SEO-driven, so I am constantly trying to find ways of

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Quo Vadis?

October 13, 2019

When even anti-EU tabloids say the Government’s official position on Brexit is insincere, it is time to take it seriously. On Tuesday last week, The Sun reported that the European heads of government had concluded that Johnson’s latest genius plan to create a "double border" on the island of Ireland wasn’t a serious attempt to negotiate a Brexit deal. "They believe his insistence the dossier be kept secret is an effort to disguise the fact it is designed to set up a “blame game” with Brussels," it said.An hour after The Sun published its article, Sky News released a briefing from an unnamed "No. 10 source" on a phone call between Boris Johnson and the German Chancellor, Angela Merkel:
"The call with Merkel shows the EU has adopted a new position. She made clear a deal is overwhelmingly

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The high price of dollar safety

August 27, 2019

The world is saving like crazy. Corporations are building up cash mountains that they can’t or won’t invest in expanding their businesses. Individuals are building up pensions and precautionary savings. Governments, especially in developing countries, are building up FX reserves. The “savings glut,” as former Fed chairman Ben Bernanke dubbed it, shows no signs of dissipating. It is sloshing around the world looking for a productive home. But there isn’t one – or at least, not one that offers the safety that fearful investors desperately crave. That, fundamentally, is what is driving down the returns on assets.
It is also the primary cause of the wide US trade deficit. The President likes to think that the reason for the US’s persistent trade deficits is unfair trade practices and

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Currency Wars and the Fall of Empires

August 25, 2019

This post was first published on Pieria in July 2013. I have re-posted it here on Coppola Comment because it now seems terribly, terribly timely. I have been reading James Rickards’ book Currency Wars. In this, Rickards reviews the use of fiat currency over the course of the last century, and concludes that the present global fiat currency system is inherently unstable and on the point of collapse. He calls for return of the gold standard to stabilise firstly the US dollar and, following on from that, international trade currency.I am no historian, but the first thing that struck me about this book was its partial view of history. Rickards does not discuss the reasons for the classical gold standard being abandoned in 1914. Indeed since he writes almost entirely from an American

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The Broken Contract

August 14, 2019

So the Lord God said to the serpent, “Because you have done this, cursed are you above all livestock
and all wild animals!
You will crawl on your belly
and you will eat dust
all the days of your life.
And I will put enmity
between you and the woman,
and between your offspring and hers;
he will crush your head,
and you will strike his heel.”
To the woman he said,
“I will make your pains in childbearing very severe;
with painful labor you will give birth to children.
Your desire will be for your husband,
and he will rule over you.”
To Adam he said, “Because you listened to your wife and ate fruit from the tree about which I commanded you, ‘You must not eat from it,’ cursed is the ground because of you;
through painful toil you will eat food from it

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Yield curve weirdness

July 21, 2019

Yield curves have gone mad. Negative yields are everywhere, from AAA-rated government bonds to corporate junk. Most developed countries have inverted yield curves, and a fair few developing countries do too:(chart from worldgovernmentbonds.com)Negative yields and widespread yield curve inversion, particularly though not exclusively on safe assets. To (mis)quote a famous pink blog, this is nuts, but everyone is pretending there will be no crash.Here, for your enjoyment, is an à la carte selection of the most lunatic government yield curves. You can find lots more here.Exhibit 1: Switzerland.
Negative yield already extends beyond 30 years, and markets are pricing in further interest rate cuts and/or QE, or indeed anything to stop the Swiss franc appreciating as scared investors pile into

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The Case for People’s Quantitative Easing

July 10, 2019

Last night, the Resolution Foundation hosted a debate to launch my book, "The Case for People’s Quantitative Easing". A great panel consisting of Jagjit Chadha, Director of NIESR; Fran Boait, Executive Director of Positive Money; and James Smith, Research Director of the Resolution Foundation, debated my ideas with immense verve, ably moderated by Torsten Bell, Chief Executive of the Resolution Foundation. You can watch the debate here.In 2008, QE did a great job of supporting asset prices and preventing the disastrous deflationary spiral of the 1930s. But since then, enormous quantities of asset purchases by central banks around the world have proved unable to raise aggregate demand and kickstart growth.Although central banks didn’t do a bad job in the last recession, many of the tools

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The Troubles of Kier

June 18, 2019

Yesterday, the outsourcer Kier Group announced a major restructuring. The announcement makes grim reading. The company will divest or close down three of its business lines, with the loss of 1,200 full-time equivalent (FTE) jobs, half of them by the end of this month. The dividend will be suspended for two years. Kier’s share price fell on the news, closing down 17.43%.Remarkably, some analysts took the restructuring announcement as a "buy" indication, which might explain why its share price has recovered slightly today. I wouldn’t, personally. Kier is in big trouble, and has been for some time. Admittedly, Andrew Davies, its new CEO, has wasted no time in getting to grips with the company’s problems: the proposed restructuring is certainly drastic. But given how difficult the

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European banks and the global banking glut

June 7, 2019

In a lecture presented at the 2011 IMF Annual Research Conference, Hyun Song Shin of Princeton University argued that the driver of the 2007-8 financial crisis was not a global saving glut so much as a global banking glut. He highlighted the role of the European banks in inflating the credit bubble that abruptly burst at the height of the crisis, causing a string of failures of banks and other financial institutions, and economic distress around the globe. European banks borrowed large amounts of US dollars through the money markets and invested them in US asset-backed securities via the US’s shadow banking system. In effect, they acted as if they were US banks, but in Europe and therefore beyond the reach of US bank regulation. This diagram shows how it worked (the “border” is the

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Dissecting the Eurozone’s (lack of) inflation

June 4, 2019

Eurozone inflation is in the doldrums again. After perking up to 1.7% in April, it slumped back to 1.2% in May. According to Bloomberg, this was "lower than expected". But I wonder who, apart from the ECB, really expected anything else. Core inflation has been well below target for the last five years:

(chart from Bloomberg)And although the headine HICP measure increased in 2016-18, this was mostly due to the oil price bouncing back from its 2014-15 slump:

(chart from Macrotrends)The wild swings in the energy inflation rate can be clearly seen on this chart from Eurostat:

It’s perhaps not obvious at this resolution, but the movement in headline HICP is almost entirely due to the energy price.In fact comparing the inflation and oil price charts, it is hard to see much justification

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The Abominable Laffer Curve

June 3, 2019

It’s been pretty quiet in Lafferland since the Brexit referendum. All the talk has been of trade and sovereignty, not deregulation and tax cuts. But there’s nothing quite like a Tory leadership election to bring supply-siders out of hibernation. So here is Sajid Javid singing an old sweet song to attract the votes of Tory party members:

Cutting tax rates could bring in billions of extra revenue, which would mean:
More nurses ?‍⚕️?‍⚕️
More teachers ?‍??‍?
More police ?‍♂️?‍♀️"I would cut [top rate] if it brings in more revenue and gives us better public services" – @sajidjavid #TeamSaj pic.twitter.com/MxVUVcI5q2
— TeamSaj (@TeamSaj) June 2, 2019

Cutting taxes for the rich in order to generate more public revenue. The Laffer curve is back.Not that it has been absent for long, really.

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Despair deaths and regional inequality

May 15, 2019

I can’t stop looking at this table. Mortality rates in England rose between 2011-16 for teenagers and most working-age adults under 50:

That’s bad enough. But what should give all of us pause is the reason that Public Health England (PHE) gives for rising mortality among young and middle-aged adults:
Among people aged 20-44, an increase in mortality rates from accidental poisoning had a negative effect on life expectancy between 2011 and 2016 of -0.06 years in males and -0.11 years in females…. 

Data from ONS indicate that in this age group, over the whole
period from 2011 to 2016, 70% of accidental poisonings were due to drug misuse and 10% were to alcohol.
PHE also notes a slight increase in male mortality rates due to cirrhosis, which is in the top 10 causes of death for men.

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Why targeting productivity is a bad idea

May 13, 2019

Last week I attended a workshop entitled "Enhancing the Bank of England Toolkit," hosted by the Progressive Economy Forum. Presented at the workshop, and underpinning most of the debate, was this report from GFC Economics and Clearpoint Advisers, which was written for the Labour Party and first issued last June. The report was widely criticised at the time, as one of its authors ruefully observed in the introduction to the presentation. Nonetheless, the authors presented it unamended.The report recommends setting a productivity target for the Bank of England in addition to its existing inflation target:
An additional target will be introduced: productivity growth of 3% per annum. The Bank of England
will be required to explain how its policies are impacting upon productivity and,

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An Experiment with Basic Income

May 7, 2019

In 1795, the parish of Speen, in Berkshire, England, embarked on a radical new system of poor relief. Due to the ruinous French wars and a series of poor harvests, grain prices were rising sharply. As bread was the staple food of the poor, rising grain prices increased poverty and caused unrest. Concerned by the possibility of riots, the parish decided to provide subsistence-level income support to the working poor. The amounts paid were anchored to the price of bread. Each member of a family qualified for a payment, so the larger the family, the more they received. In effect, it was a system of in-work benefits.
Subsistence-level income support already existed for the non-working poor. The Poor Laws, first introduced in Elizabethan times, distinguished between different categories of

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The Eurozone’s Long Depression

May 6, 2019

Sectoral balances can tell us so much about what is going on in an economy. Especially when they are expressed as a time series, as in this remarkable chart from the ECB:
Although it is a time series, this is not a rate-of-change chart. The y axis is in billions of Euros, not in percentage growth rates. But the chart nevertheless shows that Eurozone net saving has risen steadily since the financial crisis, except during the Eurozone crisis of 2011-12 when it dipped slightly.
What do we mean by "net saving"? The legend appears to conflate saving with investment, and the brief explanation at the bottom of the chart doesn’t really help. So here’s some simple algebra to sort it out.In national accounting, "saving" is the excess of income over desired consumption. For the private sector, it

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Lessons from the Long Depression

April 13, 2019

A version of this post appeared on Pieria in December 2013. 

In my post “The desert of plenty”, I described a world in which goods and services are so cheap to
produce that less and less capital is required for investment , and so easy to
produce that less and less labour is required to produce them. Prices therefore
go into freefall and there is a glut of both capital and labour. This is
deflation.

There are two kinds of deflation. There is the “bad” kind,
where asset prices go into a tailspin and banks and businesses fail in droves,
bankrupting households and governments and resulting in massive unemployment,
poverty and social collapse. America experienced this in the Great
Depression and narrowly avoided it in the Great Recession. More recently, at least one European

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The desert of plenty

April 13, 2019

This post first appeared on Pieria in November 2013. 

Throughout history, humans have dreamed of plenty. They have
longed for there to be abundant supplies not only of essentials, but of
luxuries. The promise made to the Israelites wandering in the desert was that
they would eventually come to a land “flowing
with milk and honey”. And the vision of the New Jerusalem in Revelation is
of riches
beyond imagination.

Recent forecasts of forthcoming abundance, too, have focused
on the benefits. Imagine a world in which everything was so plentiful that not
only the essentials of life but the luxuries, too, were free. There would be no
need for money, because nothing could be bought or sold; and there would be no
need to work, because there would be no need for income. And if

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Keynes and the death of capitalism

April 13, 2019

In a recent article for the New Statesman, the economics commentator Grace Blakeley makes an extraordinary claim. Writing about the origins of the IMF, she says:
Seventy-five years have passed since these international financial institutions were created in Bretton Woods, New Hampshire, in 1944. Back then, delegates sought to tame the power of international finance, the growth of which helped to cause the 1929 Wall Street Crash and the ensuing Great Depression. JM Keynes – who led the British delegation – arrived at Bretton Woods with the aim of “euthanising” a financial elite he viewed as parasitic on productive economic activity.
I thought that Bretton Woods was about free trade and economic cooperation, not "taming the power of international finance." But I can be wrong. So I

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Weird Is Normal

April 4, 2019

This post was originally published on Pieria in December 2013. Since then, the idea that the long-term real equilibrium interest rate must be equal to or lower than the long-term sustainable growth rate has become much more mainstream. I am just amazed that anyone ever thought it could be otherwise. A long-term real interest rate persistently above the sustainable growth rate cannot possibly be an "equilibrium" rate. As I show in this piece, it can only be maintained through rising inequality. It is by definition ponzi and therefore unsustainable. Periodic financial crashes are inevitable in any system in which growth does not cover the interest on debt. Three years ago, Nick Rowe produced this
post describing a “weird world” – a world in which the equilibrium interest
rate is at or

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Why Central Bankers Don’t Understand Inflation

March 28, 2019

My debut post at CapX develops a theme I have written about many times. Central bankers are tasked with controlling inflation, but they don’t understand it.
For the last decade, central banks in developed countries have been
pursuing policies designed to raise inflation. Quantitative easing, cheap
funding for banks, tinkering with yield curves, low and negative interest rates
– all aim to raise inflation to the ubiquitous 2% target.

Understandably, central banks’ inflation forecasts assume that their
policies will return inflation to target over the medium term. But as time goes
by, and inflation stays stubbornly low, their forecasts are becoming increasingly
difficult to believe. This does not bode well for central banks that depend
above all on credibility…..
Read on here.Related

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Inflation Is Always And Everywhere A Political Phenomenon

March 28, 2019

We don’t understand inflation. Those who lived through the high inflation of the 1970s are convinced that inflation is always and everywhere caused by wage-price spirals. Germans, economic Austrians and Bitcoiners are convinced that inflation is always and everywhere caused by central bank money printing. Small-state supporters are convinced that inflation is always and everywhere caused by profligate governments borrowing and spending excessively. Hard money enthusiasts are convinced that inflation is always and everywhere caused by currency devaluation. Every school of economics has its own theory of inflation.We don’t even know what we mean by inflation. As the Cleveland Fed entertainingly discusses, inflation originally meant expansion of (paper) currency in a manner that resulted

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A Fine Example of Crypto Ignorance

March 14, 2019

The video blogger Crypto Eri (@sentosumosaba) thinks she has evidence that the American Bankers’ Association (ABA) wants the Federal Reserve to adopt Ripple/XRP as its cross-border settlement system. She has found a letter from the ABA which makes three requests to facilitate faster interbank settlement:A liquidity management tool
Interoperability
Access for chartered financial institutions

Hey hey everybody, this looks just like Ripple’s bag, doesn’t it? "You are going to see how perfectly matched XRP is to meet their request," she says.I’ve tracked down the ABA’s letter to which she refers. It responds to a Federal Reserve request for comment on proposals for actions to support interbank settlement of Faster
Payments. Faster Payments are domestic online and automated payments, not

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