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Alfonso Prat-Gay's presentation at Re-Examining Central Bank Orthodoxy for Un-Orthodox Times Roundtable
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To Teach People a Lesson or To
Solve the Problem? Take Your Pick! Alfonso Prat-Gay
Re-Examining Central Bank
Orthodoxy for Un-Orthodox Times
March 25 – 27, 2012
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank)
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank)
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank)
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank)
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank) and Debt/GDP @ 165%
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank) and Debt/GDP @ 165%
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank) and Debt/GDP @ 165%
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank) and Debt/GDP @ 165%
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank) and Debt/GDP @ 165%
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank) and Debt/GDP @ 165%
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
JUST TEN YEARS! IT´S BEEN JUST TEN YEARS
• Poverty rate @ 57%
• Inflation @ 40%
• Provincial quasi-currencies @ 39% of base money
• Sovereign default (including with World Bank) and Debt/GDP @ 165%
• Deposit freeze: 1/3 of deposits
• Banking crisis:
- Non performing loans @ 37%
- Rediscounts @ 105% of NW and 37% of deposits
- Credit to private sector @ 30% of peak (i.e. down 70%)
- Balance sheets
- ROE @ -50%
• “Pesified” claims (lawsuits @ 20% of bank deposits)
• All financial markets fully shut down (∞ counterparty risk)
ARGENTINA, CIRCA END 2002
CENTRAL BANKS MUST BE PART OF THE SOLUTION
BUT
THEY FACE FISCAL, FINANCIAL, STATE/LOCAL AND JUDICIARY DOMINANCE
A HELPFUL ROADMAP
A HELPFUL ROADMAP
1. Know the size of the bill
2. Find out how deep is your wallet
A HELPFUL ROADMAP
1. Know the size of the bill
2. Find out how deep is your wallet
3. Draw the line (somewhere)
4. Plan (way) ahead the next move
5. Whenever possible, be ahead of the market
A HELPFUL ROADMAP
1. Know the size of the bill
2. Find out how deep is your wallet
3. Draw the line (somewhere)
4. Plan (way) ahead the next move
5. Whenever possible, be ahead of the market
6. Listen not to special interests
7. Be bold (it pays)
A HELPFUL ROADMAP
1. Know the size of the bill
2. Find out how deep is your wallet
3. Draw the line (somewhere)
4. Plan (way) ahead the next move
5. Whenever possible, be ahead of the market
6. Listen not to special interests
7. Be bold (it pays)
Accurate diagnosis
A HELPFUL ROADMAP
1. Know the size of the bill
2. Find out how deep is your wallet
3. Draw the line (somewhere)
4. Plan (way) ahead the next move
5. Whenever possible, be ahead of the market
6. Listen not to special interests
7. Be bold (it pays)
Accurate diagnosis
Time consistency
(time is money)
A HELPFUL ROADMAP
1. Know the size of the bill
2. Find out how deep is your wallet
3. Draw the line (somewhere)
4. Plan (way) ahead the next move
5. Whenever possible, be ahead of the market
6. Listen not to special interests
7. Be bold (it pays)
Accurate diagnosis
Time consistency
(time is money)
“Benevolent dictator”
A HELPFUL ROADMAP
1. Know the size of the bill
2. Find out how deep is your wallet
3. Draw the line (somewhere)
4. Plan (way) ahead the next move
5. Whenever possible, be ahead of the market
6. Listen not to special interests
7. Be bold (it pays)
Accurate diagnosis
Time consistency
(time is money)
“Benevolent dictator”
DON´T PAY ATTENTION TO THE REAR-VIEW MIRROR
TOO MUCH DEBT, TOO LITTLE COMPETITIVENESS
TOO MUCH DEBT, TOO LITTLE COMPETITIVENESS
TOO MUCH DEBT, TOO LITTLE COMPETITIVENESS
TOO MUCH DEBT, TOO LITTLE COMPETITIVENESS
TOO MUCH DEBT, TOO LITTLE COMPETITIVENESS
TOO MUCH DEBT, TOO LITTLE COMPETITIVENESS
TOO MUCH DEBT, TOO LITTLE COMPETITIVENESS
THE ECB BALANCE SHEET IS JUST A PAIN KILLER, NOT A SILVER BULLET
SLOW MOTION IS JUST THAT: IT WON´T SPARE YOU
THE BAD OUTCOME
SLOW MOTION IS JUST THAT: IT WON´T SPARE YOU
THE BAD OUTCOME
SLOW MOTION IS JUST THAT: IT WON´T SPARE YOU
THE BAD OUTCOME
AIR BAG OR ENGINE? TAKE YOUR PICK!
SLOW MOTION IS JUST THAT: IT WON´T SPARE YOU
THE BAD OUTCOME
