Yield-curve mystery, Kuroda's personal history, thirteen ways of looking at money & more drones than men
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Maki Na Kamura, La Guerre VII, 2021
Na Kamura was born in Osaka, studied in Dusseldorf and now lives in Berlin. Her art reflects a hybridity of spaces, of cultures and of times too:
Given her background, many critics highlight the competing polarities of Japanese and Western influences in her paintings, but the reality is more complex. Japanese art has long informed European painting. Na Kamura elaborates, “Hokusai compensated for his lack of knowledge of perspective with his pictorial inventions. Sesshu built his pictorial space into the painting. Had Cézanne known about this, he would have been spared his labours.” Furthermore, Na Kamura does not categorize. She sees her work as both figurative and abstract and that these styles, often thought of as distinct, developed in tandem throughout the history of art.
Dichotomies do not exist to Na Kamura, and style and time are fluid. Seeing herself “as both a traditionalist and as a painter of the twenty-first century”, for the new works on view, the artist pulls structure from as diverse sources as the paintings by Italian Renaissance master Luca Signorelli and the choreographed gestures of contemporary K-pop dancers.
Source: Michael Werner Gallery
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Yield-curve inversion mystery
There is rising confidence in a US economic soft landing but a classic recession-predictor in markets is still flashing red — the so-called inversion of the yield curve. Normally, the longer the term of a bond, the higher the yield as investors seek compensation holding the debt at a greater time and the extra risk that entails. When the yield curve inverts, yields on short-term bonds rise above longer-term ones. It has been seen as a harbinger of bad economic times because it implies expectations that interest rates will be lowered in the longer term to stimulate growth. Are investors missing something or is it this time a red herring?
Source: FT
The Fed’s bank money machine
One reason the crisis did not spread in 2023 is that the Federal Reserve contained it with a new—and generous—loan programme. Unfortunately, that has come at a cost that the Fed should have foreseen. Thanks to another turn in the interest-rate outlook, its intervention has mutated into a free-money machine for any bank brazen enough to exploit it. The bank term funding programme (btfp) offers banks loans secured against the face value of Treasury bonds. The idea was to stop wobbly banks having to sell Treasuries to raise cash if depositors fled. At svb, a fire sale induced by a bank run crystallised losses, because higher rates had reduced the prices of long-term bonds far below their face value. But the btfp lends the face value, rather than the market value, of the securities against which its loans are secured and, sure enough, its generosity succeeded in shoring up the system and stopping what could have become a severe crisis.
Today, however, the btfp is itself causing trouble. The interest rate that banks must pay to borrow reflects, with a small premium, the one-year interest rate set in financial markets. That is in turn based on predictions of the average Fed policy rate over the next year. Because investors are betting the central bank will cut rates significantly, the cost of borrowing today is only 4.8%. Yet because those rate cuts have not yet happened, the Fed still pays banks 5.4% on their cash balances. In other words, banks can draw loans just to make a spread of 0.6 percentage points, risk-free, at the expense of the central bank. Naturally, the use of the btfp has shot up. Since the start of November outstanding balances have risen from $109bn to $147bn. What should the Fed do? In the heat of the crisis it rashly promised to keep the btfp open until March 2024. It has since strongly hinted that the facility will cease making new loans then.
Shutting the btfp early could undermine the credibility of the Fed’s promises. But it should immediately amend the interest rate on new loans, either to track its policy rate or to appropriately price the prepayment option. Either fix would remove the scope for arbitrage. In the next crisis the Fed should design its interventions more carefully. A central-banking rule named after Walter Bagehot, a 19th-century editor of The Economist, prescribes that central banks should lend freely to solvent institutions that are threatened by bank runs, against good collateral and at a penalty rate of interest. By lending at generous rates, with a reverse-haircut, and to banks that might be insolvent on a mark-to-market basis, the Fed has arguably violated all three of Bagehot’s conditions. The crisis in 2023 was ugly, but so was the fix.
Source: The Economist
Gold Riches Fuel Sudan Militia’s War
Sudan’s paramilitary Rapid Support Forces group is using large-scale proceeds from gold mining to fund its devastating war against the nation’s army, according to United Nations investigators. The UN report also described as “credible” allegations that the United Arab Emirates has helped supply the RSF via neighboring Chad, citing local witnesses — something the Gulf nation denies. And it said violence by the RSF and allied militias may have killed as many as 15,000 people in one city in the Darfur region in 2023 — a figure that would outstrip the UN’s previous toll for the entire nine-month conflict.
Source: Bloomberg
Thirteen Ways of Looking at Money
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Maki Na Kamura, See XXIII, 2016
The Nixon shock in Japan
Haruhiko Kuroda completed his 10-year term as governor of the Bank of Japan in April 2023.
After graduating from the University of Tokyo, Kuroda joined the Ministry of Finance in 1967. While he was studying in the U.K., his letters to The Economist magazine attracted the attention of renowned economist Roy Harrod.
While working in international finance and taxation, Kuroda faced the "Nixon Shock," the oil crisis and the bursting of Japan's "bubble economy." After serving as vice minister of finance for international affairs, and later as the president of the Asian Development Bank, he was approached by then-Prime Minister Shinzo Abe in 2013 to become governor of the Bank of Japan, which he accepted as his calling to help end deflation. His bold monetary easing lifted the sense of stagnation that had weighed on the country.
This English translation is the first of a 29-part series and the latest installment of Nikkei's "My Personal History" ("Watashi no Rirekisho"). The Japanese series was published in November.
Source: Nikkei
Swiss under scrutiny
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Latin American Ageing
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Anti-fascist music
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Japanese moon landing
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More drones than soldiers
Ukraine’s president Volodymyr Zelensky has promised that in 2024 the country’s military will have a million drones. His nation already deploys hundreds of thousands of small drones, but this is a major change – a transition to a military with more drones than soldiers. What does that mean for the future of war? Small drones, many of them quadcopters that are available to consumers, have played a key role. … They are often known as Maviks after the common Mavic drone made by Chinese firm DJI. Russian soldiers soon copied these tactics.
The drone war accelerated in late 2022, with the introduction of first-person view (FPV) racing quadcopters repurposed as guided weapons. The powerful motors of these versions mean they can carry an anti-tank warhead 20 kilometres to destroy tanks, artillery and other targets. FPVs can chase down speeding trucks, enter buildings and bunkers through windows and doorways, or dive into trenches, and they have been built in large numbers. Commanders on both sides were initially sceptical about using consumer drones on the battlefield, and procurement has largely been via volunteer groups, donors or soldiers buying drones themselves. But governments are now driving the efforts. … Ukraine deployed an estimated 200,000 of them in 2023, mainly FPVs and Mavik types, something made possible by the low-cost, off-the-shelf nature of the technology, in contrast to the usual slower military procurement process. “Over 50 per cent of equipment and personnel are destroyed by drones, and the other 50 per cent are destroyed with assistance from drones,” according to one volunteer quoted by United24, a fundraising initiative set up by Zelensky that has helped buy the devices. A key factor to the rise of the drones has been the fast speed with which new ones can be deployed and how $400 FPVs can be fielded in a much larger numbers than $200,000 Javelin anti-tank missiles.
Source: New Scientist
Maki Na Kamura, Horizon, Rainbow, Horizon, 2014.