Nobody's Perfect London, wir haben ein Problem
Warum drücken Banker sich so unverständlich aus? Weil sie nicht verstanden werden wollen. Welche Vorteile das bringt, erläutert unser Lieblingsbrite Ian McMaster. Und empfiehlt die vielleicht sicherste Bank der Welt - but now let's switch to English.
Over the next three months, I shall be going on a diet. I shall stop my diet when I reach 75 kilos, more or less my weight when I was a teenager. (Yes, I have a good memory.) Then again, I might stop the diet before that. It all depends, you see - on my mood, on the weather and also on whether the inflation rate rises significantly. I do hope I am making myself perfectly unclear.
That was all complete nonsense or, as we say in English, gobbledygook (also: gobbledygoo). But what I was trying to do was to let you know what my future behaviour might be. In the latest financial jargon, this is known as "forward guidance", something that has become popular with central banks.
A few months ago, the Federal Reserve in the US announced that, at some point in 2013, it was likely to reduce the amount of money that it pumps into the US economy - currently about $85 billion a month. Now, a US (or UK) billion may not be anywhere near as much as a German Billion, but it is still a hell of a lot of money, equivalent to a German Milliarde.
This process of pumping money into the economy now goes by the inelegant name of "quantitative easing" (QE). And the process of reducing this stimulus is known as "tapering". (Hey, pay attention at the back; all this jargon may come in useful at your next dinner party.) QE used to be called "increasing the money supply" which, of course, is far too transparent. "Quantitative easing", on the other hand, sounds like you are just loosening your belt because you have eaten too much.
Confusing? No-one said life was going to be easy
More colloquially, quantitative easing is known as "printing money", even though it doesn't actually involve printing anything at all. Instead, central banks purchase bonds from commercial banks by crediting their accounts at the central bank. Nice trick if you can get away with it. Wouldn't it be lovely if every time you wanted to buy something from another person or company you could just credit their bank account without transferring any money.
Despite all the talk of tapering, the UK and US central banks have indicated in their forward guidance that they will stimulate their economies by keeping interest rates low until unemployment reaches a particular level: 7 per cent in the UK; 6.5 percent in the US. Note those two different ways of writing "per cent/percent". This is one of those UK/US differences that language pedants and sub-editors get very excited about and nobody else gives two hoots about, meaning, as we Brits say, that they "couldn't care less" - or, as the Americans say, that they "could care less". Confusing? No-one said life was going to be easy.
In the past, central banks would simply buy and sell bonds on the market as a way of manipulating interest rates. This is known as "Open Market Operations" (OMO). Nowadays, the central banks' policy of guiding the markets via various announcements has been dubbed "Open Mouth Operations". I am not joking.
The dilemma for central banks is that they often want to guide markets but don't really want anyone to understand what they are saying. If central bankers, such as Canadian Mark Carney, the first foreigner to be governor of the Bank of England, feel they have been too clear (or unclear) in a particular statement, they are likely to make another statement to clarify - that is, confuse - the situation. Pretty much like my opening paragraph in fact: "We'll do A, unless B, C, D, E or F happens, in which case we'll do G, H, I or J." It's the financial equivalent of alphabet spaghetti, designed to tangle everybody up in knots.
Hungry? Why not try some "Dim-sum bonds"
Central banks are currently paranoid (with good reason) that if the financial markets think they are going to withdraw the metaphorical punch bowl from the party guests, then their economies will stagnate before they have reached what Mark Carney has called "escape velocity".
Originally, this term referred to the speed that an object travelling away from a planet needs to reach in order not to be pulled back down again by gravity. In business terms, "escape velocity" refers to the moment when an economy begins to grow fast enough to sustain a recovery and so will not be pulled back into a recession by, for example, a fall in confidence. "London, we've had a problem," you can imagine Carney saying if things go "pear-shaped" or "belly up", meaning "badly wrong".
Ideally, all central bankers want their countries to retain market confidence and to be members of the "Nine-As" club. This isn't really a club at all, but signifies that the country has the highest credit rating - "AAA" or "triple A" - from the three main credit ratings agencies (CRA): Fitch, Moody's and Standard & Poor's. Among the members of this exclusive club are Australia, Canada, Germany, Luxembourg, Norway, Singapore, Sweden and Switzerland. Not Britain and not the US.
If, like me, all this financial talk is making you hungry - I can feel my imaginary diet coming to an end - why not try some "Dim-sum bonds". These are bonds issued outside of China but denominated in renminbi, the Chinese currency. On the other hand, if talking finance just makes you feel nervous, you could always put your savings in what many people think is the world's safest bank - the Banco de Mattress. That's right, under your bed.
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