Daily Archives: January 16, 2013

The Bundesbank, Germany’s central bank, has decided to move part of its gold holdings from the Federal Reserve Bank in New York and other central banks such as the Banque de France to Frankfurt. This unusual and highly-visible decision is sure to trigger an explosion of media commentary relating both to motivation and implications – especially since Germany joins Iran, Libya and Venezuela in making such a move.

I suspect that Germany’s motivation is purely domestic: officials are responding to growing internal pressures ahead of elections later this year.  Read more

British savers and pensioners are among the biggest losers from the Bank of England’s long-running programme of quantitative easing. This is because the main way QE affects the economy is by holding long-term interest rates below market levels. Annuities are based on long-term rates and, for a 65-year-old man, the income from an average annuity fell by almost 12 per cent in 2012.

The Bank has claimed that such loss of retirement income is offset by the stimulus QE provides to the stock and bond markets in which pensions are invested. However, the extent of this offset is limited for funds that are in deficit and for many people with personal pensions and savings who have been advised to shift their resources out of volatile assets and into fixed-interest accounts. Retirees and others who are living off their savings will continue to suffer financial repression as long as interest rates are held down. They receive a double whammy if inflation remains high, pushing real interest rates further below zero. Read more