At the Fed, the debate is over normalization of the balance sheet. The Fed has already finished tapering.
In contrast, the ECB is still addicted to a balance sheet build-up. But internal feuding has picked up with Germany and the hawks on one side and doves on the other.
Bloomberg reports ECB Officials Disagree on How Much Is Too Much for Stimulus Plan.
“Underlying inflationary pressure remains subdued” and “we still need a long period of accommodative policy,” Executive Board member Peter Praet, the ECB’s chief economist, told Belgian newspaper De Standaard in an interview published on Saturday. “Inflation is picking up, but that is a process that is a long way from completion,” Praet said. “From an inflation perspective, we cannot be satisfied yet.”
Governing Council member Klaas Knot, speaking on Dutch television on Friday night, warned that the central bank is “very close to the point” of keeping quantitative easing for too long. Knot, noted that the last financial crisis was partly caused by too much money being pumped into the system, and so the ECB should be wary of going too far with stimulus.
“If we carry on with this policy for too long, that is absolutely a potential danger,” he said. “The difficulty is that one cannot determine objectively when the moment is when we have continued with this policy for too long. I think that we have gotten very close to that moment.”
Autumn Review
French central bank head, Francois Villeroy de Galhau, says Autumn the Season to Adapt Stimulus Plan.
The European Central Bank is likely to decide on the next change in its stimulus settings in the fall, when it will continue the process of tweaking its measures to reflect the euro area’s upturn, according to Governing Council member Francois Villeroy de Galhau.
“What we have to do, and what we started to do, is to adapt the intensity of this accommodative monetary policy to the progress toward our inflation target and toward economic recovery,” he said in a Bloomberg Television interview on Saturday. “In the future, and this will be our decision next fall, we will go on adapting the intensity of this monetary policy.”
The French central-bank governor’s remarks may be the most definitive yet on when the ECB will take action on its 2.3 trillion-euro ($2.6 trillion) asset-purchase program, which is currently scheduled to run until the end of the year. While he is just one of 25 Governing Council members who decide monetary policy for the currency bloc, concerns are rising among some of his colleagues that time is running out if they are to avoid undesirable market volatility.
Villeroy de Galhau’s choice of wording — “adapt the intensity” — which he said three times, adds to signs that the ECB intends to pare back stimulus in a way that doesn’t tighten financial conditions. Officials are concerned that while growth is picking up, inflation and wages are not.
Villeroy de Galhau said that what matters most is the real economy, and that the ECB should not let itself be distracted by political pressures or investor impatience.
“The most influential members of the Governing Council are pragmatists,” he said. “I clearly am a pragmatist.”
President Mario Draghi signaled last month that he sees the expanding economy as allowing room for maneuver on stimulus while still maintaining the same level of monetary accommodation.
Volatility Suppression
The pragmatists seek volatility suppression while waiting for 2% inflation.
Volatility suppression, inflation targeting, and market accommodation have created three consecutive bubbles, the third of which central bankers are totally oblivious to.
Knot warns that the central bank is “very close to the point” of keeping quantitative easing for too long.
Actually, there never should have been QE in the first place. Not a single structural problem in the USA or Europe has been addressed in the past 10 years.
The Italian banking system is insolvent. France, Italy, and Greece need massive work rule reform. One size fits all interest rate policy does not work.
Accommodative monetary policy cannot fix structural problems. Rather, it tends to prolong them.
Mike “Mish” Shedlock
“Inflation is picking up, but that is a process that is a long way from completion,” Praet said. “From an inflation perspective, we cannot be satisfied yet.”
In a different era, that would earn him the label “enemy of the people”, and met with appropriate punishment.
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Very good point! Once upon a time, it was a good to have economic growth in an economy without wage and inflation pressures. Today it is suddenly bad to have growth without inflation and wage pressures. Inflation (i.e. currency devaluation) is the central planning remedy for: 1) government deficits to infinity, 2) impossible government social spending promises, 3) peak debt, etc. Bailing out politicians who overspent and overpromised is the real reason for ECB and Fed inflation goals. Obviously Dick Cheney was wrong, deficits do matter.
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“Rather, it tends to prolong them.”….. so that they can be ‘fixed’.
Galhau talks in circles while saying nothing, very pragmatic when you don’t want to be seen to be doing nothing while actually doing nothing.
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It’s calling for more integration and harmonisation of tax and spend.
If the Germans and Dutch don’t like the inflation bought on by the ECB, the ECB should wind back and instead direct monetary transfers occur North to South instead to stimulate the moribund areas.
There’s no way to do it without some cost inflation or otherwise.
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So they will introduce a “national budget subsidy for failed states” or will it just be duplicating highways and paying for housing migrants in southern countries?
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Force German industrialist to set-up shop outside Germany. Bosch spending 2.5Bn euro near Dresden. Why shouldn’t that be near Brindisi instead.
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Just one example.
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If it is corporate tax rates (quick search… TheExpress, no pun)
EU tax rates ranked in order of highest to lowest
1. Malta, 35 per cent
2. Belgium, 33.99 per cent
3. France, 33.3 per cent
4. Italy, 31.4 per cent
5. Germany, 29.72 per cent
6. Luxembourg, 29.22 per cent
7. Greece, 29 per cent
8 / 9 /10. Austria / Netherlands / Spain, 25 per cent
11/12 /13. Denmark / Slovakia / Sweden, 22 per cent
14. Portugal, 21 per cent
15 / 16 / 17 / 18. Britain / Croatia / Estonia / Finland, 20 per cent
19 / 20 / 21. Czech Republic / Hungary / Poland, 19 per cent
22. Slovenia, 17 per cent
23. Romania, 16 per cent
24 / 25. Latvia / Lithuania, 15 per cent
26 / 27. Cyprus / Ireland 12.5 per cent
28. Bulgaria, 10 per cent
And I suppose many lower tax countries also have lower wage levels…but would need to be an accountant to do the whole sum… so just assuming that there is already a large tax and business cost advantage setting up outside of Germany…
What are they going to do? Level taxes and subsidise Bosch to move out of the increase obtained from poorer countries, legislate work creation by EU business permit scheme by regional unemployment level?
I am definitely not an expert at the intricacies of international business and its associated cost structuring, but from a simple base level I don’t see how business will move unless it involves subsidy or allocation of government projects to pre-chosen foreign capability by the official backroom clique?
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We need a long period of mild deflation to allow the average person to finally gain some ground.
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Since most people are in hock up to their eyeballs, wouldn’t a good bout of inflation that put pressure on employers to raise wages to keep up with prices help effectively deflate most people’s debt?
I always thought that inflation was the scourge of the fixed income crowd, and that inflation helped the ordinary Joe by decreasing his mortgage and car payments in real terms.
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Or paying for his boat, and weekend cottage. You really have to adjust your view of what an ordinary Joe can do to himself.
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10-4
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That was @ Maximus.
Mono – a very simplified way of looking at it:
When a new unit of money is created (by fractional debt) that unit draws its worth from all of the money in existence, it takes a tiny fraction of everyone else’s money and adds it up into that new unit. Everyone else has instantly become a little poorer, and the holder of that unit, let us call it a dollar, has become one dollar richer, in the real world – he can buy something for one dollar he could not before.
If you are someone who benefits by having that one dollar spent on your product, you can raise the price slightly because of the new competition, and you can pay your staff slightly more, and they can spend slightly more on prices that are now slightly higher, and borrow slightly more… but are they able to pay down more on their existing debt? Maybe not, it is hard to calculate, but all that might happen is that it remains the same with regards to their disposable income after inflation of prices and wages, but smaller compared to their gross income, follows they will be entitled by the latter to borrow more, or by the fact that their assets have revalued upwards.
It is something of a fools game, so really it is easier to just keep in mind the one simple fact – when new money is created, it is firstly at the cost of current holders of money, savers and fixed wage earners, and the debt used to create that money means total debt has increased as a ratio to existing money. The new money is 100% debt, plus interest. The choice of initial recipient is at the discretion of the lender, the lender is also making sure the borrower will compete for more money than he borrowed to pay the interest. The lender may decide to lend more (lower rates) when that interest is unavailable, so creating it with new money, so further deflating the value of everyone else’s. The lender might make sure the new money is directed to his own profit also, certain assets or politicians or ventures. Etc.
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You took a simple argument, and made it into an abstract argument about debt.
The simple argument was that inflation allows poor imaginary Joe pay his debt, and provide for the basic for his imaginary family. My point was that a legendary Joe has turned into a superconsumer and all debt relieves him from is from his foolish self- indulgence (well, not always).
BTW: your point that new money competing against existing assets is questionable. New money covers the value of new assets (e.g. a new (jumbo)home, because we do not build houses any more). In reality it is written on the tab of ever more depleted nature.
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Inflation redistributes an economy’s real value ad.
-To those whose income derive from ownership of “assets.”
And, necessarily so since the above gets more while the total value added doesn’t increase by simply printing money,
-From those whose income derives from their work.
While most everyone gets some income from both work and “interest”, the wealthier one is, the more of ones income derive from the latter. Hence, sum total, inflation works as a reverse Robin Hood.
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“I always thought that inflation was the scourge of the fixed income crowd, and that inflation helped the ordinary Joe by decreasing his mortgage and car payments in real terms”
You might infer that from Keynesian economic theory, but in the real world the major beneficiaries will be hedge funds and speculators loaded up on mortgages, other financial instruments, and commodities that will benefit. Banks, pension funds and others holding the debt being paid off in devalued currency will be big losers. Thus, “Ordinary Joe” will lose on the pension and fixed income payments expected for retirement, and will probably have to sell his house to compensate. In Weimar Germany, real estate was a loser for locals. Wealthy investors will do best from inflation. The Fed has to be careful they don’t tank their member banks with too much inflation, which is why they want a managed currency devaluation (2%/yr).
Also, any “Ordinary Joe” earning wages will be a loser because price and wage changes are not simultaneous. Wages constantly lag far behind price inflation for food and necessities. No way to keep up once inflation gets going. Like with Obamacare, inflation losers will outnumber winners. Bad policy assumptions will produce 100 million losers for every 10 million winners. And we all know from Obamacare how the mainstream media propaganda machine will spin the inflation story. Sob stories for the 20 million getting Medicaid and freebie subsidies, and no mention of the 280 million screwed up the kazoo by higher prices and lower incomes.
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Well those holding the debt will at least be more likely to be paid and not defaulted on, and borrowers ( say mortgage) will be able to refinance and lower payment costs a little, in combination keeping the value of their assets inflated also.
It all creates a false market though, and those that lose are the wage earners and the younger generation new into the market, as well as anyone who doesn’t use debt as leverage to gain access. The whole system seems designed to oblige participation.
When rates approach zero finance is given near free choice to pick the winners, command economy with valuations becoming arbitrary and unhinged, volatility. Sometimes this is where legislation, government debt/spending steps in to ‘run’ the country by whatever means.
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No this is not the dynamic. If mortgage holders are better off because increasing home values means they are more likely to get paid back (if the guy doesn’t pay at least the house will pay off the loan in foreclosure auction), then you are saying prices are going up….inflation. Well for those refinancing homes that hurts because long term interest rates will rise.
You confused the experience since 2008 with some type of timeless economic law. Short term interest rates were pushed down by Central Bank purchases of assets *but* inflation did not pick up so long term interest rates remained low.
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The widening Gini coefficient disproves that theory. Also the fact that a generation ago one average wage would support a family, and now it takes two.
The trivial gain in not repaying debt is overwhelmed by wages not buying as much at the store. When Joe retires, his 401k and pension are toast due to inflation. Joe average moves ever backward due to inflation.
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There is a saying that goes something like ” A man may have a thousand rooms, but he may only sleep in one of them “. So I find it hard to fathom how a society, in spite of so much technology and gains in productivity, actual goes backwards for the average person in terms of how much of their time they need to commit just to keep level. It simply does not make sense. Even if someone ‘owns the farm’, what sort of management has the horse doing more work for less return? George Orwell gives us some of the answers to questions like that, progressives will point out the greater and improved structure available, socialists the communal benefit, finance the immediate accessibility they offer, but at the end of the day a fact is a fact – when people have less time of their own due to the time paid to simply ensure their own survival, they are on the losing side, and the more dependent they are on a given wider structure, the more vulnerable they are to its will.
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Easy to explain if bankers are confiscating the entire productivity gain, plus a little bit more. Doesn’t matter if Joe can make twice as many widgets due to better machines if bankers confiscate all of the extra widgets.
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“At the Fed, the debate is over normalization of the balance sheet.”
Nope. At the Fed, the debate is over the failed legacy of neo-keynesian debt-till-you-drop policy. How do they cover their tracks before they leave? Successors are going to want to clean all the failure and skeletons out of the closet.
If Fed policy had been successful, the economy wouldn’t be on life support a decade after the alleged recovery. Zero interest rates and debt monetization (quantitative easing’s real name) should not be necessary if there had been a recovery.
Imagine a medical doctor telling you the patient has made a great recovery, and is ready to walk out of the hospital — and the hospital is going to keep the patient in ICU on 24/7 monitoring and artificial life support just to be sure.
Doctor Yellen would be arrested for medical malpractice and she knows it.
At the same time, the failed policies are starting to threaten the tax base of Washington DC. People who don’t own stocks get zero benefit, but they inherit a lot of debt that will suck up Washington DC’s budget. Meanwhile, corporate CEO’s see zero utility in building a new factory to get taxed more — it might not be profitable; buying back stock with 0% credit is a sure thing. All the nation’s resources and efforts get misdirected to stock buybacks and silicon valley unicorn IPOs.
Lack of actual economic development (capital investment in econ terms) first impacted the middle class. No economic development meant no jobs. But its reached an advanced stage where no economic development (and 100% focus on share buybacks) is also impacting the tax base off of which Uncle Sam lives.
As for the ECB… who cares? The EU is circling the drain, which makes it impossible to find an honest / competent ECB head. That’s why Draghi is there. If the ECB had proper leadership, the ECB can’t overcome the mess that is Brussels.
Monetary policy cannot fix fiscal failure (but it can make things worse, as BoJ and the Fed have demonstrated)
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And yet another sign that the EU is no longer in charge of Europe…
Former Italian PM Matteo Renzi says Italy has “no moral duty” to take in more of Brussel’s endless parade of illegal immigrants.
Austria is building a wall on its Italian border, and has stationed troops to block illegal immigrants from entering Austria via Italy.
And Poland just told Brussels to STFU, not even bothering to use more diplomatic language. The unelected drunks in Brussels are meeting to decide how to “punish” Poland for not obeying the unelected drunks.
Somehow, I don’t think the failed policies of a central bank is the biggest problem facing the EU. Populations in Europe don’t believe in the EU anymore, and weak losers like Merkel and Hollande/Macron are increasingly unable to do anything but write policy that no one adheres to.
Last G20 meeting (before this week), Obama was the belle of the ball and Putin was ostracized. Obama went on to capitulate all over the world (while posing in front of the mirror / camera a lot). Putin went on to decide how Turkey, Egypt, Iran, Syria and Ukraine would be run.
This meeting, Angela Merkel was the G20 belle of the ball — though she was unable to protect even the polizei in her own country. Trump was ostracized by the globalists in G20 and media alike.
Based on the previous G20 disaster, Trump is looking in good shape.
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The “Fed” is always wrong.
It NEVER gets interests rates right because it only cares about its “Owners” which are the banks.
Congress does nothing against this because their re-election campaigns are financed by the banks.
We are responsible for this continuing because we re-elect these bums who run up debts to be paid by our children and grandchildren.
Without the losing wars we have fought from 1946 to today, we would have a huge budget SURPLUS and could easily afford healthcare as a right.
WAKE THE F*** UP!
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We would be able to afford healthcare, but not as a right. Once something becomes socialized, people no longer try to avoid the negative outcome. Injuries would increase to the point where lines form. This is called moral hazard and leads to system instability. The only known cure is personal responsibility.
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The tussle between safety net leading to irresponsible action and lack thereof leading to personal responsibility is a defining item of our times.
It’s a moral question for individuals to contemplate. Pride is a sin but what about pride in self reliance/sufficiency and lack of dependence? How is that instilled and encouraged in our kids?
How can a poor family of the 60’s/70’s have 3 kids that go on to become net contributors to society, unwilling to take handouts, yet others in a similar position cannot achieve the same result. What difference in values accounts for that? Luck?
Values and belief systems matter. Our problems come back to moral issues.
Individual, family, societal.
Where is that conversation/debate heard?
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Why worry about anything but Draghi’s destruction of the Euro, Dollar, Yuan, etc’?
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