Keynes was a failure in Japan – No need to embrace him in Europe

Tokyo's Ginza on Sunday  (photo by Groink)

Draghi’s volte-face two weeks ago has emboldened the Keynesian majority in the media and in economic research departments. It has injected new life into their relentless campaign for yet more state intervention in the Eurozone economy. It wasn’t anything the ECB actually did (or announced) that initiated this new euphoria. As usual, the measures fell short of what the tireless advocates of “stimulus” demanded. To the true Keynesian, no interest rate is ever low enough, no “quantitative easing” program ever ambitious enough, … [Read more...]

As Germany loses battle for ECB, QE goes global

Mario Draghi, ECB (photo by IMF/Stephen Jaffe)

What is Super Mario up to? First, he gave an unexpectedly dovish speech at the Jackson Hole conference, rather ungallantly upstaging the host, Ms Yellen, who was widely anticipated to be the most noteworthy speaker at the gathering (talking about the labor market, her favorite subject). Having thus single-handedly and without apparent provocation raised expectations for more “stimulus” at last week’s ECB meeting, he then even exceeded those expectations with another round of rate-cuts and confirmation of QE in form of … [Read more...]

ECB under pressure to abandon superior policy stance

Balls of euro banknotes

The European Central Bank is under pressure. Inflation in the eurozone is at 0.7 percent but as Ben Bernanke supposedly stated, we are never sure if we measure these things correctly. So by all we know, the eurozone may already be in mild deflation. This should come as no surprise. The eurozone has practically had zero money growth and zero growth in lending for some time. As reported today, growth in the M3 money aggregate fell to a snail’s pace of 0.8 percent year-over-year in April. Loans to the private sector are 1.8 … [Read more...]

Keynesian madness: central banks waging war on price stability, savers

Eurotower In Frankfurt

There is apparently a new economic danger out there. It is called “very low inflation” and the eurozone is evidently at great risk of succumbing to this menace. “A long period of low inflation – or outright deflation, when prices fall persistently – alarms central bankers”, explains The Wall Street Journal, “because it [low inflation, DS] can cripple growth and make it harder for governments, businesses and consumers to service their debts.” Official inflation readings at the ECB are at 0.7 percent, still positive so no … [Read more...]

No end to central bank meddling as ECB embraces ‘quantitative easing’, faulty logic

Mario Draghi, ECB (photo by IMF/Stephen Jaffe)

“Who can print money, will print money” is how my friend Patrick Barron put it succinctly the other day. This adage is worth remembering particularly for those periods when central bankers occasionally take the foot off the gas, either because they genuinely believe they solved the problem, or because they want to make a show of appearing careful and measured. The US Federal Reserve is a case in point. Last year the Fed announced that it was beginning to ‘taper’, that is, carefully reduce its debt monetization program … [Read more...]

Central banks extend their reach as bureaucratization of markets continues

Bank of England

The twentieth century witnessed the shift from the classical order of free markets and hard, non-political money – epitomized by the gold standard – to fully elastic money and credit markets under the control of state central banks. This shift was completed in August 1971 with the termination of Bretton Woods, the gold standard’s last surviving, but limp and sickly cousin. Finally freed from the golden shackles that had always been the monetary anchor of capitalism, the global financial system produced, for the past 40-plus … [Read more...]

The true significance of the $1 trillion coin

dollar sign sinking in sea

Under President Obama the debt of the United States government has grown by about 50%, and now stands at close to $16 trillion. Every year, the US government spends between $1.2 and $1.5 trillion more than it takes in. Every day that financial markets are open the US government has to borrow an additional $4 billion. The pathetic fiscal cliff ‘compromise’ of last week has proved the most cynical students of the political elite correct in that there is not a snowball’s chance in hell that Washington will ever get this under … [Read more...]

The fallacy of nominal GDP targeting

Book cover Cantillon An Essay of Economic Theory

In a truly remarkable piece for the Financial Times yesterday, Wolfgang Münchau took another swipe at the Euro-sceptic and ECB-critical community in Germany, which he accuses of inflation-paranoia and of simply not getting 'modern central banking'. Well, I know of many qualified commentators - many non-German - who swallow a tad harder when reflecting on the new reality of unlimited and open-ended QE in the US and unlimited bond buying by the ECB. As the central bank bureaucrats declare that they will not stop printing base … [Read more...]

Draghi: ECB to counter ‘unfounded fears’ with unlimited cash

Mario Draghi, ECB president

Yesterday, the ECB pronounced itself the official lender-of-last resort to all Euro-Zone governments. To assure that the state can always borrow at conveniently low rates has been declared an essential component of 'maintaining financial stability' and thus a standard plank of modern central banking. Despite all their professed differences and divergent legal frameworks, all major central banks have now become their respective governments' inexhaustible ATMs. - Coincidence? At the press conference yesterday Draghi declared … [Read more...]

The deflation delusion

Dollar note on a hook

Years ago a friend of mine in New York told me about his massively overweight neighbour who took to wearing a black t-shirt with "I beat anorexia" printed on it. I think that is how our central bankers look at the wonderful job they are doing. Since the last link to gold was severed in August 1971, the dollar has lost 82 percent of its purchasing power and the global economy is more geared than ever and now in the death throes of a four-decade leveraging bonanza but our central bankers proudly tell us, hey, at least we beat … [Read more...]