tag:blogger.com,1999:blog-6263577133333272085.post4977454532022187586..comments2024-03-28T11:04:16.315+00:00Comments on Boffy's Blog: A Spectre Is Haunting Europe..Boffyhttp://www.blogger.com/profile/08157650969929097569noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6263577133333272085.post-17306040891723382212012-09-08T08:59:12.003+01:002012-09-08T08:59:12.003+01:00David,
Thanks for your comments. As I understand...David,<br /><br />Thanks for your comments. As I understand the way the ECB sterilises funding, its via Open Market Operations. That is it sells Government Bonds its holding into the system, which are then paid for in Euros i.e. those Euros are then taken out of the system.<br /><br />To be honest I'm not clear about whether the ECB can do that as a restricted sale to only Eurozone Banks. Logically, as long as it withdraws Euros, it doesn't matter where they come from. Also logically, the most likely purchasers will be Banks and Institutions in a relatively strong position.<br /><br />I suspect that in the background, there is a belief that - as in the US - there are way to many Banks at a Euroopean level, and there needs to be considerable amalgamation. I don't think the calls for breaking up the banks should be given much heed. In Spain, huge numbers of banks have disappeared and been merged.<br /><br />If you are going to have a Banking Union, it needs to be manageable, which means a limited number of large bodies, operating within a controlling organisation.<br /><br />The specific answer to your question is that politics already has intruded. Switzerland has set a cap on the Euro/Swissy exchange Rate, because a sharply rising Swissy was damaging Swiss exports. Switzerland prints money to keep the Exchange Rate down. Money printing by large economies always ends up forcing other economies to follow suit. The ECB will have to openly print money for that reason. Its politics, which is preventing that happening at the moment.<br /><br />I think the larger picture is that without the economy itself generating additional demand (which might happen next year if the cycle turns up) then money printing goes not into additional borrowing to finance investment - or even consumption when individuals try to delever - but either sits on Bank balance sheets, or is used by Banks for speculation - most of the data suggests that retail investors are largely out of the markets - which pushes up financial asset prices, which creates a self-sustaining upward spiral, until the bubble bursts.<br /><br />The more money you print, the more likely it is that this happens, and that at a certain point the bubble bursts. Therefore, as keynes pointed out Monetary Policy without a supporting fiscal policy is like pushing on a string. The question then is, how do you create a fiscally stimulative environment that directs the money into productive investments, which are globally competitive, and provide high value employment - what I understand Ed Miliband is now calling "Pre-distribution".<br /><br />In a comman economy like China you can do that. Japan and other Asian economies succeeded to an extent. In the 1960's, part of the rationale of the EEC was to develop the Nuclear Industry and so on. Wilson's "White Heat of Technology" and the IRC were not so succesful. Probably, Britain does not have the same culture of statism that exists in France, germany and Japan where industrialisation was udnertaken by Bonapartist regimes.Boffyhttps://www.blogger.com/profile/08157650969929097569noreply@blogger.comtag:blogger.com,1999:blog-6263577133333272085.post-84021701682057150482012-09-07T19:13:40.333+01:002012-09-07T19:13:40.333+01:00An excellent summary. I'm interested in your c...An excellent summary. I'm interested in your comments re the ECB plan and sterilisation, i.e. the likely restriction on liquidity that this will give rise to. You imply later that this will fail: "[the ECB will] move to money printing to avoid simply causing a credit crunch somewhere else within the system". <br /><br />But a credit crunch will not necessarily be coterminus with the Eurozone. The ECB can discriminate as to where it restricts liquidity, i.e. at a bank level. Isn't there the possibility that politics will intrude here and result in some banks being disfavoured over others - i.e. beggar thy (weaker) neighbour?David Timoneyhttps://www.blogger.com/profile/03568348438980023320noreply@blogger.com