Jump to content
House Price Crash Forum
Sancho Panza

Bundesbank Opens The Door To Qe Blitz

Recommended Posts

Telegraph 25/3/14

'The last bastion is tumbling. Even the venerable Bundesbank is edging crablike towards quantitative easing. It seems that tumbling inflation in Germany itself has at last shaken the monetary priesthood out of its ideological certainties.

Or put another way, the Pfennig has dropped that euroland is just one Chinese shock away from a deflation trap, an outcome that would play havoc with the debt dynamics of southern Europe, render the euro unworkable, and ultimately inflict massive damage on Germany.

Bundesbank chief Jens Weidmann was not exactly panting for QE in comments to Market News published this morning, it has to be said, but the tone marks a clear shift in policy.

"The unconventional measures under consideration are largely uncharted territory. This means that we need a discussion about their effectiveness and also about their costs and sideeffects", he said.

"This does not mean that a QE programme is generally out of the question. But we have to ensure that the prohibition of monetary financing is respected”.

At least we can put to rest the bogus argument that EU Treaty law (Article 123) prohibits QE by the European Central Bank. This claim was always a smokescreen.

Bond purchases are what used to be known as open market operations, a tool of central banks dating back into the mist of monetary history. Purchasing bonds across the board (not just the bonds of insolvent states) is a plain vanilla liquidity management tool.

Mr Weidmann says he prefers negative interest rates as the first resort. This is an admission that the ECB is alarmed by the strength of the euro as it hovers near the pain barrier of $1.40, since negative rates are a sure-fire way to drive down the currency.

"If you wanted to counter the consequences of a strong appreciation of the euro for the inflation outlook, negative rates would, however, appear to be a more appropriate measure than others", he said. Quite so.

The IMF’s Christine Lagarde says the deflation risk in Europe may be as high as 20pc, which is remarkable given how much damage it would do. Indeed, as one IMF paper explains, the trouble is already enormous even at ultra-low levels of inflation.

We all know what could push Europe over the edge. China invested $5 trillion in fixed capital last year – as much as the US and Europe combined – creating a further overhang of excess capacity in the world economy. This is sending a deflationary impulse into Europe, the more so since China has devalued the yuan by 2pc this year.

As you can see from the chart below, we had a fresh deflation alert from Spain this morning. Factory gate inflation is falling at a 2.9pc rate.

ambrosechart-460x247.png

Eurostat's HICP index on inflation "at constant taxes" – stripping out austerity – shows that 23 of the EU's 28 countries have seen a fall in prices over the last seven months.

Roughly speaking, inflation since June has been running at a rate of minus 1pc in France since, minus 2pc in Holland, Belgium, and Slovenia, minus 4pc in Italy, Spain, and Portugal, minus 6pc in Greece, and minus 10pc in Cyprus. Sweden and Switzerland are also in deflation.

It cries out for a blast of QE, as some in Germany acknowledge. The DIW chief Marcel Fratzscher said last month that the ECB should launch €60bn of monthly bond purchases. "It is high time for the ECB to act. Otherwise Europe risks falling into a dangerous downward spiral", he said.

"The ECB must counter the deflation threat quickly and decisively, and launch a broad-based programme of bond purchase along the lines of the Federal Reserve", he said. The scale should be 0.7pc of eurozone state debt each month, comparable to "QE3" in the US.

Historians will look at this episode and ask how the ECB could ever justify allowing headline inflation to ratchet lower to 0.7pc, let the M3 money supply atrophy at zero levels for nine months, and let EMU-wide credit contract for month after month at accelerating rate.

It is an interesting question whether the Bundesbank can easily back QE after the German constitutional court ruled last month in imperious language that the ECB’s bond rescue plan for Italy and Spain (OMT) is probably "Ultra Vires".

It stated that the OMT "exceeds the ECB’s monetary policy mandate, infringes the powers of the Member States, and violates the prohibition of monetary financing of the budget”.

The ruling does not prohibit ECB bond purchases as such – and is not final in any case – but it raises the political bar for quantitative easing to a near impossible level.

The irony is that the Bundesbank’s Mr Weidmann is himself responsible for the ferocity of the Court’s ruling. It was he who testified so trenchantly – though politely, as always – against the ECB’s policies at the Court hearings.

Will he now be hoisted by his own petard?'

'Cries out for a bit of QE'......

Share this post


Link to post
Share on other sites

"The unconventional measures under consideration are largely uncharted territory. This means that we need a discussion about their effectiveness and also about their costs and sideeffects", he said.

"This does not mean that a QE programme is generally out of the question. But we have to ensure that the prohibition of monetary financing is respected".

At least we can put to rest the bogus argument that EU Treaty law (Article 123) prohibits QE by the European Central Bank. This claim was always a smokescreen.

Pritchard admits later on that QE is currently illegal - purchasing government bonds is explicitly ruled out. So I guess this is about buying company bonds through the national CBs, or maybe even buying out mortgage debt. LULZ.

Share this post


Link to post
Share on other sites

:)

How many years have UK papers been spouting 'End of the Euro' propaganda?

Breaking up the Euro is going to solve nothing. If Greece had it's own currency, where would it be now? Hyper inflating, bankrupt unworkable?

I much prefer the Euro over the Pound, it has backing of many countries, it is difficult to suddenly start printing, it holds it's value better than the pound!

Every time I make a post like this all the HPC'ers come out with their brainwashed views of why the Euro's bad. You have to ask yourself exactly who it's bad for as it's certainly not savers or HPC'ers.

If the UK had been in the Euro you would have had your property crash a long time ago as the UK VI's wouldn't have had so much room to manoeuvre.

I am also one of the few who see nothing wrong with free movement in Europe - yes that right you're free to move to the land of milk and honey where the sun shines if you like. Take advantage of the opportunity before the boomers vote in UKIP and remove that opportunity from you.

Have a nice day all.

Share this post


Link to post
Share on other sites
Guest spp

I much prefer the Euro over the Pound, it has backing of many countries, it is difficult to suddenly start printing, it holds it's value better than the pound!

This is a joke right?

The EU/IMF are on the path to destroying Western Civilization as we know it...this is no joke!

A political design, no consolidation of the national debts, and so many different languages...are you mad?

We cannot have lawyers who have avoided working for a real living in government.

I'm sure we'll be returning to your post over the next 6-18 months...you ain't seen nothing yet.

edit: not that the fiat 'pound' is much good.

Edited by spp

Share this post


Link to post
Share on other sites
Qe hasn`t worked anywhere else, why should it work in the EZ?

They still cling to the notion that making rich people even richer will 'kick start' economic growth- an idea so entrancing that even it's utter failure everywhere it's been tried makes no difference- I'm convinced that if a large meteor were on course to hit the earth and wipe out human civilization the proposed solution would involve showering money on the rich in order to stimulate research into possible solutions.

But as the saying goes- to a hammer all problems look like a nail- and to a Central Banker all problems look like a liquidity crisis.

Share this post


Link to post
Share on other sites

This is a joke right?

The EU/IMF are on the path to destroying Western Civilization as we know it...this is no joke!

A political design, no consolidation of the national debts, and so many different languages...are you mad?

We cannot have lawyers who have avoided working for a real living in government.

I'm sure we'll be returning to your post over the next 6-18 months...you ain't seen nothing yet.

edit: not that the fiat 'pound' is much good.

And the UK is working so well! The Euro-zone is no worst than here.

Share this post


Link to post
Share on other sites
Guest spp

And the UK is working so well! The Euro-zone is no worst than here.

ummm...that is not the subject.

Forget the 'pound' for a minute...The 'EURO-ZONE' is a disaster!

Share this post


Link to post
Share on other sites

:)

How many years have UK papers been spouting 'End of the Euro' propaganda?

Breaking up the Euro is going to solve nothing. If Greece had it's own currency, where would it be now? Hyper inflating, bankrupt unworkable?

I much prefer the Euro over the Pound, it has backing of many countries, it is difficult to suddenly start printing, it holds it's value better than the pound!

Every time I make a post like this all the HPC'ers come out with their brainwashed views of why the Euro's bad. You have to ask yourself exactly who it's bad for as it's certainly not savers or HPC'ers.

If the UK had been in the Euro you would have had your property crash a long time ago as the UK VI's wouldn't have had so much room to manoeuvre.

I am also one of the few who see nothing wrong with free movement in Europe - yes that right you're free to move to the land of milk and honey where the sun shines if you like. Take advantage of the opportunity before the boomers vote in UKIP and remove that opportunity from you.

Have a nice day all.

But it was the boomers who voted for EEC membership in 1973. It's the young who have the most to lose from it and the boomers most to gain. If anybody votes UKIP, it'll be the disaffected conservatives and anybody across the political spectrum who wants limits on immigration.

Share this post


Link to post
Share on other sites

Qe hasn`t worked anywhere else, why should it work in the EZ?

depends what you mean by "work".

If a hamburger store runs out of meat, and there are queues, then the answer is they go elsewhwere and the hamburger store busts, or the meat supplier rushes in some meat PDQ.

same with banks, they need cash, and so do their Governments...and just like meat, QE money costs.....just not the recipient...it costs the customers in increased inflation and just slightly lowers global confidence.

Share this post


Link to post
Share on other sites

"If you wanted to counter the consequences of a strong appreciation of the euro for the inflation outlook, negative rates would, however, appear to be a more appropriate measure than others", he said. Quite so.

Every HPC'ers* favourite Central Banker joins my NIRP club. Oh, the irony.

* Apart from RK and wonderpup.

Share this post


Link to post
Share on other sites
name='SnapCrackleNPop' timestamp='1395768249' post='1102489593']

This is a joke right?

We cannot have lawyers who have avoided working for a real living in government

?? There are scores of them in Westminster - Blair himself was a barrister.

The EU is probably deliberately made unpopular by them because it is more difficult for our "great and good" to fleece, as there are a multitude of well connected foreign noses already in the trough.

If you seriously think that you, as a mere lowly pleb would be any better off out of the EU, you are very much mistaken.

Edited by vin rouge

Share this post


Link to post
Share on other sites

:)

How many years have UK papers been spouting 'End of the Euro' propaganda?

Breaking up the Euro is going to solve nothing. If Greece had it's own currency, where would it be now? Hyper inflating, bankrupt unworkable?

I much prefer the Euro over the Pound, it has backing of many countries, it is difficult to suddenly start printing, it holds it's value better than the pound!

Every time I make a post like this all the HPC'ers come out with their brainwashed views of why the Euro's bad. You have to ask yourself exactly who it's bad for as it's certainly not savers or HPC'ers.

If the UK had been in the Euro you would have had your property crash a long time ago as the UK VI's wouldn't have had so much room to manoeuvre.

I am also one of the few who see nothing wrong with free movement in Europe - yes that right you're free to move to the land of milk and honey where the sun shines if you like. Take advantage of the opportunity before the boomers vote in UKIP and remove that opportunity from you.

Have a nice day all.

+1

Share this post


Link to post
Share on other sites
Guest spp

?? There are scores of them in Westminster - Blair himself was a barrister.

The EU is probably deliberately made unpopular by them because it is more difficult for our "great and good" to fleece, as there are a multitude of well connected foreign noses already in the trough.

If you seriously think that you, as a mere lowly pleb would be any better off out of the EU, you are very much mistaken.

A 'lowly pleb'...someone touched a nerve!

Who said those in Westminster were any different from the bureaucrats running the euro-zone 'project'?

Europe is a great place and has many great countries and cultures...Spain as Spain, France as France, Italy as Italy etc.

Working more closely together does not require power to be centralised in Brussels or decisions to be taken by a bureaucracy.

Share this post


Link to post
Share on other sites

A 'lowly pleb'...someone touched a nerve!

Who said those in Westminster were any different from the bureaucrats running the euro-zone 'project'?

Europe is a great place and has many great countries and cultures...Spain as Spain, France as France, Italy as Italy etc.

Working more closely together does not require power to be centralised in Brussels or decisions to be taken by a bureaucracy.

indeed. Relying on one bunch of inept corrupt cretins, to save you from another bunch of inept corrupt cretins is short sighted.

EU, UKIP, UK politics, all inept corrupt cretins.

Share this post


Link to post
Share on other sites
Guest spp

indeed. Relying on one bunch of inept corrupt cretins, to save you from another bunch of inept corrupt cretins is short sighted.

EU, UKIP, UK politics, all inept corrupt cretins.

Some very strange pro-EU posters on this site.

If you point out anything that is bad about the EU/euro-zone they come out trying to shout down the pound/Westminster. Like anyone made out they were any good? :blink:

Share this post


Link to post
Share on other sites

depends what you mean by "work".

If a hamburger store runs out of meat, and there are queues, then the answer is they go elsewhwere and the hamburger store busts, or the meat supplier rushes in some meat PDQ.

same with banks, they need cash, and so do their Governments...and just like meat, QE money costs.....just not the recipient...it costs the customers in increased inflation and just slightly lowers global confidence.

Well it hasn`t kick started a recovery that will last any length of time, and we are seeing deflation taking hold, so other than as a sugar hit to stock markets it hasn`t worked?

Share this post


Link to post
Share on other sites

Got to defeat deflation. Its bad for the economy.

But it's a deflationary depression we're trying to overcome not a cyclical recession. So we've got two choices. The hard way i.e. an orderly re-inflation, or the very hard way i.e. a disorderly default/hyperinflation. That is to say, a modest degree of inflation is the price we're obliged to pay up front today to avoid a much greater degree of inflation showing up tomorrow*.

The central bank mafia clearly believe that an orderly re-inflation is still possible via asset price bubbles and trickle-down though the evidence thus far is far from encouraging. If anything the cumulative impact of QE on the broader economy is disinflationary. The global economy hasn't responded in the way they expected it to because it's inherently unstable and dynamic, not stable and equilibrium seeking as their neoclassical models propose.

More is... different. You simply can't derive macroeconomic principles from microeconomic fundamentals. I think it entirely reasonable to assume there's a point at which your consolidated debts relative to GDP leave you with no way back except Weimar lite.

*Wonderpup's deflationary paradox

Share this post


Link to post
Share on other sites

But it was the boomers who voted for EEC membership in 1973. It's the young who have the most to lose from it and the boomers most to gain. If anybody votes UKIP, it'll be the disaffected conservatives and anybody across the political spectrum who wants limits on immigration.

Most people were OK with the EEC. Its the undemocratic formation of the EU by that traitorous **** Major people dont like.

Share this post


Link to post
Share on other sites
Guest spp

Most people were OK with the EEC. Its the undemocratic formation of the EU by that traitorous **** Major people dont like.

Did he cross Thatcher?

Here is a very interesting speech she made - Speech to the College of Europe ("The Bruges Speech") 1988

Nor is the European idea the property of any group or institution.

Certainly we want to see Europe more united and with a greater sense of common purpose.

But it must be in a way which preserves the different traditions, parliamentary powers and sense of national pride in one's own country; for these have been the source of Europe's vitality through the centuries.

Share this post


Link to post
Share on other sites

Qe hasn`t worked anywhere else, why should it work in the EZ?

QE has worked perfectly, some of the debt based money as been replaced with equity based money stabilising the system and offsetting the deflation there otherwise would have been. The only problem is that they have stopped.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   206 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.