Transcript of exclusive interview Russian Finance Minister Siluanov is giving on CNBC Squawk Box tomorrow morning.

I just received this via email. It's the transcript of an interview that Russian Finance Minister, Anton Siluanov is giving with the clowns on CNBC Squawk Box tomorrow morning.

Interesting where he says Russia would give financial aid to Greece. Break up the Eurozone. Good idea!

If you read the whole thing you'll see that this guy's head is totally in a gold standard/fixed FX mentality. Will constrain Russia forever.

CNBC EXCLUSIVE TRANSCRIPT: ANTON SILUANOV, RUSSIAN FINANCE MINISTER

Foulds, Hugo (NBCUniversal) (Hugo.Foulds@cnbc.com) 

PRESS RELEASE 

CNBC EXCLUSIVE INTERVIEW: ANTON SILUANOV, RUSSIAN FINANCE MINISTER 

Russia would consider giving financial help to debt-ridden Greece 

WHEN: CNBC EXCLUSIVE, today Thursday, 29^th January 2015. 

Following is highlights of the unofficial transcript of a CNBC exclusive interview with Anton Siluanov, Russian Minister of Finance with CNBC’s Geoff Cutmore. 

Full interview will be played out in Europe tomorrow morning on CNBC’s Squawk Box. All references must be sourced to a ‘CNBC exclusive interview’. 

CNBC’s Geoff Cutmore (GC): Even as we’re speaking to each other, we know that there’s a meeting going on in Brussels they’re talking about potentially another round of sanctions. Can I ask you, how worried are you that another round of sanctions at this stage, would cause a crisis in confidence in the Russian economy? 

Anton Siluanov (AS):  Well it has always been our official position that we are against any form of capital or trade controls  - and of course any sanctions are harmful because they cause a slowdown in the global economy. And the sanctions that have already been imposed against Russia did negatively affect us. However, Russia companies have adjusted, and Russia’s balance of payments have adjusted, the rouble weakened, and as you might be able to see life still goes on here and we just keep on living. 

Our estimate is that last year the Russian economy experienced two kinds of external shocks - one is from oil prices and another from sanctions. The cumulative effect of those shocks is around 200 billion US dollars - maybe a little more, but the main, major influence was the fall in oil prices. Our estimate on the sanctions is a roughly 40-50 billion shortage of capital, but again the main driver of this slowdown is the oil price. 

Billionaire says Americans have to "set their sights lower"

Jeff Greene is a guy who displays the typical arrogance of the rich. He's a billionaire speculator who lives in a $200 million mansion in Beverly Hills. He made his money shorting subprime back in the crash. (Now there’s a really useful occupation that adds a lot to society.)

He says that the real problem that Americans have is that their expectations are too high. They need to set their sights lower. (Not his of course.)

Too high? Set their sights lower?

Is this guy a pompous ass or what? There’s forty million people on food stamps and half of Americans who have no net worth at all and people need to set their sights lower?

He goes on. He says, while tech is a big job killer the real nemesis for prosperity-desiring Americans is the trend toward equalization of wages, globally. Apparently in his mind it’s all convergence to the bottom and not the other way around?

History would prove him wrong on both counts. Technological advances have always spurred massive creation. Did he ever hear of Henry Ford? Furthermore, wage trends always tended to converge from low to high, not other way around.

The reason we have declining or static wages has been due to policies specifically designed to make that happen. It’s called Neoliberalism and it’s been in place for the last 40 years. Deregulation, “free trade,” the elevation of markets, profits and capital over labor, the environment, common sense and everything else. That’s the reason  it’s happening. Policy has shut the door on prosperty for all but a few and only policy can reverse it. 

Greene departs from other, typically pompous rich brethren when he says that the rich should pay more taxes. However, I’m sure he says that knowing that he’ll never have to worry about that because his “kind” have bought the system and they’re not about to let that happen. So he can feign being a magnanimous good guy when he’s really just a pompous ass.

Resetting expectations lower is nothing more than accepting a form of imprisonment.

This guy is proof that Keynes was right when he said “Let’s euthanize the rentiers.”

Free weekend pass to TheStreet.com

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Enjoy.

CHF Rates now steady...

SNB has laid off pressing on this rate in the -0.8% to -0.9% range; probably leaving themselves room to lower further if (to them) they think this is somehow necessary.

I'd assume that now the CHF exchange rate is in the hands of the Swiss exporters and their bankers; now that the SNB has stepped away from actively pressing on this rate.

If the Swiss exporters cave on price in order to maintain share in their export markets, then the CHF should weaken vs. the currency of the specific export nation.

USD/CHF has broken out firmly above 0.90 over the last few days and seems to be headed back towards where it was before the big policy adjustment on the 15th; which would indicate that Swiss firms are starting to reduce prices for their products a bit in USD terms to their US customers and cannot hold the increased prices in USD terms that the new policy rate imposed.

Due in no small part to the present stingy fiscal backdrop here in the US, "money is too tight" for anyone to think that they could impose an over night 15% price increase in USD terms with impunity.

Take these 2 for help with symptoms due to some recent economic germs that have been going all around...

If any of our readers have been hearing a lot lately about "the deficit" and how this measure is allegedly most meaningful, then I recommend as a treatment reading this from Brian:

"You Cannot Judge a Fiscal Stance by the Deficit"

And if any of our readers have been hearing a lot lately about how tax cuts don't help, then I recommend as a treatment reading this from Peter:

"Taxes, Demand and the Importance or Otherwise of Incentive Effects"


Take these 2 and email me in the morning.

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Russia raids infrastructure fund to save the banks

I have never seen such disastrous, ill-conceived policy. (Well, maybe with the exception of the Eurozone austerity, but we know that is solely to benefit the plutocrats.)

Russia is taking money away from infrastructure investments and giving it to the banks to "save" them.

First of all the banks don't need to be saved. They can still function in the role of clearing and settlement as long as the central bank makes sure their liabilities are met. No problem there--the libabilities are in rubles.

Did anyone over there ever have a look at Japan? Those banks have been zombies for decades thanks to loads of really bad investments, but no problem...people deposit money, checks get cashed, cleared...all the usual banking stuff happens without a hitch. They even make loans; the ones that are solvent at least.

Russia's in dire need of infrastructure investment. In fact that would be a great way to immunize the entire Russian economy against Western sanctions: boost infrastructure investment, massively.

But instead their new finance minister (excuse me, I meant to say, finance idiot) is imposing austerity as a way to "fix" the economy. Russia apparently ran out of rubles(?) and the ones they got left they're giving to the banks? Why this is happening I am not sure? I can only chalk it up to idiocy at the top levels of leadership.

I was bullish on Russia. I even bought some Russian ETF's recently. But now I think it's a dumb move. So much stupidity going on. So much. I really feel bad for the Russian people. They're good people. They deserve better.

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Prolific Australian Farmers can't even give their produce away...

Couple of Ag sector reports out of Australia here and here.

Potato growers in Western Australia's south-west say a potato giveaway in Perth has left them unable to sell hundreds of tonnes of their own produce.

And:

The sad reality this summer is tonnes and tonnes of mangoes have ended up on the scrapheap for no reason other than their appearance. A loss of juicing contracts and a bumper season in the Mareeba-Dimbulah district resulted in tons of blemished fruit, that won't make the premium grade, being thrown out.

Real surpluses everywhere!  Oil!  Nat Gas!  iPhone6!

Just not enough "money" around to buy the abundant produce it seems.  After all; "We're out of money!" as they say.  We have mangoes and potatoes coming out of our ears and "no money!".

Moron rule continues unabated.

Derek Thompson — Tax Cuts Don't Lead to Economic Growth, a New 65-Year Study Finds

Analysis of six decades of data found that top tax rates "have had little association with saving, investment, or productivity growth." However, the study found that reductions of capital gains taxes and top marginal rate taxes have led to greater income inequality.

No, tax cuts don't pay for themselves.

The Atlantic
Tax Cuts Don't Lead to Economic Growth, a New 65-Year Study Finds
Derek Thompson

Apple posts blowout quarter

Saving $100 per month on gasoline?  Sign up for the iPhone6...  story at CNBC.

The company sold almost 9 million more iPhones than expected, while its cash pile ballooned to the point that it could buy about 480 of the S&P 500 companies outright. 

Apple also revealed during a conference call with analysts that it plans to ship its new Apple Watch wearable device in April of this year.

Good bye revenues to the oil people, hello revenues to the cell phone people.  Amazing.

Swiss Firms Dig In...

This article at Bloomberg is from the 19th so it is a bit dated and not quite real time; but it appears the initial reaction by Swiss firms is/was to hold the line on price in response to the SNB's recent policy changes.

Here are some excerpts:

As the Swiss franc strengthened some 20 percent against the euro and the pound, Zermatt’s tourist office suggested four options to the hotels, chalets, restaurants and cable-car firms that comprise its 1,100 members: reinstate the 1.20 franc per euro cap for European visitors; offer discounts of 20 percent; cut prices by 10 percent; or take no action. 

“I’m considering holding our prices in euros for a while,” said Southwell, who works for a consultancy in Zurich and rents out his century-old wooden chalet overlooking the Matterhorn... 

Travelers who book their summer holidays in Switzerland before the end of February will also pay pre-Jan. 15 prices, Inghams said. After that, the company’s pre-purchased funds will run out and prices will be adjusted, it said.... 

“Lowering the prices would be the wrong strategy because we have already done all the calculations for this year,” said Rainle, .... 

“We will not try to compete on price but on quality,” according to Patrizia Bickel, spokeswoman for Jungfraubahn, who said it’s important for planning purposes that the currency stabilizes. 

“Our marketing effort will be intensified outside Europe.”

The information in this article is not indicative of the Swiss immediately caving on price.

This initial firm reaction by the Swiss business community has coincided with a stability in the CHF exchange rate after the initial adjustment.

I was on The Economist site the other day reading something and got a "pop-up" ad for Rolex wrist watches... which I don't recall ever seeing one of those before.

So it looks like the Swiss business people are showing some moxie and at least are not going to go down easily.

John T. Harvey — What The EU Can Learn From The National Football League

John develops a nice analogy that even Forbes readers should be able to get.

On Monday, the anti-austerity party SYRIZA won a decisive victory in Greek parliamentary elections. This throws into question not only the government’s stance with respect to the various bailout and austerity packages, but even their continued membership in the EU. As well it should, for the game is stacked against them and those who write the rules are making sure it stays that way.…

Forbes — Pragmatic Economics
What The EU Can Learn From The National Football League
John T. Harvey | Professor of Economics, Texas Christian University

BTW, Yanis Varoufakis has been named finance minister.

Note — I am taking a vacation to visit family and friends, so light posting for a few days. I'll try to keep up with the comments though.

Empty shelves and bans on grocery lines in Venezuela

Typical dysfunctional economy run by neo-leftists in Venezuela becoming manifest.  Story at al Jerzeera here.

People line up outside a supermarket to buy toilet paper in Caracas, January 12, 2015. 

Three states in Venezuela have banned residents from queuing outside grocery stores at night, after reports of fights breaking out in recent weeks. 

Venezuela's grocery shortages have worsened since December, forcing many to wait in lines for hours to buy basic goods.

Pretty disgraceful when you need $100 oil in order to be able to wipe your own ass.

Don't they even have a paper mill there in that country?

Meanwhile last year at the Stochi Olympics in Russia, with the $100 oil they DID have the toilet paper but you just were forbidden from flushing it down the toilet;  NBC's Bob Costas famously contracted double conjunctivitis.

What is it with these neo-leftists and the inability to domestically provision proper lavatory services...

Their plan is probably: "pray oil goes back up so we can again afford to buy stuff from the civilized nations....".

Time to grow up.

Russia announces anti-crisis plan after rating downgrade

Story at AP/Yahoo.

Finance Minister Anton Siluanov announced Tuesday that the government has adopted an anti-crisis plan that will freeze the level of spending. 

The plan also sees the budget returning to a surplus as soon as in 2017 and the government preparing structural reforms "so that we do not burn recklessly through Russia's sovereign reserves."

Bad news from the Russian fiscal front.

Pretty soon our debt doomsday policymakers will probably be pointing admirably toward Russia.

If Putin gets tossed, he could probably sign-up with any one of a number of Peterson funded un-think tanks as a foreign correspondent.

HOFBRÄUHAUS Munich Menu Prices

Getting there in USD terms...  imagine these prices at a 1:1 EUR/USD exchange rate:

They would not be too bad at 1:1 in fact a bit of a bargain.   Similar then to what one would pay at a Cracker Barrel restaurant here in the USA.

They would not be a very good value at EUR/USD = 1.50   Then you would be looking at $12 for a 1 litre beer and $17.25 for half a chicken.

So we can see how the exchange rate reflects the real terms of trade between the nations.  Europe is moving back towards a more reasonable exchange rate with the USD after spending many years at an increased level of real terms in favor of the Eurozone.

Austerity foisted upon a currency zone that prefers to export seems to work well if your goal is to lower the real terms of trade for your currency zone and make local industry "more competitive".

New Greek Finance Minister said, "Greece will neither want to leave the euro nor threaten to do so."

Oh well, this thing's going nowhere. It's got the liberal disease of big talk, no action, written all over it.

The new Finance Minister is this guy, Yanis Varoufakis. He once said, "Greece will neither want to leave the euro nor threaten to do so."

Done. Finished. Toast.

There is  no way that Tsipras and Syriza can deliver what they say they will deliver while in the euro. NO. WAY.

The sad thing is, this guy Varoufakis taught at University of Texas. That's where MMTer and economic liberal, James K. Galbraith teaches. Too bad he didn't learn a thing or two while he was there.

Lars P. Syll — NAIRU — more religion than science

Lars P. Syll’s Blog
NAIRU — more religion than science
Lars P. Syll | Professor, Malmo University

Read along with Michal Kalecki, Political Aspects of Full Employment,

The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.

Bill Mitchell — Smart Austerity – its just the same dumb austerity

“In its current form, EMU is not viable in the long run”. That quote comes from a Report – Repair and Prepare – Strengthening Europe’s Economies after the Crisis – jointly published by the – Jacques Delors Institut (located in Berlin) – and the Bertelsmann Stiftung – (located in Gütersloh, Germany). The Report purports to lay out a blueprint to prepare Europe for the “next potential threat to its very existence”. It proposes a “path towards renovation” to create an “ever closer union”. They claim that they have taken up this task because there is “extensive ‘crisis fatigue’ and ‘euro area debate fatigue’ in “in governmental circles and the media”. I would call it adherence to ideological Groupthink rather than fatigue. There has been a major failure yet none of those who created the failure have put their hands up to take responsibility. Once they dismissed the problem as being caused by “profligate and fat Greeks (insert vilified nationality as to your preference)”, various policy makers and media commentators resorted to the even more amorphous “structural problems” to explain the on-going crisis. The media has been full of captive writers who just reiterate press releases from neo-liberal politicians and/or mainstream economists. So is this new Report different? Is their plan viable?

Before you get too excited, you might also like to know that the former organisation was founderd by the French politician after he finished his time as European President.
Delors will be remembered as the French neo-liberal (despite his socialist affiliation) who oversaw the disastrous Delors Report that informed the Treaty of Maastricht. It is clearly pro-Eurozone. 

The German outfit is an off-shoot of the Paris-based – Notre Europe – Jacques Delors Institute. It is run by one Henrik Enderlein who is pro-Eurozone. 

Meanwhile, the Bertelsmann Stiftung has a history of advocating neo-liberal changes to public education and labour market reform in Germany. 

So you might expect my answers to the initial questions are No and No.…

Regrouping for a counterattack after an electoral defeat in Greece.

Bill Mitchell — billy blog
Smart Austerity – its just the same dumb austerity
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Greece can't abandon austerity and stay with the euro. Period.

Alexis Tsipras and his party, Syriza, can talk all they want about ending austerity, but they simply can't do it without their own currency.

When all the cheering and celebration dies down Greece will be left with a choice: they can move forward on the path to self determination, sovereignty and dignity, but only if they bring back the drachma.

Or, they can stick with the euro and naively believe they will be able to end austerity, rehire fired public workers, raise salaries and do all those other things that they promised to do, but can't.

This is the classic problem of the modern day left wing. They talk big about all these progressive ideals--help the middle class, workers, safety nets, education, etc, but they simply don't understand or, don't buy into the economics necessary to do these things.

Same problem everywhere. Here, too, in the U.S. (Although there's some hope with Kelton.)

By the way...so far this morning the euro is trading in the classic, buy the rumor sell the news pattern.

We Can't Have Our Evolution And Centrally Plan It Too

   (Commentary posted by Roger Erickson.)

(Too bad financial liquidity isn't included in that plot!)

The image above drives home the ancient lesson that increasing capabilities always rest upon increasingly distributed foundations. That's true for weight in architecture, inter-relationships in resilient networks, and education in human populations.

As evidence, Bill Mitchell recently reiterated an idea that recurs periodically, but never quite often enough.

“A massive boost to public education is required."

Yet clearly, “more” education alone won’t necessarily help. “Different” education is also required.

For example, something along the lines of OBT&E, which is a method, and also a reiteration of Natural Selection.

It's also clear that each and every one of our methods is necessary but not sufficient without ongoing adaptive intent - which becomes a method for coordinating all other methods. The utility of all methods still depends upon slowly molding a human culture with a collective focus on Cultural Adaptive Rate as the common guiding light - for all the milestone, Desired Outcomes we pursue as we continuously muddle on.

We have countless options, and they are usually increasing. Increasing our cultural Adaptive Rate reduces to collectively sensing, on any given day, what permutations of our ongoing choices will actually optimally INCREASE rather than reduce our net options.

That’s a practical math problem. In fact, it's a constantly changing, massively multi-variate, adaptive cultural calculus task which we can only pursue via brute-force group calculation (utilizing massively parallel feedback, i.e., by Democracy). By definition, our survival challenges can never be modeled as fast as they change. We have to calculate them, via distributed, organized trial and error. That, plainly and simply, requires complete focus on re-connecting everyone to everyone, and summarizing all available feedback soon enough to matter.

No predictive power, but seemingly limitless adaptive power.

In other words, you can't have your evolution and Centrally Plan it too.

It seems that the baseline for all evolving organizations - of any sort whatsoever - is to have 80% of the components (whether cells, humans or even whole nations) enslaved & poorly managed by a minority still operating by yesterday's methodologies. Some things are always, briefly, the "keystone" species which both enforce existing structure & constrain Adaptive Change in every ecosystem. There are no clear lines separating phenotypic persistence, Institutional Momentum, and hegemony. Yet we must manage those distinctions as best we can.

That's our burden, as an evolving, growing aggregate. You better embrace & enjoy that task, 'cuz it's not going away.

That's the reality of organic growth. Central Planning is always fighting a staged retreat while racing to stay relevant to the expanding numbers who are escaping their comprehension.

On a personal level, it's not so different from what grandparents observe, as first their kids and then their grandchildren spiral out into the future.

It's up to us to make OUR continuous AND INCREASINGLY DISTRIBUTED transitions either relatively graceful, or rather tumultuous. How? Equally clearly, that depends on how we prepare our future citizens, by managing distributed education.

Cultural embryology, that is.

I’ll liberally paraphrase Joshua Chamberlain, circa 1865. 

“We have zero predictive power, but through training and education, we can determine what aggregate adaptive rate we can generate, when each novel group challenge appears.” 

What's that old saying? If you really love something - even the future for you, your kids and your nation - then set it free? No, not unprepared in the middle of the road, figuratively, but in a somewhat protected practice field, and then make the sacrifices necessary to protect it as it learns how to be free from your constraints.

That seems to be what human evolution is all about. We can't have our aggregate evolution and Centrally Plan it too.

No, 2 + 2 (+ something unexpected) never equals just 4. Yet our electorate has to keep making that calculation on a national level, every day, and adjust to the continuous surprises. Human cultures compete on the basis of their aggregate cultural-CPU designs.

What's that mean for citizens? Probably the following message.

If you can't stand the physical math, get out of the evolution!

The alternative is already apparent.

(Right now, we're not using our brains in any organized way, either.)

Do "The police exist to maintain the divide between the upper class and everyone else. Nothing more." ?

   (Commentary posted by Roger Erickson)

You can't blame some citizens for considering the overall validity of the title conjecture, given our current context.

I wonder how long it takes, on average, for the average local cop on the beat - fresh out of a police academy - to become aware of, let alone come to grips with, the default institutional lobbying that comes from perennial class competition, whether overt or "Innocent Fraud".

With current education practices, the bulk of our citizens seem to remain politically naive for most of their lives, so there's no reason to expect the bulk of police officers to catch on much faster, if ever.

Progress requires much more organizational effort to get all citizens on the same page, and realizing that we're all in this together.

There's so much to gain from social coordination (teamwork), and each year we've less to lose.

Meanwhile, it's still true that adversarial approaches are unlikely to work. In fact, they'll play into classic methods for confusing, dividing & conquering electorates by default, i.e., narrow business lobbies & politics as usual. Here's yet another example.

How FBI Illegally Stole Ross Ulbricht's Laptop & Brought Down The Silk Road

In response, a contact wrote:

"The police exist to maintain the divide between the upper class and everyone else. Nothing more."

I'm not the only one wondering why the FBI action against Ross Ulbricht & Silk Road was such a priority.

Especially given persistent unemployment levels, student loan debt, poor K-12 schools*, white collar crime, blue collar crime, etc, etc.

Not to mention money laundering & other financial terrorism by Wall St. banks

   ----

* Compare schools today with Sam Adam's early education, 200+ years ago. Read it and weep.

"Sam Adams, like five of the fifty-six signers of the Declarations of Independence, attended Boston Latin School [at ~age 7]. Required reading at the Boston Latin School for a student's first four years included Aesop's Fables, one of the first of which is a tale of a wolf who devoured a lamb despite the lamb's refutation of all the wolf's accusations against him. The moral of the story, according to Aesop, is that 'The tyrant will always find a pretext for his tyranny.' ...

In years five through seven of the school, students progressed to reading letters, essays and orations of the Roman politician Marcus Tullius Cicero.  ... 

[Subsequently,] Sam Adams entered Harvard in 1736 at age 14." 

Which was normal for that day, at least for motivated families in and around Boston. So why isn't a similar educational rate "normal" today? After all, a human mind is a terrible thing to waste, and so is a national group mind.

Some info on my Forex class

Important note:

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Andrea Terzi — Is QE forever?

The point of Draghi’s QE is not the amount. It is the principle.

This is the really big news in the Eurozone where, until last week, the ECB’s monetary operations did not include the possibility of trading in the government securities market in the same way the Fed, the Bank of England, or the Bank of Japan do. 

With QE, the ECB has become an actor in the government securities market and, as happens in the U.S,, the U.K., or Japan, this provides continuous liquidity to the bonds being traded, removing default risk.

The ECB is now acting like a central bank.

QE will not last forever. But the new attribute of the ECB as a dealer in government bonds is here to stay. 

Money and the Real Economy
Is QE forever?

Andrea Terzi, Professor of Economics, Franklin College, Switzerland

Michael McAuliff — Bernie Sanders Got Republicans To Make His Argument For Universal Health Care

Hit them on competitiveness, they don't understand compassion.

But Bernie hasn't yet brought out the big guns — the MMT principles showing that "affordability" is never the issue when real resources are available.

The Huffington Post
Bernie Sanders Got Republicans To Make His Argument For Universal Health Care
Michael McAuliff

CHF 3-month rate

They keep lowering this policy rate by about 0.1% every day.  The lower bound of the current policy range is -1.25% so they should be there in another 2 or 3 days.

Let's watch to see if there is a reaction in the CHF exchange rate vs. EUR or USD when they stop lowering this rate next week.

While this rate lowering has been going on the CHF has been pretty steady vs. those two currencies. I'd assume they are looking for a weakening in the CHF vs. the EUR and USD as they continue to lower this policy rate.  If so they have not been getting the response they are looking for.

Ambrose Evans-Pritchard — Kremlin hard-liner: Russians would 'rather starve' than surrender Putin to Western aggressors

Strong words.

The Telegraph
Kremlin hard-liner: Russians would 'rather starve' than surrender Putin to Western aggressors
Ambrose Evans-Pritchard, in Davos

Also, Mario Draghi's QE blitz may save southern Europe, but at the risk of losing Germany

The decision amounts to an act of political defiance by a majority bloc in the Governing Council - unmistakably a debtors' cartel of Latin states and like-minded states - and therefore opens an entirely new chapter of the EMU story. 

This Latin revolt is to violate the sacred contract of EMU: that Germany gave up the D-Mark and bequeathed the Bundesbank's legacy to the ECB on the one condition that Germany would never be out-voted on monetary issues of critical importance. 

Nor is the irritation confined to Germany. The Tweede Kamer of the Dutch parliament was up in arms today, the scene of fulminating protests from across the party spectrum. "Dutch taxpayers should not be made liable for the debts of the Italian state," said the liberal VVD party.…

Yet this is a thin shield. Prior rulings of the court have made it clear that scale matters. The bigger it is, the more clearly it leaks into fiscal policy and violates the budgetary prerogatives of the German parliament. This is a sensitive matter. The court has ruled that no supranational body may usurp the budgetary powers of the Bundestag, for to do so would be to rip the heart out of Germany's post-War democracy. This legal battle will drag on. 

Let me be clear: I have argued for at least three years that the Latin bloc should seize control of the ECB's machinery and call the German bluff, and this is exactly what has just happened. 

They have perfect right to do so. The ECB's policy has been far too tight even for Euroland as a whole. For them it has been disastrous. The slide towards deflation - and contracting nominal GDP - has caused their debt trajectories to spiral upwards even faster. 

Yet nobody should have any illusions about the implications of such defiance. What is at stake is German political consent for the euro project. 

With the crisis is the EZ, the dispute between the UK and the rest of the EU about open borders, and the civil war in Ukraine along with sanctions on Russia, Europe is in the worst state its been since the lead up to WWI and WWII. Fractious.

Chris Dillow — Real wages & inflation

It's true in the sense that lower oil prices raise the real incomes of oil consumers. It's also true that a surprise drop in inflation of the sort we've seen can temporarily raise real wages. 

However, in the longer-run, real wages aren't affected by inflation. If they were, we could achieve higher wages by (credibly) reducing the inflation target - but nobody believes this. 

Instead, real wages depend upon real things like productivity growth and workers' bargaining power, and these aren't much affected by inflation: at moderate levels of inflation, there's no link between inflation and GDP growth, for example.…

Stumbling and Mumbling
Real wages & inflation
Chris Dillow | Investors Chronicle

Dirk Ehnts — IMF’s Blanchard: fiscal policy part of the solution against stagnation

In a modern economy with a sovereign currency, both banks and the government can create additional deposits for the private sector. Banks achieve that through lending, and the government through bond issuance. A third way, which doesn’t work for everybody, is to have exports higher than imports, which must result in a net inflow of net financial assets, among them deposits (ex-post). In the euro zone, the private sector does not want to borrow even though interest rates are at zero. If you want a cause, then name it confidence: the firms and households are pretty confident that in this situation of weak demand, high unemployment and falling prices they do not want to more borrow. 

It seems like the only way to get the monetary circuit going in Europe is through the creation of private sector deposits by a) cutting taxes (for those who can reasonable expected to use the additional deposits for spending) or b) increasing government spending (which directly creates deposits for the private sector). What this does not mean is a) government has to be bigger (let them hire private companies to do public jobs if you think that it is welfare-improving) or b) that this will become a permanent feature of the economy. As long as the private sector does not spend, government jumps in. When aggregate demand runs hot, taxes can be increased and the central bank’s interest rate hiked up. This would constitute a return to normal. No mass unemployment, the usual bickering about higher taxes, and savers getting money for nothing.

The problem lies in the insistence on "structural reform" (lower public spending and instituting wages "flexibility") in order to become "more competitive" globally, which is a race to the bottom that is deflationary.

econoblog 101
IMF’s Blanchard: fiscal policy part of the solution against stagnation
Dirk Ehnts | Berlin School for Economics and Law

Warren Mosler — The latest QE policy removes ECB ‘conditionality’

This time it’s different. As part of this broad based fight to reverse the current deflationary forces, the national CB’s will now be buying their own nation’s debt, thereby, for all practical purposes, eliminating default risk. And with no mention of fiscal conditionality. Taken at its word, this means the latest QE policy has removed the ECB’s leverage over national govt fiscal policy, as the ECB did not tie it’s securities purchases to fiscal compliance. 

Therefore Greece and Italy, the two members desiring fiscal expansion, are operationally free to do so without the threat of default driving up their interest rates. They may face EU penalties, etc. but those are a very different matter than the prior default risk. 

So the door is now open to anyone bold enough to step through. However they probably don’t know it and probably wouldn’t go there if they did…

The Center of the Universe
The latest QE policy removes ECB ‘conditionality’
Warren Mosler