Tuesday, April 12, 2016

10th Plague Continues...


Warren's 10th plague analogy proceeding apace in Germany.

Only the fiscal drag of  < zirp being scapegoated by the right's Schauble vs. the ECB rather than a broader form of fiscal austerity being brought into view there.  Meanwhile many on the left don't even look at govt interest paid on retirement savings as a legitimate form of fiscal support so don't look for any support from the left there either.

Left ignoring savers and the right ignoring non-savers.  Both cohorts currently screwed big league ie everybody.

16 comments:

Simsalablunder said...

Is the twitter example saying that 3.5 Million German children & 5 Million elderly who live in poverty are savers who are now losing big time under ZIRP?

Perhaps you can enlighten us on how much each of those 3.5 Million German children & 5 Million elderly who live in poverty in Germany will gain if where not for ZIRP, based on their savings?

"Left ignoring savers and the right ignoring non-savers. Both cohorts currently screwed big league ie everybody."

Looks like you're comparing ZIRP outcome on a individual level with what e.g. German mini jobs solution + not getting large enough welfare payments does and that those are equal damaging, which of course is nonsense.

Ignacio said...

By definition poor people don't have savings. Instead of going through convoluted ways to solve their problems keep it simple: give them money.

This is what politicians have been doing for decades until recently: rising pensions regardless of what the market rates were. You don't need to raise interest rates for anything.

But now because "austerity" and "running out of money" they are not raising pensions anymore, so retired elders on minimum pensions are hurting. Rising rates is not going to do anything for them.

The dishonestly is hardly palatable on this issue, and the majority of the population are not in the mood to assume interest rates that benefit a minority (even if it were 15-25% of the population) of the population.

Rates CAN'T go up, it will bankrupt many corporations and households. In fact is already going on... check out emergency meeting between CB's by the FED and all the maneuvers to rescue Italian and Austrian (and soon, German) banks.

Political suicidal, not gonna happen, Schauble and his ilk just are throwing more fuel to the fire, but other parts of the establishment know the political capital is coming close to zero and an other crisis is going to blow it up.

Matt Franko said...

Schauble is looking ahead....

Look at somebody who had 200k defined contribution in 2008 at 6%... 1,000 per month without eating into principle... here we are 9 years later if they needed the 1,000 then they are down 100k and even if they put the rates back up the principle has been eroded... many are trying to do part time work at advanced age...

Same thing is going on in the private/public pension funds... idk about Germany but here in the US much Social Services are funded/admin at state/local level where those efforts are taking hits as current revenues are diverted into public pensions to make up shortfalls there...

We (US) have $4T in pensions and local govt accounts in UST bonds earning near ZIRP... if that was 5-6% then that would be an addl 200B... 4B per state... budget of my state approx 40B including capital projects so 10% on average or even more as % of services budget... very substantial...

MMT top-enders (really politicians not competent technocrats...many actually now revealing themselves and ending the charade scurrying into the Sanders campaign and Soros groups here...) disregard/ignore flows from savings and actual retirement laws and associated actuarial projections for retirement incomes....

Ignacio said...

Public pensions don't work like that over here. Public pensions are not capitalized privately, thee are no CalPERS where money is given to incompetent hedgies.

Public pensions are just a budget item. OFC because because politicians still act as if we were under the gold standard they perpetuate the myth that your 'income is saved' and you will receive it when you retire, but in practice is nothing more than a LIFO stock buffer and flows come in and out all the time, otherwise it would be little more than a ponzi scheme (which is what some people who is ignorant of how the system works believes).

This system has been under attack for decades for private interest to try reach public pensions and force capitalization, and as many sources of income for financial industry are being extinguished by the current no-growth environment now more than ever you can see outcries by bankers trying to preach how good it would be for the public if pensions were capitalized.

Public pensions are a social contract, and here in comes the real problem: the social contract in Germany (and most of Europe) has been broken by the elites. For decades the "good German" was told to swallow hard pills of neoliberal reforms by people like Schauble and Schauble himself. First because the reunification, then because Germany had to become 'competitive' (even more?!) through faux beggar-thy-neighbour zero-sum logic of how the global economy works, then because the Euro, and it keeps going and going. And now, after almost 4 decades, a large part of the population has nothing to show for it. And that's when the social contract was broken, because the population has been abused by the doublespeak of politicians like Schauble and their neolib driven policy agenda.

Insufficient pensions, poor jobs due to the HARTZ reform, etc. But the good ol' Schauble, who created the situation in the first place, and who is known for looting and corruption in the past, has the solution for that poor people, he is really worried about that people, suuuure...

You want to solve that poor people problems? Stop with the pro-business crap HARTZ type reform so parents can feed their childs properly, fulfill the social contract you have with your elders by properly funding their pensions in the budget.

Simsalablunder said...

"idk about Germany"
Why are you then using Germany and its poor as an example? Pretty dishonest argument, or perhaps you're not competent enough to realize that. Waiting for the moral lesson…

None of those called poor in Germany make anything close to 200k. Mini job pays 450 euro a month! Every 5th job in Germany is a mini job. No wonder millions of kids, adults and elderly lives in poverty there.

"MMT top-enders (really politicians not competent technocrats..."

And your posture in this regard is not political? Please give me strength or I shall fade out…
Let's face it - your babble about who's competent technocrats or not is just politics from your narrow end. German government can choose to pay for decent pensions at ZIRP. It can obviously also cut pensions when there is no ZIRP in sight as it did in 2003, which shows that interest rate payment isn't any guarantee for those with small pensions at all.

BTW some 12% in Germany have private pension solution, mainly those with larger income.

Matt Franko said...

Here's from the Reuters article: "It appears to be tied to growing concerns in Berlin about the knock-on effects of rock-bottom interest rates on pensioners. "

If its not capitalized then why would they be worried about interest rates at all?

The 200k in my example is a stock.... a hypo amount a saver household might have been able to squirrel away in a defined contribution account over the years .... the interest income of 1,000 per month enabled @ 6% is the flow... so an additional 1,000 per month is not putting the person into "the rich!" category...

Schauble is making a good point related to the idiocy of the monetarist morons thinking they can throttle an economy effectively via the policy interest rate... a real world opportunity for edification via an explanation of what is going on... opportunity wasted because all the MMT top-enders are politicians too and probably not even technically competent to explain it anyway....

Ignacio said...

Because private pensions exist besides the public pensions and those are affected by interest rates. But poor people don't have private pensions plans.

Schauble is talking to his constituency, which are mostly not the poor kids and elders, both of whcih either don't vote or mostly vote left parties. Middle-Top tier earners are, and those private pension plans hold pension plans which are being hurt by low interest rates.

However, raising the rates has other effects on those who have more liabilities than savings, corporations etc.

" is making a good point related to the idiocy of the monetarist morons thinking they can throttle an economy effectively via the policy interest rate"

Then why the hell keep pounding on it. Fix the real problems, not the made up problems! Fix demand and income and the rest will fix itself.

Matt Franko said...

I'm not saying we should raise the rates to throttle the economy, I'm saying raise the rates to help provision the savers.... its not like the savers dont exist...

And idk about this: "raising the rates has other effects on those who have more liabilities than savings, corporations etc." I think the negative effects of this are generally over-estimated... we'll find out if the Fed ever starts to raise in earnest coming up here...

Tom Hickey said...

Interest rates are one way to "provision the savers." But a huge amount of savings are in equities. The Fed ZIRP policy fueled a huge run up in equities post-crisis so that the equity markets have largely recovered, to the benefit of those savers. The Fed admitted this as attempt to produce a wealth effect that would fuel consumption and thereby also increase investment to meet increasing demand, which did not happen as expected. The gains were simply shifted around portfolios.

Meanwhile, most of the people have experience a decline in living standard even with moderately rising productivity and historically low inflation.

Matt Franko said...

"most of the people have experience a decline in living standard "

Oil rents Tom.... we've only just finished our first full quarter with the crude really down below 40 in USD terms... lets see how the rest of the year plays out if we can keep it down here <40 for the remaining quarters....

Neil Wilson said...

And if you want an indication of how 'infrastructure spending' works in Germany, go read up on the new Berlin Airport debacle.

Public/Private Partnership.

What a joke.

Matt Franko said...

Neil these "partnerships" are the right's solution to the left turning the public airports into an ersatz Job Guaranty... the whole thing is a 360 degree moron-fest....

Simsalablunder said...

"I'm saying raise the rates to help provision the savers...."

You open up with a fake concern for the poor kids and elderly in Germany losing big time due to ZIRP and when that didn't work out you resort to a made up example with 200k stock example, an amount none with an income of 450 €/month have saved.

So your concern for the poor kids and elderly wasn't true. They where just your political tool, and an excuse to continue ranting about some MMT top enders not being technically competent bla bla bla.

TofuNFiatRGood4U said...

Simsalablunder: right.

The government has the means to apply Targeted Deficit Spending (as in, provide a refundable tax credit for domestic interest income reported on tax returns, turning 1/2 percent interest into 5 percent interest, up to some limits/phase-outs, say 250k principle and returns with less than 50k of reported income).

Problem solved, no one's bankrupted, and in accordance with the general 'Top Ender' commentary over the years ...

TofuNFiatRGood4U said...

Simsalablunder: didn't mean to exclude the government raising public pension benefits as well. Again, Targeted Deficit Spending.

Ignacio said...

And idk about this: "raising the rates has other effects on those who have more liabilities than savings, corporations etc." I think the negative effects of this are generally over-estimated


If nominal growth is above that of the interest rates of the liabilities yes, it's not a big deal (unless the balance sheet of the household, corporation etc. is in bad situation as well as its income). But in a situation where even nominal growth is close to zero and there is no real growth or there is even negative growth like in Europe raising rates will just make the situation worse.