Monday, April 11, 2016

Schaeuble vs Draghi


ZIRP minus driving a wedge:

On Friday evening in Kronberg near Frankfurt, Schaeuble received the Wolfram-Engels prize from the Stiftung Marktwirtschaft, a foundation, which according to its website, stands for “Ordoliberal thinking and action”. This was a group receptive to Schaeuble’s message and he didn’t disappoint. In comments that were picked up by a Dow Jones reporter, Schaeuble went so far as to blame Draghi for the rise of the Alternative for Germany (AfD), a new anti-immigration, anti-euro party that surged into three regional parliaments last month with stunningly strong scores. 

What is behind this rhetorical escalation? It appears to be tied to growing concerns in Berlin about the knock-on effects of rock-bottom interest rates on pensioners. Another article in Der Spiegel said Chancellor Angela Merkel and Bavarian leader Horst Seehofer, worried about rising risks of “Altersarmut” (poverty among the elderly), are planning to make more generous pensions a key promise in the 2017 election campaign. The fear is that the AfD could seize on the issue of pensions to build on their recent gains. Suddenly, it seems, ECB policy has become a major political risk for the governing parties.

A house divided... AGAINST ITSELF... cannot stand.

16 comments:

Ignacio said...

ZIRP is necessary for the ECB political survival.

"Poor elders" living off <1000 EUR (or <600€ in southern Europe) problems are not going to be solved by getting 10€ more a month.

As long as the median savings per household are way below the median mortgage/credit card debt and liabilities in general rising rates is suicidal. Is the same in the USA with the average family being loaded on credit cards and not having 1000 on cash for contingencies.

Sure, part of the rentier population is gonna be angry and will vote those promising to them freebies, but that's not the mood for most of the population.

Financial system got itself between a wall and a hard place by promoting a debtor society for short term profit instead of a more balanced distribution between collective equity and liability, and now they are paying the inevitable price for it, because free lunches don't exist.

If you want to live off your capital Matt, invest it (which is the way it should be, anyway). IDK, take one of those Mike courses, because ZIRP (or near-ZIRP) is here to stay for a long time just because demographic trends, job market trends, income trends, etc. Banks and deposits broke their social contract and failed to fulfil their job (they always do...), relying on concrete asset classes for appreciation instead of lending to business for growing up capital investment, it's impossible for returns to come back under this paradigm until there is a more equitable share of wealth in society.

At least this gets us closer to genuine capitalism where enterprises fail because they are inefficient, about the only good thing of low growth and stagnant environment (although the governments still are picking winners all the time, a bit too much).

Ignacio said...

Then is the problem that under the current expansion much of the growth is unaccountable and not monetized, not transmitted through the financial system. Because much of the current productivity growth comes from cheap IT which act as multipliers and is non-monetizable like the old model.

This is something that will take a while to get used to, as we move to a non-savings society where rentiers are euthanized slowly. Until governments assume their positions as money monopolists and employ adequate policies the space for rentiers and investment income will keep diminishing, the current trends crush the space for that, and unlike when the primary and secondary sectors suffered their own productivity gains and pushed people onto tertiary sector, there is no 'fourth' sector which can derive new income sources from capital investment (this is what I was talking about: the current wave of productivity growth and multipliers is in large part non-monetizable).

This poses a problem that humanity previously didn't have to face, as it requires solutions that don't relay on the markets and capitalism, but on social institutions and governments, and we are trapped by the thinking that everything has to b solved by markets (aka neoliberalism). This will eventually implode and give space to new solutions, raising rates is not a solution in a society of non-savers.

Matt Franko said...

"is here to stay for a long time"

It may not be... if we get some price appreciation going (somehow) then they will start to raise and then feedback will come into the scene and things will get going leading to more raises...

I'm currently thinking Fed (US) then BOE (UK) then ECB then BOJ... will start to help... could end up out of control in a few years...

Need SPs above 2100 at minimum or preferably at new highs for Fed to go again...

Matt Franko said...

"not a solution in a society of non-savers."

idk about that iirc Z.1 has about $18T in ERISA accounts here in the US.... this is more or less "savings" under the ERISA law.... its retirement savings...

So "a society of non-savers" has saved $18T.... pretty much munnie there...

Some dont save ... yes... or cant save... but some can/do save... these are the people being hurt by ZIRP... as they have been trained to expect 5% or so over the last 4 or 5 decades...

Matt Franko said...

PS to be clear imo its at least sophomoric for the top end of MMT town people to be recommending permanent ZIRP currently ...

Bob said...

If you want to live off your capital Matt, invest it

Oh no, not another rent-seeker ;)

Ignacio said...
This comment has been removed by the author.
Ignacio said...

So "a society of non-savers" has saved $18T.... pretty much munnie there...

Excluding financial sector outstanding is beyond $50T, the ratio of debtors (or in best case, non-savers) vs. savers WAAAAAY favours debtors by a far margin. And then you look at the distribution within savers and non-savers, and u get the picture why is political suicide to keep favouring the creditor class (is fine when you do it to a small single nation like Greece, but not sustainable if you do it to your own population). The youth is even starting as an even worse initial position, not only not having saves but being deep into debt in some cases.

as they have been trained to expect 5% or so over the last 4 or 5 decades...

Tough luck, times change. Japan is the future for the West (but probably worse, as Japan could afford to export deflation as global economy was growing), has been going over there for almost 3 decades, rentiers will have to get used to it. Even USA with positive demographic growth (although this may start to reverse as Mexicans flee USA) may suffer the same fate.

This won't change unless government policies change to make a more equitable share of wealth and 'growth'. Central banks can't afford to raise rates.

PS to be clear imo its at least sophomoric for the top end of MMT town people to be recommending permanent ZIRP currently ...

ZIRP works fine if the government it's doing it's job, which it's not.

Matt Franko said...

Well then why recommend it?

Tom Hickey said...

Well then why recommend it?

Because we should be going forward and not backward.

Tom Hickey said...

Germany may (should) just bite the bullet and leave the euro. That would end its export advantage since the new DM would be valued higher than the common currency that makes German exports less expensive relatively than they would be otherwise.

Greg said...

Maybe, just maybe, prolonged ZIRP will force the govt to do its job and get fiscal.

Even if they start helicopter drops, we here know that is a fiscal operation

Matt Franko said...

"common currency that makes German exports less expensive relatively than they would be otherwise."

That's quantity not price Tom, MMT is (supposedly) 'price not quantity...' ... The German firms set the price for their products in USD terms whether they financially report in Marks or EUR back in Germany...

Tom Hickey said...

Regardless, Matt, that's the way that the German elite thinks of it. They would be out of the euro by now if they didn't. The push for EZ did not emanate from Germany, but from France. The sweetener for Germany was the export advantage that the relatively lower value of the euro would have over the DM.

I believe it is not possible to determine the deciding factor in fx or traders would have figured it out by now.

Matt Franko said...

They are all out of paradigm Tom.... They have no chance

Bob said...

Btw, I love that picture.
Reminiscent of "dramatic chipmunk":
https://www.youtube.com/watch?v=a1Y73sPHKxw