Sunday, October 15, 2017

Bill Mitchell — Wolfgang Schäuble is gone but his disastrous legacy will continue

History is often made by single, very powerful individuals acting on their own mission according to their own calling. Many of these individuals are seemingly immune to the reality around them and try to recreate their own reality – sometimes succeeding to advance the well-being of those around them and beyond, but, usually, they just leave the main stage after creating havoc. I could name names. But only one name is relevant for today’s blog – Wolfgang Schäuble, the former CDU German Minister for Finance. Schäuble resigned that role after the recent German elections and is now being feted by the mainstream press as some sort of visionary who kept the Eurozone together through his disciplined thinking and his resistance to populist ideas that would have broken the discipline imposed on Member States by the European Finance Ministers. History tells us differently. He has overseen a disastrous period in European history where its major step towards political and economic integration in the 1990s has delivered dysfunctional and divergent outcomes for the Member States. Some countries (Greece) has been ruined by the policies he championed while others are in serious trouble. Further, despite him claiming the monetary union has been successful, the fact is that the Eurozone is still together only because the ECB has been effectively violating the no bailout articles of the Treaty of Lisbon via its various quantitative easing programs since May 2010. Should it stayed within the ‘law’ of the union, then several nations would have been forced into insolvency between 2010 and 2012. The problem is that while Schäuble is now gone from the political stage, his disastrous legacy will continue....
Bill Mitchell – billy blog
Wolfgang Schäuble is gone but his disastrous legacy will continue
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

30 comments:

Matt Franko said...

"They might only be buying government bonds in the secondary market but the impact is the same as if they were just buying the debt in the primary issuance stage.

So “we” didn’t succeed. The continuation of the euro is only down to the central bank breaking the law. Without that breach, it would have been curtains, at least for several of the nations (Italy and Spain to name notable examples)."


Well the nations are still paying on the bonds to the ECB so how would it have been "curtains" otherwise?????

The ECB receives the bond interest and then distributes it via some 'equitable' scheme back out to the Treasuries of the nations... so then those nations have revenues to be able to spend via fiscal policy and the system remains in action...

Its not like the nations are in default on their bonds to the ECB...

the ECB can offer more for the bonds because the Central Bank is not capital constrained... while the member depository institutions are capital constrained..

so you still have the ECB buying 60B per month of assets and thus loading the member depository institutions with offsetting 60B per month of negative yielding risk free assets which they have to add 6B of additional capital to possess which take time to raise if they even can for reasonable terms...

So ECB buys bonds and collects interest and then gives it back to the national govts to spend via fiscal...

At least it is not just being saved by agents in the non-govt which would be a leakage...

Meanwhile we are seeing some decent economic numbers out of the EZ as this lash up seems to be working... (ofc just not for everybody as usual...)

the policy is acting to reduce savings which is why you can see some decent numbers coming out of the EZ lately....

Matt Franko said...

I guess what Bill is saying is that the 3% savings limit is not high enough... textbook MMT "deficit too small!" type rote teaching....

But this is what you get when you try to operate a system solely via legal constructs of any form... nobody does this..

You can see here that the legal construct says "3% limit!", but then they still have to yield to the technical realities of the system and have the CB step in front of the depository institutions and non-govt savers and take the interest and re-distribute it back into the govt accounts as deposits that then increase the govt accounts and make more amounts available for withdrawal....

the greater lesson should be to point out the technical inadequacies of any legal construct..

Matt Franko said...

Here:

https://www.reuters.com/article/us-eurozone-economy-production/euro-zone-industry-output-rises-sharply-in-august-idUSKBN1CH12M

"BRUSSELS (Reuters) - Euro zone industrial output rose by far more than expected and at its highest rate in nine months in August as production of capital goods, such as machinery, rose sharply, boding well for economic growth in the second half of the year."

something is working...

Tom Hickey said...

something is working...

The rich are getting richer.

Kaivey said...

What many conservatives don't realise is that there would be a lot more rich people if the didn't vote for right-wing neoliberal governments.

Matt Franko said...

"European Union states decided on Monday to close disciplinary procedures against Greece over its excessive deficit after improvements in Greece’s fiscal position, "

https://www.reuters.com/article/us-eurozone-greece/eu-ends-greeces-deficit-procedure-in-positive-signal-to-markets-idUSKCN1C00VS


They are being denied the ability to save...

You can't just make laws Tom and expect that to work...

Tom Hickey said...

The problems that Greece is experiencing are owing to being forced to repay predatory loans from loans sharks.

Tom Hickey said...

Of course, "Greece" is partly to blame for entering into those arrangements. But that was done by individual Greeks. Who were they and who profited from it?

Blaming "the Greeks" (the Greek people) for what was essentially criminal behavior is nonsense.

And Goldman was up to its neck in this.

Matt Franko said...

C'mon Tom those are metaphors....

Tom Hickey said...

those are metaphors....

Shorthand. I don't have the time to run down articles about it right now.

Tom Hickey said...

Here's one for you though.

Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.

Spiegel (February 08, 2010)
How Goldman Sachs Helped Greece to Mask its True Debt
Beat Balzli

Matt Franko said...

Still leaves savings as the main problem...

Warren sez: "if somebody saves then we can't buy all of our output...."

So if you implement policy that prevents/reduces savings then you can reduce this problem...

Matt Franko said...

Look if they keep saying everything is going to shit and then it gets better you lose all technical credibility....

Matt Franko said...

If things are improving you have to be able to explain that too...

Tom Hickey said...

So if you implement policy that prevents/reduces savings then you can reduce this problem...

You are joking, of course, unless you mean that incomes rise across the board to the extent that all saving desire is met. That is not a prospect for Greece at this point. There is no let up of austerity yet. The big news from the IMF is that won't increase the austerity, as was expected. That's because "Greece is doing better."

If things are improving you have to be able to explain that too...

Getting better for whom? Which classes are doing better?

This is like that argument that there is nothing to be concerned about with inequality because global poverty is also declining.

Dig into the details.

Matt Franko said...

How do you know there's no let up of austerity yet ?

Tom Hickey said...

<i>How do you know there';s no let up of austerity yet ?

Because the IMF just said that the existing level of austerity is sufficient to deal with the debt and doesn't need to be increased.

Tom Hickey said...

One of the reasons that Greece has been "doing better is privatizations. The neoliberal agenda is privatization and deregulation and the rolling back of the welfare state. All have been "doing well" under the neoliberal agenda imposed on Greece.

TornosNews.gr, t27 'prior actions' over privatizations by end of year for Greek governmenl

Michael Nevradakis, How To Become A Greek Oligarch In Seven Easy Steps

Tom Hickey said...

Ekathemerini, One in three Greeks live in poverty or social exclusion, Eurostat shows

Matthew Franko said...

Well the govt could be increasing the rate of withdrawals in response to the increase in deposits due to the ECB policy of buying financial assets and distributing the coupon payments across the EZ to the component Treasuries...

They judge austerity like the MMT people, they look at the fiscal balance not the components...

MMT: "deficit too small!"

ECB: "defict too big!"

Neither is correct...

MRW said...

Matt, the US and the European Union (EU, ECB) have nothing to do with each other. Completely different macro economic situations. All "deficit too small!" in the US means is that the federal government spending is not sufficient to help US sectors produce demand that the sectors can produce should the federal government request it, but the tax demands are too high for the moment.

The US has the power to change that. The ECB does not have that luxury, nor the nations of the EU except for Germany.

It's harming what European individual nations need to survive the ECB rules and restrictions, which the nations have zero control over.

Frankly, I can’t believe you believe this shit you peddle.

Matt Franko said...

It's not the tax its the savings...

A larger deficit means some are saving more...

Warren: "if someone saves we can't buy our output..."

It's not "if taxes are too high then we can't buy all of our output..."

You're channeling your inner Art Laffer with your focus on the taxes....

ECB is stepping in front of would be term savers and buying the bonds at 60B per month, leaving no net term savings for the nongovt as the depositor can only have a zero term asset...then CB is collecting the interest and distributing it back to the Treasuries of the nations and those Treasuries are spending it into nongovt...

A scientist should be interested if they were competent scientists...

Matt Franko said...

MRW good thing you didn't become a surgeon because you could never make the first incision for fear it might hurt the patient....

Matthew Franko said...

You have to break some eggs to make an omelette...

MRW said...

It's not "if taxes are too high then we can't buy all of our output..."

You're channeling your inner Art Laffer with your focus on the taxes....


No, I'm not. It's the spending that isn't sufficient.

Only government spending can overcome excess saving, or demand leakage as they like to call it.

Matt Franko said...

There is nothing to prevent the additional govt spending from being saved... in which case it does you no good...

This is what happens when the deficit increases.....

They have signed a treaty that limits their savings to 3% of GDP they have to figure out a way to enforce that while maintaining acceptable outcomes for all...

Herr Schauble might consider himself one of the ubermenschen but sorry he is not qualified to try to figure that out he is a trained lawyer and politician...

Matt Franko said...

The law says 3% now the lawyers have to shut up and go away... let technocrats figure out how to implement the policy...

MRW said...

“There is nothing to prevent the additional govt spending from being saved... in which case it does you no good…”

In the US? [I don’t know what the fuck they do at the ECB.]

The government orders four new airports rebuilt and seven repaired after the hurricanes, and the contractors are going to save the money and not perform the services they’ve been contracted to perform? No repercussions? No accusations of graft?

The government “spends” $1.2 trillion to repair every bridge in the country and the contractors in the 50 states are going to park the dough in their commercial accounts (or buy T-bonds and go to the Hamptons) and do zip? No repercussions? No backlash for their contractual

The government buys shitloads of toilet paper, other janitorial goods, light bulbs, and office supplies for all federal buildings nationwide, and the contractors are just going to park the dough in their local accounts—purchase orders be damned—and not fulfill the purchase requests? No repercussions? No legal ramifications?

The US federal government doesn’t “spend,” Matt. It buys. It purchases. It provisions itself. it doesn’t “spend” shit. It goes to private sector suppliers and vendors, and gets what it wants and needs at prices it sets.

And at a time when no one else in the country is buying these things—because of private sector saving like late 2008/2009, or debt repayment—and creating the sales that produce jobs that produce income, only federal government buying (or “spending” as you call it) can pull it off. Businesses are sitting on what these days? $2-3 trillion in capital (according to 2012 figures) waiting for sales to come back?

MRW said...

They have signed a treaty that limits their savings to 3% of GDP…trained lawyer and politician...The law says 3%...

That’s Europe. Not here. You can’t compare the two.

Matt Franko said...

Uhhhhh.... the post is about Europe.....