Dirk Ehnts – The Eurozone is Fully Committed to Modern Monetary Theory (MMT)

In my book “Geld und Kredit: Eine €-päische Perspektive” (3rd edition, 2020) I gave the following recommendation on p. 243 (English version available here):

“This [stabilizing employment in the eurozone with fiscal measures] can be done by the ECB declaring that, in case of doubt, it will buy up all the government bonds of eurozone countries. This would make national government bonds risk-free. It must then be clarified which deficit limits are reasonable in times of upswing and recession. This would leave (or re-establish) the responsibility of national governments for full employment.”

This is exactly what has happened now: deficit limits are lifted, government bonds are risk-free. This was already implied. The previous ECB President Mario Draghi said in September 2019 that the ECB should explore new ideas such as MMT (here). His successor, Christine Lagarde, remarked half a year earlier that MMT is not a miracle cure, but could help to combat deflation (here). A key insight of the MMT is that government debt and deficits are not a problem (here), as the central bank ensures that government bonds are risk-free. The ECB is now doing the same. So all lights are on green: national governments can increase their spending at will. A financing question does not arise. Failures cannot occur, so questions of liability are also irrelevant....

Brave New Europe

Dirk Ehnts – The Eurozone is Fully Committed to Modern Monetary Theory (MMT)

Christine Lagarde — Interview in "Challenges" magazine

Interview with Ms Christine Lagarde, President of the European Central Bank, in "Challenges" magazine, conducted by Mr Pierre-Henri de Menthon and Ms Sabine Syfuss-Arnaud, and published on 8 January 2020.

BIS
Christine Lagarde: Interview in "Challenges" magazine

Bill Mitchell – Euro policy elites deliberately destroyed jobs and income to achieve erroneous fiscal goals

As Mario Draghi’s tenure at the helm of the ECB draws to a close, he becomes (slightly) more pointed and looser with his public statements. On Friday (October 11, 2019), he gave a speech – Policymaking, responsibility and uncertainty – at the Università Cattolica in Milan on the occasion of receiving the Laurea Honoris Causa (honorary degree). He broadened the scope of his policy ambit by saying that “I will not focus strictly on monetary policy or the business of central banking, but I would like instead to share my thoughts on the nature of policy responsibility.” In the same week, the Eurogroup (the European Finance Ministers) of the European Commission released a press release – Remarks by Mário Centeno following the Eurogroup meeting of 9 October 2019 (October 10, 2019) – which announced that they had agreed to a “a budgetary instrument for the euro area – the so-called BICC”. Don’t get too excited. The BICC will only achieve the status of an “Inter-Governmental Agreement”, meaning it will not be embodied in the Treaties. Also, the Member States will have to contribute funds in advance and must “co-finance” withdrawals. And, as usual, there was no mention of the fund size, which will be miniscule if history tells us anything. But this is all context for Mario Draghi’s Speech....

Bill Mitchell – billy blog
Euro policy elites deliberately destroyed jobs and income to achieve erroneous fiscal goals
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — When old central bankers know what is wrong but can’t bring themselves to saying what is right

Last Friday (October 4, 2019), a group of former central bank governors and/or officials in Europe, issued a statement damming the conduct of the European Central Bank. You can read the full text at Bloomberg – Memorandum on ECB Monetary Policy by Issing, Stark, Schlesinger. The timing of the intervention is interesting given the change of boss at the ECB is imminent. As I explain in what follows, the Memorandum should be disregarded. Its central contentions are mostly correct but the alternative world it would have Europe follow would be a disaster for many of the Member States and the people that live within them. It would almost certainly result in the collapse of the monetary union – which would be a good outcome – in the face of massive income and job losses and the social and political instability that would follow – which would be a bad outcome. What it tells me is that the monetary union is a massive failure. It would be far better to dissolve it in an orderly manner to avoid those massive income and job losses and to support the restoration of full currency sovereignty and national central banks. That would be the sensible thing to do....

Bill Mitchell – billy blog

When old central bankers know what is wrong but can’t bring themselves to saying what is right
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — ECB confirms monetary policy has run its course – Part 2

This is Part 2 of my two-part commentary and analysis of the – Monetary policy decisions – by the ECB (September 12, 2019). In Part 1, I discussed the shifts in the deposit rate and the changes to the Targeted longer-term refinancing operations (TLTROs). In Part 2, I am focusing on the decision to introduce a two-tiered deposit rate on excess reserves, which is designed to reduce the costs of the penalty arising from the negative deposit rate regime that the ECB has had in place since June 2014. But the most important aspect of the ECB decision was not the monetary policy changes, which will have relatively minor impacts on the real Eurozone economy. The telling part of the whole episode was Mario Draghi’s comments on fiscal dominance. We are entering a new era where the neoliberal obsession with so-called monetary policy reliance is becoming increasingly discredited and exposed by the evidence base. Fiscal dominance is approaching. And the only body of work that has consistently argued for this approach to macroeconomic policy making has been Modern Monetary Theory (MMT) despite what the mainstream economists who are now starting to realise their reputations are in tatters might say....

Bill Mitchell – billy blog
ECB confirms monetary policy has run its course – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — ECB confirms monetary policy has run its course – Part 1

I will have little time to publish blog posts in the next two weeks. But as I travel around I have to sit in trains, planes and cars and that is when I tend to write when I am away from my desk(s). Today, I am in Maastricht – after travelling by train from Paris. I have two events – one on framing and language and the other on Reclaiming the State and Modern Monetary Theory (MMT) basics. Then I am heading to Berlin for a talk at PIMCO and on Friday I am presenting an MMT workshop at the European Central Bank. Last week, the ECB made its next move, the last one for current President Mario Draghi. It will also lock in Madame Lagarde for a time and represents a rather overt statement about the failure of mainstream macroeconomics. While the mechanics of their various policy decisions are interesting and are worth discussing (albeit briefly) the overall optics were more powerful. The ECB has now joined a host of central bankers around the world in, more or less, admitting that monetary policy has run its course and is being pushed into ever more desperate configurations. At the same time, the corollary is that fiscal policy makers are failing in their responsibility to use policy to avoid stagnation and elevated levels of unemployment. Despite rather significant monetary policy gymnastics, aimed at stimulating economic growth and lifting inflation rates, central bankers have largely failed. They have failed because they are wedded to mainstream theory. Fiscal policy makers are constrained by an austerity-biased ideology and/or voluntary institutional machinery that has been created to stifle fiscal initiative (destructive fiscal rules). The cracks are widening. We are approaching the period of fiscal policy dominance – finally! This is Part 1 of a two-part series on this topic. Part 2 will follow tomorrow....

Let's hope it does take another great depression to learn the lesson, like it did last time.

Interesting that Bill will talking to the ECB. Who woulda thunk it even a short time ago. Seems like the last mile is closing.

Bill Mitchell – billy blog
ECB confirms monetary policy has run its course – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell – A leopard never changes its spots–Jens Weidmann, ECB President aspirant

Various people are vying for the key positions in the European structures (EC President, ECB head, and a range of other positions) at the moment. The presence of French and German interests typically dominate these outcomes, although as a result of the Treaty of Lisbon changes, more weight was given to the jockeying of the various political coalitions that find their way into the European Parliament. But that process has new been compromised by the decline of the traditional parties as other political forces (Greens, En Marche, Liberal Democrats etc) have gained ground. So Europe is back to its Franco-German rivalry and emerging out of that process is the unthinkable – Bundesbank President, Jens Weidmann – becoming a front-runner to take over the ECB role. He is a man with a past and his current ‘political’ statements, as he lobbies for the position he clearly covets, appear to contradict that past. A leopard never changes its spots. Beware....

Bill Mitchell – billy blog
A leopard never changes its spots – Jens Weidmann, ECB President aspirant
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Fiscal policy paralysis and ECB credibility in tatters

Last week, the EU finance ministers (the ‘Eurogroup’) met (June 13, 2019) in Luxembourg as part of their regular schedule. There was a lot of talk in the lead-up to the meeting whether Emmanual Macron’s push for a more coherent EU fiscal capacity to act as a counter-stabilisation capacity for the beleaguered Economic and Monetary Union (EMU). As is normal, there was no progress made and the press reports said that the finance ministers “continued to clash over almost every feature of the new fiscal tool, including the source of funding” (Source). No surprises at all. So the ‘fix the roof while the sun is shining’ agenda, that many Europhile Left commentators have been hoping for, was abandoned. The roof still has gaping holes and the EMU will once again fail badly when the next economic cyclical downturn comes through. And further, the lack of leadership in the fiscal area is creating a massive dilemma for the ECB and its conduct of monetary policy. In effect, the lacuna is demonstrating to all and sundry that monetary policy is incapable of achieving the aims despite the ECB deliberately breaching the legal framework established for it in the Treaties. The Eurozone dysfunction goes to a new level – and it is a time of growth....

Bill Mitchell – billy blog

Fiscal policy paralysis and ECB credibility in tatters
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — ECB denial is just embarrassing

Bill takedown of Sabine Lautenschläger, member of the Executive Board of the ECB and former Vice-President of the Bundesbank, presents a suitable opportunity for me to inject my own experience over the past several weeks following many hits from Google alerts on "MMT" and associated topics, including the MMT economists. I have not posted these since they are so off-base they are not even worth commenting on, and they are also repetitious. All wrong in pretty much the same ways.

There as been a running debate for some time here in the comments over whether the drivel about about MMT that appears in the corporate media from so-called experts in economics and finance is owing to ignorance or a desire to malign and marginalize MMT, or perhaps a combination thereof. 

I have taken the position that experts are expected to know better, so the presumption is bad faith and malicious intent.

However, I have had to change my mind on this. Now it seems to me that what I have been reading is a matter of ignorance and that the supposedly top people in economics and finance, who should know the realities of what they dealing with, e.g., the relevant institutional arrangements and accounting, don't. They are almost uniformly clueless. Worse, many don't want to know, since their minds are already made up. This is especially alarming when these people wield power in shaping the narrative and directing policy. 

Even more surprising is that the hands-on financial people that have a monetary stake in the game are similarly clueless, other than a few exceptions, notably Jan Hatzius, chief economist at Goldman and some economists at the Bank of England. (This is not too surprising, since Wynne Godley developed his ideas of monetary economics while serving at Treasury, and Hatzius brought Godley to Wall Street.)

Not that there has been no adverse intent involved in this all. Most of the these people are heavily invested reputationally in a wrong paradigm and admitting this would be disastrous for them. So at least some self-protection is also likely involved.

Then there is also the pressure of group think.

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" — Upton Sinclair, Candidate for Governor: And How I Got Licked (1935), ISBN 0-520-08198-6; repr. University of California Press, 1994, p. 109.

Bill Mitchell – billy blog
ECB denial is just embarrassing
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — The so-called euro stability spawned banking system that caused havoc

In yesterday’s short blog post – Some Brexit dynamics while across the Channel Europe is in denial (January 2, 2019), I noted that various European Commission officials were boasting about how great the monetary union had been over the last 20 years. European Commission President Jean-Claude Juncker had the audacity (and delusion) to claim it had “delivered prosperity and protection to our citizens. it has become a symbol of unity, sovereignty and stability”. I think he was either drunk or in a parallel universe or both. I provided two graph (GDP growth and employment) to show how poorly performed the monetary union has been since its inception. Today, I want to bring to your attention a Bank of International Settlements (BIS) research report which categorically finds that the European banks during the pre-crisis period not only fuelled the massive boom in sub-prime loans and doomed-to-fail assets that were floating around at the time, but also “enabled the housing booms in Ireland and Spain”. Rather than the US banking system being primarily responsible for the pre-crash buildup of private debt, the European banks were also helping the “leveraging-up of US households”. The “European banks produced, not just invested in, US mortgage-backed securities”. This role is not well understood or recognised. And it was because the Single Market mentality of the neoliberal European Union which abandoned proper prudential oversight and regulation allowed it to happen. So much for “prosperity”, “protection” and “stability”....

Bill Mitchell – billy blog
The so-called euro stability spawned banking system that caused havoc
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Don Quijones — ECB Just Launched “Better Than Blockchain” Instant Payments System

On Friday the ECB launched, with minimal fanfare, a brand new system aimed at enabling banks to settle payments instantaneously across Europe, helping them to compete with PayPal and other global tech giants. Developed in little over a year, the ECB’s not-for-profit TARGET Instant Payment Settlement (TIPS) system will let people and businesses in Europe transfer euros to each other almost instantly, at extremely low cost, and irrespective of the opening hours of their local bank....

Wolf Street
ECB Just Launched “Better Than Blockchain” Instant Payments System

Don Quijones

Barkley Rosser — The Minsky Moment Ten Years After

… as Neil Schirmer in The Alchemists (especially Chap. 11) documented, the crucial move that halted the collapse of the euro and the threat of a fullout global collapse was a set of swaps the Fed pulled off that led to it taking about $600 billion of Eurojunk from the distressed European banks through the ECB onto the Fed balance sheet. These troubled assets were gradually and very quietly rolled off the Fed balance sheet over the next six months to be replaced by mortgage backed securities. This was the save the Fed pulled off at the worst moment of the Minsky Moment. The Fed policymakers can be criticized for not seeing what was coming (although several people there had spotted it earlier and issued warnings, including Janet Yellen in 2005 and Geithner in a prescient speech in Hong Kong in September, 2006, in which he recognized that the housing related financial markets were highly opaque and fragile). But this particular move was an absolute save, even though it remains today very little known, even to well-informed observers.

I did not know this, did you?

Econospeak
The Minsky Moment Ten Years After
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University

Bill Mitchell – European-wide unemployment insurance proposals – more bunk!

The Europhiles have been tweeting their heads off in the last week or so thinking that the corner has been turned – by which they mean that Germany is about to get all cuddly with France and agree to fundamental shifts in thinking which will make the dysfunctional Economic and Monetary Union (EMU) finally workable, without the need for the ECB to break Treaty law by propping up the private bond markets. The most recent incarnation of the ‘saviour’ is a few words that the new German Finance Minister, Olaf ‘Wolfgang Schäuble’” Scholz said during an interview with Der Spiegel (June 8, 2018) – ‘Germany Has a Special Responsibility’ – about his support for a new unemployment insurance scheme for the Eurozone. It seems even the smallest things excite those who remain in denial about the long-term viability of the common currency. The proposal that Scholz was advancing has been out in the public debate for some years and is nothing like an effective solution to the terminal design flaws in the EMU. It is just an application of the same thinking that led to the creation of that flawed architecture in the first place and reinforces the conclusion that the main players in Eurozone policy setting have no intention of creating an effective federated monetary system. Just more of the same. Tomorrow, the tweets will be extolling the virtues of some other erroneous plan that some Europhile has come up with to save the system. And so it goes.…

The German solution? Create more debt for the South. How magnanimous. Another round of BS in the making.

Bill Mitchell – billy blog

European-wide unemployment insurance proposals – more bunk!

Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Ambrose Evans-Pritchard — Bundesbank back in charge of ECB, sending shivers through Italy

The European Central Bank has dropped its long-standing pledge to boost stimulus if conditions deteriorate, signalling the triumph of German-led hawks and marking a major turning point in the eurozone’s monetary regime.

The approaching end to the QE-era pulls away the protective shield for Italy and the high-debt Latin states, and for thousands of “zombie companies” kept afloat on monetary life-support.

Italy is the lynchpin of the euro. If Italy fails, the EZ fails. Stay tuned.

The Telegraph
Bundesbank back in charge of ECB, sending shivers through Italy
Ambrose Evans-Pritchard

Michael Hudson — Greek debt update

Taken from a short interview with Greece’s Banking News. 

Q. According to the IMF, Greece’s debt isn’t manageable in the long-run without being either extended or forgiven. Where do you stand towards this claim? How important is the Greek debt relief?

Michael Hudson — On Finance, Real Estate, and the Powers of Neoliberalism
Greek debt update
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

Reuters — ECB hits out at Washington for talking down the dollar

European Central Bank chief Mario Draghi took a swipe at Washington on Thursday for talking down the dollar, a move he said threatened a decades-old pact not to target the currency and might force his bank to change its own policy.

Reuters
ECB hits out at Washington for talking down the dollar
Balazs Koranyi, Francesco Canepa

Norbert Häring — The curious silence of the British media regarding Mark Carney and the secretive G30

Central bank "independence." Say again?

Oh, right. Central bank independence means political indolence of technocrats from influence or intrusion on the part of elected representatives. It has nothing to do with influence by financial industry cronies.

Real-World Economics Review Blog
The curious silence of the British media regarding Mark Carney and the secretive G30

Norbert Häring

Also

Jean-Claude Trichet cannot be chairman of the ECB’s ethics committee any longer

Asia Times — German central bank to add RMB to currency reserves

Germany looks to the future. Uncle Sam won't be pleased.

HSBC chief executive Stuart Gulliver, speaking at the same conference in Hong Kong, said that the Belt and Road Initiative (BRI) will increase the usage of RMB even further.

China’s central bank announced new measures earlier this month to encourage cross-border yuan transactions in support of BRI projects.

Asia Times
German central bank to add RMB to currency reserves: Follows ECB’s move to include China’s currency last year

Bill Mitchell — The sham of ECB independence

One of the major claims the founders of the EMU made was that by creating an independent ECB – by which they meant ‘independent’ of the influence from the Member States or other EU bodies (such as the Eurogroup) – they were laying the foundations of financial stability and disciplining the fiscal policy of the Member States. This so-called independence was embodied in the – Treaty on the Functioning of the European Union – where Article 123 prevents the ECB from giving “overdraft facilities or any other type of credit facility” to the Member State governments (and other EU bodies); Article 124 prohibits any Member State government (and other EU bodies) from having “privileged access” to the financial institutions; and Article 125 prohibits the ECB from assuming any liabilities or “commitments” of the Member State governments (etc) – the famous ‘no bailout’ clause. But a recent report from the Corporate Europe Observatory (CEO) – Open doors for forces of finance – (published October 3, 2017) – suggests that the ECB feigns independence and is in fact captive of the largest profit-seeking financial institutions that sit on its advisory groups. In other words, the ECB has become a vehicle to advance private return and avoid regulative imposts when the TFEU outlines an entirely different role for the bank.

Bill Mitchell – billy blog
The sham of ECB independence
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Michael Roberts — Beware the ECB bearing gifts for Greeks

The announcement by the European Central Bank that it has so far made €7.8bn in profits from its holdings in Greek government debt reveals the true nature of the so-called bailouts of Greek government finances that the EU leaders organised in return for massive austerity measures from 2012 onwards....

Michael Roberts Blog
Beware the ECB bearing gifts for Greeks
Michael Roberts