Rob Parenteau — Draghi’s Doom Loop(s) – More Than Just the Euthanasia of the Rentiers

The recently adopted quantitative easing (QE) approach by the ECB, in concert with the negative deposit policy rate (NDPR) introduced last summer, has set off a number of nested disequilibrium dynamics that may unwittingly introduce a material increase in systemic risk for the eurozone, and perhaps beyond.

Lord Keynes anticipated what he termed a “euthanasia of the rentiers”, as he expected active monetary policy would be successful in reducing long-term interest rates, and the share of the population living off of bond coupons would eventually just wither away. By way of contrast, if the following assessment is correct, Draghi may have signed a mutually assisted suicide pact with finanzkapital in the eurozone.

The logistics of implementing QE (including questions about whether there are enough bonds for the ECB to purchase, as well as the related market “liquidity” concerns), or whether or not QE represents what Lord Turner refers to as “open monetary financing”, are not the real problem, or at least not the most compelling ones. Rather, the implementation of QE with a large and increasing share of the bond market displaying negative yields to maturity (NYTM) presents a number of serious challenges to financial stability in the eurozone.

To cut to the chase, the ECB’s QE and NDRP measures may be setting investors up for a discontinuous price event, much like what was experienced in the equity market meltdown back in October 1987. Even if a disruptive yield spike is avoided, or even contained and reversed by ECB heroics, pursuing QE under NYTM market conditions may lead to a significant dampening down of bank and insurance company profitability. In the extreme, the solvency of key eurozone financial institutions could once again come under question. This could further complicate the ECB’s chances of achieving their 2% inflation goal, as it may dampen the bank lending channel as a key transmission mechanism for unconventional monetary policy.

The entire set up, in other words, begins to take on many of the characteristics of Andrew Haldane’s Doom Loops. In this case, however, the ECB may unintentionally be setting off nested Doom Loops that will feed on each other, and thereby magnify systemic risks quicker than investors and policy makers might otherwise imagine possible. Below is a concise sketch of the main elements of the Doom Loop dynamics the ECB may have set in motion.....

Naked Capitalism
Rob Parenteau: Draghi’s Doom Loop(s) – More Than Just the Euthanasia of the Rentiers
Rob Parenteau

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.”

Can They Possibly Put Europe Back Together Again? And Do WE Have To Finish Breaking The USA Too?

Commentary by Roger Erickson

With apologies to both Andrea Terzi and Humpty Dumpty.

How Austerity Broke European Stability

Question to Andrea Terzi: From your local view, do you think all the continent's horses & all the continent's men can put Humpty Dumpty's dynamic nest egg together again?

Brussels Sprouts sat upon all,
  Brussels Snouts made everyone else fall,
Now all the continent's rentiers & all the continent's banksters ...
  Will they possibly allow Europe to put itself back together again?

Do they even want to? Or has the own-goal become a More Perfect Gangsterism, rather than a More Perfect Union?

If so, then Russia's revenge against Napoleon will finally be complete, and scorched economy, though not scorched earth, will reverse momentum and finally reach all the way to Paris, under Pootie the Great. Who says the Russian's aren't most adaptive of all? For every culture, there may well be a killer Propaganda Prion Party. How ironic that Brussels Sprouts would be the vector. "No one could have predicted that!"