According to my usually in-the-know Berlin banking contact, some IMF mega-brains have come up with a cunning plan to help their departing boss with her new job. It’s being tested in Washington right now and Ms Legarde will try and sell it to the Berlin Elite in November.
It comes with a brand new acronym : E.Q.
No prizes for guessing. But here is a clue: It’s currently keeping the Fed at ease. Those with mirror vision probably got it already. It’s a duck insisting on not being a duck : Evasive Quacking. (1)
What else is new in the land of EQ(=QE) ? Nothing much. Just more of the same. (2)
I still got too much of a life to repeat myself on QE, negative rates and “TINA forever”. So I prefer to refer you to my previous mutterings.
However with the Fed doing the easing there is a fresh angle. The Dollar is not the Euro. Nor is the Fed the ECB. But both are rumoured to ruminate MMT . And both, I daringly suggest, could do it without the roof falling in. The ECB because Germany and the Northern Hawks sit on a mountain of money. The EU’s aggregate deficit is Bavarian compared to the Anglos’. And the Dollar can still do what it likes. Global seigniorage is still a relatively fine thing.
But the effects of MMT-type policies would be different. EU “solidarity” is not federal. Hence arguably it is Germany that would benefit disproportionately: Winner takes all. That wouldn’t help Germans being loved in Europe. So perhaps it’s just as well “Stupid German Money” (3) will make sure MMT isn’t gonna happen. Not as long as the country of Schuld is in charge. And I don’t mean you know what. I mean Schuld as in Schulden. Like debt is guilt. And credit is evil.
With his tax cut Donald Trump has arguably already done his own self-indulgent fiscal version of MMT. It’s just the trickling down that’s been a bit sticky. The cuts may have got stuck with big corps but nicely fuelled Republicans’ Trumpian amnesia about all sorts of core principles? Like they seem to have mostly forgotten about that doomsday debt clock ticking ?
Just shows it is important who creates the new money. Presumably the Democrats would be crucified for such profligate lack of prudence. Certainly in the UK Labour would be slaughtered for such fiscal incontinence. Whilst there are only whispers of disapproval when willing-to-die-in-the-ditch-2nd-class-classics-degree-Boris Johnson’s Ayn Rand-and-nano-state-worshipper Sajid Javid announces a tsunami of borrowed state money to flood the voters’ imagination.
Confusing? Just ignore the quacking and follow the money …
Notes + References
(1) “Federal Reserve Chairman Jerome Powell today … stated that the U.S. central bank will start expanding its balance sheet “soon.” However, Chairman Powell also” (emphatically stated) ” that this will not be quantitative easing, repeating: “This is not QE. In no sense is this QE”. But, as KITCO’s Gary Wagner observes, whatever way you “you look at it” this duck “… still looks like a duck.” And The Times’ Philip Aldrick agrees there is something Humpty Dumpty going on “It may look like quantitative easing and smell like quantitative easing, but it isn’t quantitative easing — because the Fed chairman says so.”
(2) The “hell-has-no-fury-like-a-creditor-financially-repressed” farce continues, apparently intent on outdoing the London Mousetrap. Or as bloomberg puts it “Anti-Draghi Revolt at ECB Still Won’t Die”
The Ecomonist keeps trying to impress with its reasonableness and former Draghi Lieutenant Peter Praet has appealed for calm.
The Independent’s Hamish McRae thinks the “… financial establishment …might be right … (to) have labelled Mario Draghi’s tenure a disaster for Europe ” – they
And The FT has learnt that the bank’s “…monetary policy committee … advised against resuming its bond purchases. … The leaking of the confidential contents of the committee’s letter comes as opponents to Mr Draghi’s loose monetary policy fight a rearguard action to put pressure on Christine Lagarde. … It is one of the few occasions that the committee’s advice has not been followed in the eight years since Mr Draghi became president … However, the committee’s opinion is not binding and has been ignored at least four times in as many years by the council. … The ECB declined to comment.”
And on negative rates Lawrence H. White has argued that “The Zero Lower Bound is No Reason to Punish Currency Users”
(3) “Stupid German Money” as in the “black zero hawks'” worship of commodity money inducing a kind of catatonic coma: The Germans “… are doubling down on ideological certainties, a 20th Century pre-digital model, and the status quo. There is a whiff of the Brezhnev era about the long cautious reign of Angela Merkel …” The Tory Telegraph’s Ambrose Evans-Pritchard seems to be making points made previously by Max Planck’s Marxist Wolfgang Streeck ?