Whatever neoliberal bankers recommend, their survival will always come before anything else.
There’s an interesting piece from AEP at the Telegraph site this morning which – while he has a vastly different take on its significance to mine – highlights a point I used to bang on about a lot here…until I realised nobody was reading it, and got fed up.
To summarise briefly, I used to blog a lot about events between Frankfurt and Berlin. I always took the view that the Bundesbank (Germany’s central bank) was a power potentially greater than that residing in the Chancellery – not least because Germany is the same as all other developed countries when it comes to the bankers: they run the place. But there is also the still-powerful 1923 paranoia about hyperinflation, and clauses within the Bundeskonstitution designed to make it difficult for any German government to do daft things with money. (Because of this, the Karlsruhe Court has been messily involved in various aspects of ECB policy under Draghi, especially those relating to several debt responsibility and QE).
The result so far is that – despite all the pundits’ certainties on QE – Weidemann at the BB has managed, by various means, to block or reduce all attempts by SuperMario to press the full-on QE button…and while the slugging match continues, so far the BB and its ECB nominees clearly have the upper hand.
Pause to hold that thought while I introduce another one.
RBS – that fine, upstanding, SME-screwing, glitch-arranging, practically insolvent bank – has just issued a paper asserting that Draghi, when he gets German permission, is going to embark upon a ‘buying spree [that] will drive 10-year yields to near zero or even lower in the core countries. The German Bund yield will continue to smash historic records, dropping to 0.13pc by the end of this quarter, pulling Italian yields down to 1pc…’. But the blast currently planned (diluted following BB intervention) isn’t going to cut it….says RBS.
It’s at this point I find myself sensing that desperate wish fulfilment is being presented as forecast outcome. And I say to myself, “Well RBS, you would say that now, wouldn’t you?” Because when you’re a bank in as much doo-doo as they are, the last thing you want is deflation taking a stranglehold: what you’d really like is lots of cheap money and places to dump your toxic waste. Thus, AEP notes:
‘…The [RBS] report said the first blast of QE to be unveiled next week – though not necessarily enacted immediately – will fail to stop the slide towards debt-deflation as powerful deflationary pressures from Asia and the global effects of China’s excess capacity overwhelm Europe’s defences…combined variants of QE will run at about €30bn a month over the first phase. This is far less than the bond-buying in the US, Britain and Japan as a share of GDP. It is unlikely to have much macro-economic effect at this late stage…’
AEP says RBS’s investment arm is “betting on” a QE blitz at around €4.5trillion, but it smacks to me more of RBS encouraging a move in that direction. In fact, take a squint at European and ECB banking releases over the last nine days, and a very clear pattern emerges: that of fear-mongering in favour of massive QE. It seems to me a spin campaign clearly designed to put the BB goblins back in their box. Lest we forget, QE has been a spectacular failure across the Globe: so suggesting that a “small” amount of QE won’t work is somewhat illogical: QE stimulation is a failure at all levels, period. The only thing it’s good at is retaining high bourse confidence via massively overvalued stocks….and saving banks.
Now let your thoughts drift back to the German situation and its constitutional oddity within Europe. The BundesRepublik is about to amend its constitution to make balanced fiscal sovereign budgets obligatory. That can only mean problems for the eurozone, in that the German government will struggle to sell debt bonds and stay within the law….it being set to declare a budget surplus which, as Ambrose notes, has meant the cancellation of some €18bn of bond issuance already. Herr Weidemann is gently cramping the Chancellor’s style.
My bottom line is that I will believe in a QE blitz at these levels when I see it.
In the meantime, if all this seems mad to you, it does to me as well, so nihil desperandum: the reality is that we have a huge conflict of needs here between various parts of the Union – as ever – with thrifty exporters on the one hand, and disorganised social spending in previous ClubMed years on the other. Tricky Trichet continues to duck whenever the excrement flies towards him, but he will always be a prime culprit to me….as well as being an inveterate liar, of course.
Germany has a large national debt (don’t we all) and the logical monetarist thing for her to do in that situation is to invest surpluses in research while repaying debt. But without debt to buy, the ECB can’t increase liquidity with which to kick-start the economy….which won’t happen anyway, because QE isn’t really any good at doing that in the first place.
The fact is, we are back full circle once more at the glaringly obvious reality: what the bankers want is not what the citizens need, and the whole idea of QE as a stimulant is a phoney.
The final “as always” in this episode is that RBS owns the upmarket ‘private’ bank Coutts. It’s economic outlook of last week also began in similar vein to that of RBS, noting Draghi’s affirmation that:
“…aggressive quantitative easing (QE, or bond buying) would be the weapon of choice..we have to act against [deflationary] risk.”
But the bit I find myself near-incandescent with anger about is this tosh (my emphases):
‘..we believe the European economy has turned the corner from crisis to what we have termed its “repair phase”….We see supportive monetary policy and weakening currencies acting as significant tailwinds for European earnings and equity-market performance in the year ahead…’
There’s not much code to that load of old bollocks: “What we want, sorry, need, is lots of cheap money for us by pretending just one more heave will do it, and of course lots of lervly, lervly QE will pump up those markets even more so we super-rich can have just one more weffer-theen creaming off of the munneee before everything crashes and we have all the gold”.
In a real world of natural ‘free’ markets there is not one scintilla of candlepower suggesting light at the end of the tunnel, there is not a shred of evidence to show any meaningful economic effects of quantitative easing, and the relationship between stock prices and real value is farcical….with the exception of Greece – where the market fears that the next bloke in just might give them the bloody good hiding they’ve been short of for two decades at least.
Berlin has always been (and remain) hypocritical about the benefits for them of a low-price euro, and very quick to run from gunfire when it looks like somebody might call lights-out for the party. However, Frankfurt – as I have said many times – is not Berlin. It has in truth very little in common at all with the Bundestag, because that’s where the politicians live. The Bankfurters know the euro is a busted flush, and they do not buy into “whatever it takes” as so emptily promised by Mario Draghi in 2013.
The European citizenry needs to face facts: as long as, everywhere across the neoliberal world (outside Germany and Greece) the only objective in play is banker salvation, we are never going to solve the economic problems we have, because bankers don’t give a monkey’s chuff about our problems. AEP alludes to this towards the end of his piece by writing that:
‘This mix of stagnant wages and booming wealth is widely-seen as corrosive for Western societies. Critics of QE – or at least QE as currently conducted – warn that political systems will start to fray if this divergence goes on for much longer, but there is little sign yet that central banks are ready to think of other ways to inject the stimulus.’
I’m still baffled as Evan-Elpus’s bottom line on QE:but if you want to see a predatory banker’s erect cock showing in the trousers, you’d be hard pushed to beat this one:
‘Regardless of the economic effects, RBS believes the first tranche of QE will be enough to set off a further dash for bonds and flood global markets with enough liquidity to keep the asset boom going as the US Federal Reserve steps back. RBS advises clients to buy “everything”, except for commodities and Asian assets.”
Perhaps we need a new bit of jargon: the Hidden Bailin.
Recently at The Slog: Where now for Yellen and the Fed?