The German daily business newspaper Handelsblatt published an interesting article last week (September 17, 2020) –
Schäuble fordert Debatte über lockere Geldpolitik der EZB – which said that the former German Finance Minister and now President of the Bundestag was calling for a debate on the ECBs ‘loose’ monetary policy. He has circulated a letter and a discussion paper among the new discussion group within the Bundestag, created after the German Constitutional Court had ruled adversely in relation to the ECBs public asset purchase programs. The letter criticises the low interest rate policy of the ECB and the various asset purchase programs conducted by the ECB. It appears to be in denial with the state of affairs across Europe, which are heading catastrophic territory with the second wave of the virus gathering pace and authorities having to face the need for a second lockdown.
The German daily business newspaper Handelsblatt published an interesting article last week (September 17, 2020) –
Piety has no bounds it seems. The Sunday Times ran an Op Ed at the weekend (September 12, 2020) – John Major and Tony Blair: Johnson must drop shameful no-deal Brexit bill or be forced to by MPs (paywall) – which told us how angry former British Prime Ministers Tony Blair and John Major are with Boris Johnson about the Government’s intention to introduce the Internal Market Bill to ensure the so-called Withdrawal Agreement is compatible with national law. They started by appealing to the international treaty status of the Withdrawal Agreement, which outlined Britain’s terms of exit from the EU. The Op Ed called the decision by government as “shocking”. The Remainers are jumping on the ‘breach of international law’ bandwagon like there is no tomorrow. Of course, they never highlight the fact that they want to be part of an arrangement, which is created by international law and which regularly violates that law to serve its own political and elite interests. And those breaches, which include gross human rights abuses and deliberately undermining the prosperity of its own citizens through mass unemployment and more, have had severe consequences for humanity. The fact that the British government is now declaring national law will no longer be subjugated and subservient to international agreements is not in the same ball park of international violations.
Wednesday brings music and not much blog posting activity. But I have been following the debate in the UK and Europe about the likelihood of some sort trade deal or not with some interest and amusement. There are several facets to the discussion: (a) the on-going hypocrisy of the European Union elites; (b) the necessity for major state intervention in Britain (and everywhere) and the possibility that the Tories will abandon Margaret Thatcher’s EU single market legacy is another sign that the paradigm shift in macroeconomics is well under way. (c) the way in which the Labour party are being wedged on the issue and refusing to come out in support of further state aid. Instead, inasmuch as they are saying anything, they are just repeating the mindless, neoliberal dogma about ‘free trade’. They will lose on that one, one thinks. All round it is interesting to follow as an external observer.
The US Bureau of Economic Analysis (BEA) released the – Gross Domestic Product, Second Quarter 2020 (Advance Estimate) – data last week (July 30, 2020). It shows that the US economy has declined by 9.49 per cent between the March- and June-quarters. On an annual basis the decline was 9.54 per cent. This is the largest quarterly contraction in recorded history. Consumption expenditure declined by 10.1 per cent in real terms and business investment by 17.4 per cent. The collapse in consumer expenditure was mostly concentrated in services (-22.6%), which reflected lockdowns and the unwillingness of consumers to continue normal practices. Personal saving as a percentage of disposable personal income jumped dramatically from 9.5 per cent in the March-quarter to 25.7 percent in the second quarter. That is a testament to the endemic uncertainty that the pandemic has created. The contribution of net exports actually rose, not because exports rose (their individual contribution was -9.38 points), but because of the slump in imports – a smaller leakage from the expenditure system (adding 10.1 points t growth!). Overall, there is no trend – just a massive mess. How the second wave of the virus impacts is anybody’s guess but lots more deaths and more disruption is certain.
Today’s blog post is a draft for another deadline I have this week, this time writing for a European publication on the state of affairs in the Eurozone. I have four major pieces of work to finalise this week so, as in yesterday, I am using this time to progress those goals. For many regular readers it will be nothing new. But, putting the arguments together in this way might just provide some different angles for people who haven’t thought about things in this way before. Regular transmission will resume on Thursday (probably).
Things are obviously getting desperate out there in financial media commentary land. If one could express written text in graphical terms then there are a number of financial journalists out there that look – like a rabbit caught in the headlights – that is in a state “of paralyzing surprise, fear, or bewilderment.” A good example of this increasingly observed syndrome is an article in The Australian newspaper today (June 30, 2020) by Adam Creighton – Never forget that governments have no money – it is always ours (subscription required). This sort of journalism is becoming an almost daily occurrence as it becomes obvious that capitalism is now on state life support systems and the extremities of government intervention are demonstrating very clearly what Modern Monetary Theory (MMT) economists have been saying – and the only ones that have been saying it – for 25 years or so. I often note that Japan has already pushed the fiscal and monetary policy parameters beyond the limits most countries have explored in peacetime and mainstream economists have systematically predicted various scales of disaster and have always been wrong. Now all countries are at extremes and still no fiscal disaster. But the mainstream mouthpieces – these financial journalists who seem to think the stuff they read in first-year text books from mainstream economics programs are in same way the basis for expertise and knowledge – are in advanced states of dissonance. Drivel follows.
The – Battle of Sedan – in September 1870, was a decisive turning point in the relationship between France and Germany, which still resonates to this day and has influences many subsequent historical developments. When I was researching my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – I read a book by the French linguist and historian – Claude Digeon – which was a published form of his PhD Thesis. He analysed the impact of the loss at Sedan to the Germans on the French intellectual culture. He conjectured that between the loss in 1871 and the start of the First World War, France suffered from a “‘hantise chronique'”, une obsession pour l’Allemagne ou, tout du moins, pour une représentation de l’Allemagne (a ‘chronic obsession’, an obsession about Germany or, at least, about a representation of Germany). The same sense of inferiority continues to drive French behaviour, particularly in relation to Germany. It has created two negative dynamics: (a) it has increasingly divided the French population and opened the door to the Far Right to influence policy; and (b) led to France trying forever to command the world stage which has led to the Eurozone disaster.
On Tuesday (June 9, 2020), Eurostat published the March-quarter national accounts data for the EU and the Eurozone – GDP down by 3.6% and employment down by 0.2% in the euro area – which revealed that the decline in GDP “were the sharpest declines observed since time series started in 1995”. Of course, Europe went into this crisis in poor shape. Eurostat noted that “In the fourth quarter of 2019, GDP had grown by 0.1% in both the euro area and the EU.” So it was barely crawling anyway due to the austerity bias that is built into the monetary system. The larger Member States such as France and Italy (-5.3 per cent) and Spain (-5.2 per cent) are in terrible shape. In the last few weeks, we have been hearing and reading a lot of hype from European politicians about ‘Hamilton moments’ as various euro figures are bandied around about government support for the European economy. Emma Clancy’s article (June 6, 2020) – Behind the Spin on the EU’s Recovery Plan – is sobering if you are drunk on all the Euro elite hype. There isn’t really a recovery plan at all nor any significant shift in attitudes towards creating a functional federation, the only structure that will see Europe break free of this austerity bias. And as I examined the Eurostat data in more detail something very stark was apparent.
Governments save economies. Never let a mainstream economist tell you that government intervention is undesirable and that the ‘market’ will sort things out. Never let them tell you that large-scale government bond purchases by central banks lead to inflation. Never let them tell you that the government, when properly run, can run out of money. There is unlimited amounts of public purchasing capacity. The art is when to apply it and how much to release. That can only be determined by the behaviour of the non-government spending and saving and the state of idle capacity. It can never be determined by some arbitrary public debt threshold or deficit size. And the central bank can always buy however much debt they choose. At present the ECB is buying heaps and keeping the Member States solvent. That is not its state role but given there is no other institution in the Eurozone that can serve the fiscal function effectively and ‘safely’, it has to do that. Otherwise, the monetary union would quickly dissolve. I would take their bond buying programs further and write off all the debt they purchase. Immediately. Go on. Just type some zeros where they have recorded large positive Member State debt holdings. That would be something good to do in a terrible situation.
I haven’t had time yet to fully work through the decision by the European Commission yesterday to provide grants and loans to struggling Eurozone countries. I will comment on that when I have had time to understand the implications and be in a position to provide fair comment. It seems to be a vastly inadequately response in quantum, on top of an existing lack of fiscal support. But more on that another day. Today, I am investigating the latest data from the ECB. On May 26, 2020, the ECB released its bi-annual – Financial Stability Review, May 2020 – which seemed to excite some journalists to advance narratives that ‘sovereign debt’ investors (although none of the Eurozone nations are sovereign) will soon become spooked by the sharp rise in public debt levels in Europe, which will “threaten to undermine private-sector spending” and stall any growth prospects. The quote is from a Financial Times article (May 26, 2020) – ECB warns of challenge for eurozone from soaring public debt – which followed the release of the ECB’s Review. The elephant is, of course, the ECB assets and its ability to control all yields on public debt at will.