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Kudos To Herr Weidmann For Uttering Three Truths In One Speech
Submitted by David Stockman via Contra Corner blog,
Once in a blue moon officials commit truth in public, but the intrepid leader of Germany’s central bank has delivered a speech which let’s loose of three of them in a single go. Speaking at a conference in Riga, Latvia, Jens Weidmann put the kibosh on QE, low-flation and central bank interference in pricing of risky assets.
These days the Keynesian chorus in favor of policy activism is so boisterous that a succinct statement to the contrary rarely gets through - especially at Rupert Murdoch’s Wall Street yarn factory. But here’s what penetrated even Brian Blackstone’s filters:
“The biggest bottleneck for growth in the euro area is not monetary policy, nor is it the lack of fiscal stimulus: it is the structural barriers that impede competition, innovation and productivity,” he said.
Needless to say, that is not only the truth but its one that is distinctly unwelcome to the policy apparatchiks in Brussels and the politicians in virtually every European capital. Self-evidently, printing money and running up the public debt are pleasurable and profitable tasks for agents of state intervention. But reducing “structural barriers” like restrictive labor laws, private cartel arrangements and inefficiency producing crony capitalist raids on the public till are a different matter altogether. In the political arena, they involve too much short-term pain to achieve the long-run gain.
But implicit in Weidmann’s plain and truthful declaration is an even more important proposition. Namely, rejection of the mechanistic Keynesian notion that the state is responsible for every last decimal point of the GDP growth rate. Indeed, the latter has now become such an overwhelming consensus in the political capitals that to suggest doing nothing on the “stimulus” front sounds almost quaint—-a throwback to the long-ago and purportedly benighted times of laissez faire.
But perhaps stolid German statesmen like Weidmann remember a thing or two about history, and have noted that what is failing in the present era is not private capitalism, but the bloated omnipresent public state. And having almost uniquely among DM nations resisted the siren song of Keynesian activism, Germans can also observe that their economy has not plunged into some depressionary dark hole for want of sufficient fiscal activism.
Undoubtedly, they can also note that by refusing to take the Keynesian bait, Germany has achieved a level of fiscal rectitude that is utterly unique in recent years—–especially since the great financial crisis of 2008. For good reason, therefore, Germany does not want to subsidize the fiscal irresponsibility of the rest of the EU, but that’s exactly what would happen under the Bernanke style QE that Weidmann so stoutly resists.
Unlike the bevies of Keynesian cool-aid drinkers who dominate policy in Brussels and throughout the rest of Europe, Weidmann recognizes the truth that central banks have not abolished the laws of supply and demand, and that massive bond buying under QE creates a false bid and false price for public debt. That his antagonist, Mario Draghi, remains utterly clueless about this elementary point is perhaps explainable by their variant histories. To wit, other than his brief period as a highly paid trainee at Goldman Sachs, Draghi spent many years as a top official in the Italian treasury.
In that respect, sometimes chart pictures are indeed worth a thousand words and here is a dramatic case in point. Unconsciously or otherwise, Draghi represents the financial culture of a state which has already crossed the fiscal Rubicon, so to speak. The average interest rate on Italy’s mountainous debt is still about 4%, meaning that at its 135% debt-to-GDP ratio, Italy needs 5-6% nominal income growth every year just to tread water—-even if it runs a consistent “primary” budget surplus.
But Italy’s nominal GDP has not grown at all during the last 7 years, and has no prospect whatsoever of bursting out of the blocks at a 5-6% rate of growth. So the only way it can survive is by means of constant and massive financial repression by the ECB. Notwithstanding all of the gumming about “low-flation” and the monetary hobgoblins of the 1930s, Draghi’s drive to push the ECB into outright QE and to massively re-expand its balance sheet by purchasing peripheral debt is about one thing alone. Namely, the monetization of public debt that can no longer be serviced by current taxes—or at least taxes that the pampered and cowardly politicians in Rome, Madrid and elsewhere are willing to impose on their electorates.
At the end of the day, here is the reason Weidmann has issued once again a loud and pointed “nein!” with respect to QE.
While he was at it, Weidman spoke the truth about the low-flation pretext for more money printing by the ECB, as well.
“The low inflationary pressure is for a large part due to the decline in energy prices and the adjustment processes in some euro-area countries—factors beyond the direct influence of the [ECB’s] monetary policy,” he said.
Undoubtedly, Herr Weidmann is aware of the facts. Here is the longer-term trend of for core inflation—ex energy and food—for the Eurozone. Yes, consumers are enjoying a temporary respite from high oil, commodity and other import prices. But as Weidman well knows there is no “specter of deflation” haunting Europe.
Finally, Weidmann landed a solid punch on Draghi’s scheme to pursue QE through the back door of buying what amounts to junk bonds on the secondary market. The the President of the Bundesbank rightly said that the ECB’s program to purchases bundles of loans to households and businesses, with the aim of raising money supply and boosting the flow of credit to the private sector—-
” transfers risks from financial institutions to the central bank and, ultimately, taxpayers. This would run counter to everything we have strived to achieve in banking regulation over the last years…..”
Kudos To Herr Weidmann For Uttering Three Truths In One Speech
by Brian Blackstone at the Wall Street Journal
German central bank President Jens Weidmann reiterated his opposition to the European Central Bank’s recent decision to purchase large sums of asset-backed securities, saying the program undermines efforts made in banking regulation.
In prepared comments to a conference in Riga, Latvia, Mr. Weidmann said he doesn’t see risks of persistent declines in consumer prices, known as deflation, though there is a risk of inflation staying too low for too long.
He urged governments to enact structural reforms to improve their economies, and pushed back against calls for Germany to enact more stimulus to beef up its economy.
“The biggest bottleneck for growth in the euro area is not monetary policy, nor is it the lack of fiscal stimulus: it is the structural barriers that impede competition, innovation and productivity,” he said.
Last month, the ECB unveiled a program to purchases bundles of loans to households and businesses, with the aim of raising money supply and boosting the flow of credit to the private sector. Mr. Weidmann opposed the decision, saying it transfers risks from financial institutions to the central bank and, ultimately, taxpayers.
“This would run counter to everything we have strived to achieve in banking regulation over the last years,” he said.
Mr. Weidmann, who sits on the ECB’s 24-member governing council, signaled he has little, if any, appetite for more dramatic measures despite annual eurozone inflation rates that are far below the ECB’s target of just below 2%. Consumer prices were up 0.3% in September from one year earlier, a five-year low.
“The low inflationary pressure is for a large part due to the decline in energy prices and the adjustment processes in some euro-area countries—factors beyond the direct influence of the [ECB’s] monetary policy,” he said.
The ECB should only respond if this weakness extends to prices more broadly, he said, which economists refer to as second-round effects.
Read more here - http://online.wsj.com/articles/ecbs-weidmann-criticizes-decision-to-purchase-asset-backed-securities-1413537180?mod=WSJ
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careful driving on the autobahn...... no good truth goes unpunished
we though the same thing...
WOW!
just history repeating itself
http://en.wikipedia.org/wiki/Alfred_Herrhausen
Yeah, there are a few people I am keeping my eye on quite carefully, if any of them get off'ed/killed/die in a freak car accident -- it will the end.
My list thus far;
- Alex Jones
- Michael Savage
- Jens Wiedemenn
- Marie la Penn (and her Lts.)
I don't have Farage and Grillo on the list for one reason and one reason only -- their promise for a referendum. If they win, I have no doubt there would be a referendum -- the problem is I trust the EU elections as much as I trust Chinese elections.
I wish both of them would run on the premise -- "no referendum, our election is the referendum. If we get into power -- we will remove ourselves from the organizations."
Achtung, Baby!
you'll never hear about this on CNBC
speaking of CNBC:
CNBC Ebola editorial attacks ‘idiocy and vileness of the Republicans’
http://tinyurl.com/p57vzfl
So, who leaves the EU first: UK or Germany?
Either way, I'm sure that France and Italy would immediately fill the void by accepting reponsibility for backing the periphery with their own surpluses. Oh, wait......
And his fourth truth, had he not wished to maintain a degree of diplomacy, would have been to point to the results of QE in The US and Japan both per se and a definitive illustration of his earlier point regarding distortion of real pricing mechanisms.
It's only by "Getting out of the way" that the CB's (All of them) will ever force the politicians to make the necessary structural adjustments.
Not Germany.
The PC culture here is that Germany has a "special responsibliity" "eine besondere Verantwortung" due to the media, run be the Tribe, beating everyone over the head with "feel guilty about the second world war." You seirously cannot go 4 hours on German public television without some sort of "we really fucked up bad 70 years ago. I hope none of you like money today" kind of nonsense.
While Germany will never be the first to leave -- I imagine it will be a very, very very close second.
If they don't leave, the Germans will be forced to pay for all the losers in the EU. It's that simple. Your choice...
Uh... Germany does have a special responsibility because of the nazi regime's crimes against humanity, Jews in the spotlight.
Something very bad did happen.
Junk away, snakes.
I junked you because your comment is bullshit.
Germany has the same kind of special relationship with europe/israel the same way the southern states have a special relationship with Liberia -- it only exists in the kinds of the feeble-minded and koolaide drinkers.
Does that mean the British have a special relationship with the Germans, see Dresden as a good starting point.
Agreed.
As an American who is half German, I have always felt that the "crimes against humanity" is duplicitous. War by definition is a an abomination and a violation of civilized behaviour. Germany should have been and was crushed in a meatgrinder by the end of the war and deserved it. But it is the art of hyprocrisy to have a higher sense of superiorty to then try people in a "civilized" court of law. Over 2 million Germans died within 2 years of the wars end while they were in the contol of the Allies.
Germany,more so than Japan, has done more to atone for their 13 years of insanity that any nation before or since WWII. Do you see this same sense of atonement frm Japan for Nanking and its occupatoin forces, the Soviet for the eastern bloc, China for its own 'red book' purges. Turkey for the Armenians, Cambodia and Vietnam for the "re-education" camps and its Killing Fields?
Personnally after 75 years, Germany owes nothing more than to remember and learn from her history, challenge those who wish to deny it happened and stand firm against those who would try and take her back down that road
The comment is not meant to imply Germans are somehow more evil than other people or nations. But we all have our crosses we must bear. This one is big and wanting it to go away only makes it heavier.
Comparing it to Liberia is somewhat crass unless I miss your meaning. The United States had an internal war over the matter of slavery and thankfully the right side won. Strangely, such a sacrifice of blood served as atonement.
Regarding Dresden, sow the Shoah reap the whirlwind from hell.
the one and only truly unabashedly fascist network in the world.
Agreed. Not that anyone at CNBS would have the mental capacity to understand what you mean.
Strauss-Kahn, part 2?
Autobahn is safe. Is garage and roof that kill you.
Lufthansa is the only Boeing customer that would not take BUAP. Thanks to Satoshi, I think it was who brought BUAP to my attention. Maybe the Malaysians uninstalled theirs after MH379 was vanished and that's why MH17 had to be shot down instead of crashed?
CUE AUTO ACCIDENT IN 3...2...1
Germans should stop doing vendor financing and along with the BRICS get rid of mercantilism and focus on mutually beneficial trade with people who actually provide value in return.
Another extinct volcano.
Like Juergen Stark, he found himself abandoned by his political masters when the choice came between principle and expediency.
Safely contained in his gilded cage at the Bundesbank he can preach virtues that no one actually follows.
Not entirely correct. ECB decisions must be UNANIMOUS so if a member of the Board, especially a member from a large country, says "Nein", then nein it is.
I'm surprised that people on this Blog would not be more appreciative of someone actually having bthe balls to speak the truth.
Quite true, which is why Juergen Stark resigned rather than to accept the ECB's debt buying spree, blessed by Merkel and Schaeuble.
Weidman was Merkel's finanacial markets guru at the time.
Politics decided the price of virtue was too high, but a fire breathing Bundesbank is politically very popular in Germany.
So this way, Merkel can have her cake and eat it too, the Bundesbank dispenses virtue and Draghi dispenses credits that fund German exports.
And with the rise of the Eurosceptic parties, Merkel's political balancing act is going to have to include support for the Bundesbank's position on QE at the ECB. Especially with the position of the French and Italians on unconstitutional budget defecits. Thrift and hard work have historically been the driving forces behind Germany's economic success, and I don't see that changing anytime soon?
The German Supreme Court said no to QE. Its unconstitutional and outside the writ of the ECB. Germany would leave first.
Not suprising, given their Weimar experience.
The German Supreme Court said no to QE BUT left the final decision to the European COJ. It's not clear to me what happened with that decision. It was announced as being due LAST week, then I read it is actually next week, but now there is total silence. Perhaps it will be announced in confidence. Sounding more like MH017 all the time??
Submissions began being heard this week, I believe, but a finding is not expected before 1 year.
Was just the plaintiff arguing why QE was illegal, no ruling was made
Not true, germany has dissented plenty of times. Draghi always confirms at monthly briefing when a decision was not unanimous.
On trivial, inconsequential and/or procedural matters, but Draghi is NOT going to go full-QE without Germany's agreement. Which is unlikely to be forthcoming. Hence, no OMT or other QE to date, despite Draghi's wishes.
Hmmm. Let's see: no deposit insurance? Check. No Treasury Secretary? Check. No SEC? Check. Common currency? Check. Open borders? Check.
Doesn't sound like you can get a Keynsian solution over there.
Unlike the USA the banks are not beholden to...let alone mere appendages of the State.
If you really want to see Government in action wait until this Ebola things blows wide open. These clowns are gonna flee the battlefield right after Election Day once the cover ups of how bad this outbreak is become known.
Ebola Drag (Wall)Street event racing for the nearest exits.
Structural barriers that impede competition, innovation and productivitytends to benefit a small number people who nevertheless can sway an election and keep those who support such growth-destroying policies in office. So these 'bottlenecks' Weidmann discusses will remain.
I also applaud Weidmann. I am writing the following here just because it occurs to me now. Remember that guy who wrote "Inflate or die!" some years ago ... I bet that the powers that be are maybe seeking a way to get much CPI-U increase without it either being apparent or blameworthy. Remember, the powers that be already have done these deceptions by omission:
http://patrick.net/forum/?p=1223928
Freudian slip of tongue.
Long live the Fatherland.
what germany or any astute economist never mentions is the distinct advantage germany has by having a single curency. nien compete unfairness doctrine of euro!. so portugal or spain has to sell olives whilst germany(an industrial giant) sell beamers and at the end of the day who has an account deficiet? hmmm. they need to dump the euro like we need to dump the fed... fairness doctrine of nein compete if the euro died, but it will not, cause the power originates from where? the industrial giant with all the clout, ha....
- "the industrial giant with all the clout"
You forget who runs Barter Town. Germany is an occupied country. The US, the occupying country takes its orders from an international financial cabal.
Nailgun has just gone unaccounted for....
Germany will leave first, they will align with Russia and China and the rest of the Shangai cooperation organization. I don't think that France will take Germany's plae either after the 9 ? Billion dollar fine imposed upon BNP by the US justice department.
"Germany will leave first, they will align with Russia and China"
Sounds nice, but unfortunately that's wishful thinking. Remember, Germany has that "special" responsibility because of WW1 and specially WW2.
Funny, I thought that "special responsabilities" for WW1 were among the main causes of WW2. Must have read some alternative history...
Three truths = one truth. The EU dream is over.
The bureaucratic god of Goldman does not want competition in his domain. He wants only slaves. Even the slavers and priests are his slaves ... This is the core structural barrier. Competition is thought of as a sin.
I never thought that I would have to admit that Lloyd Blankfein was literally telling the truth when he said he was doing God's work.
He is ... time for a new God. This is the dawning of the age of Aquarius.
Time for a new God, I agree, but watch it. Robespierre tried that to.
http://upload.wikimedia.org/wikipedia/commons/1/19/F%C3%AAte_de_l%27Etre...
Never mistake.
Germans are much closer to Russians (sarcastic humor, willingness to do things etc. - so that invaded Rome).
Today barbarians are in sublime sense.
Germans never liked French much less Anglo-Saxon.
It would not surprise me if in the next German election some party kindly solicit the USA to withdraw from their territory and that they - the Germans - to join the BRICS.
France, Italy, Portugal, Spain, Greece, and one lot of social welfare southern Europe would be fucked.
NATO summarize the UK and Canada than the USA.
Turkey was not so much believe in the neck trampled accept part of NATO - they are historically closest to the Slavs.
Poland will be cannon fodder - have immense shame to see my Polish surname when I think about geopolitics.
The price of oil will not be down for long, already talked about it and, as can be feito.Egito occupy Libya - what's left of that territory, Israel is nothing against a force which sees facing the spread US contingent.
Some missiles on the heads of some Sheiks and oil production will pro bag.
Iran closes the strait, just the American naval fleet is as pockets in Ukraine.
Who blinks first is fucked.
I can say that will not be the Barbarians.
They know how to fight the cold.
hehe.
I come from a place in Prussia that swapped borders with the Polish and Austrian Hungarian empire over and over again for hundreds of years. Even my ancestry is a crazy mix.
That being said -- the Polish are egregiously stupid when it comes to geopolitics, and are making the same mistake they made in the first and second world wars.
"America and the UK will save us."
I hope to God the Germans never again take on the Russians. I hope to God Germany never takes on anyone ever again. I like living in a huge Switzerland, but given the choice of who to fight and who to align with -- I think the Russians in German tanks with Russian gas and Russian MiGs with German tech would be a pretty unstoppable combination. Just say'in.
Making the Russians and the Germans fight each others has always been the way of the Anglo-American empire to maintain their world domination. An early example, when the Russian Czar Peter III came to power in 1762 and made peace with Prussia and introduced a pro German/Prussian policy he was murderd by his with Katharina, the so called great, supported by the English ambassador to Russia. And even Churchill somewhat supported the rise of the Nazis in the Germany, because he knew that one of Hitlers primary goal in his book "Mein Kampf" was a war against Sowjet Russia. Having peace and good relations with Russia should be the primary goal of every German government to prevail in this world. Everything else doesn´t really matter for Germany. Germany is not a pure western country, Germany is a slavic country too and that´s what is constantly supressed by the west Germany elite that is ruleing in Germany right now.
I've got that 1929 feeling all over again.
The end of the EU ?
Is Italy under Berlusconi leaving the EU , with Germany's support ?
See
https://www.academia.edu/8816411/Rogue_Swan_EU_disintegration
http://www.zerohedge.com/news/2014-10-17/strange-liaisons-putin-visits-b...
I believe that Putin and Berlusconi are the only statesmen who love woman in Europe.
hehe.
julian
assange
The day Carla Bruni Sarkozy tell shit on a biography factories guillotine in France will be triggered.
hehe.
I found this on RT, www.rt.com home page, not seen it posted on ZH. It's about CIA infiltration into German Press and bought off jourbnalists by former journalist Udo Ulfkotto.
"German Journalist Blows Whistle On How The CIA Controls The Media"
http://www.zerohedge.com/news/2014-10-09/german-journalist-blows-whistle...
Queue kiddie porn charges for Herr Weidmann.
Or is the kiddie porn unit based in the UK secret services? I don't remember.
With all due respect to David, who is awesome, the reason we have no real growth is that we have no investors anymore... the entire market is dominated by HFT and no one is really doing the angel finance that supported the most entrepreneurial country on earth until we decided a handful of VCs and PE folks could and should be responsible for everything. Just another example of our dysfunctional finance system.
Time to start investing in the real economy again people.
Unfortunately one of the bottlenecks for growth in the euro area is exactly monetary policy. So cut the crap.
common sense:
central banks can't control inflation or deflation if they do not have FULL control of ALL forms of money supply and private sector behavior.
the cost of money has a marginal impact (multiples of 0.5%) on changes to supply and demand of capital in a significant way ONLY at large difference in interest rate levels (multiples of 5% adjusted for tax rates) and ONLY when there is a large stock of "swing" (more than 10% of GDP) stock of private sector supply of and demand for capital.
a government or its agent central bank CANNOT create favorable fiscal or trade balances leading to long term capital surpluses beyond a countries natural resources or an ability to trade globally with SUPERIOR quality or education of a work force.
governments and their agent central banks do not contribute to an economy other than through the administration of the redistribution of taxes to benefits to deprived sectors or political favorites or economic favorities.
wars create conditions for disease, famine and deprivation to the non-military civilain population wherever they occur, whether these are local or regional, whether they are engaged in by local actors or foreign actors.
so let's see what happened to the adage "if it ain't working, stop doing it" and how come there is only one "experiment in monetary policy" that provides brdging finance towards a hoped for nirvanha that has never existed. how come nobody has come forward with an alternative form of government beyond "get out of government", "do it by borrowing to make up for past failures" or "steal what we need by force" or "1984"?
could the reason be that governments should only act to take care of those who cant possibly take care of themselves and that governments and their associated agent central banks can only create welfare dependency or greed, avarice, sloth, jealousy and envy as soon as they develop beyond this basic tenet of the role of government regardless of the color of the political spectrum or stance taken by central banks?
just saying...
Money supply including all credit outstanding or possible vs all goods made or will be made. That's what matters.
Solution: put all of it under control of one party forever.
PROBLEMO SOLVED-O!
Right? Amiright?
One Bank to rule them all and In the Darkness Bind them?
The trade being proposed by Wiedmann is clear: structural reform (unpopular in France, Italy, Spain, GReece etc) for monetary stimulus (hugely unpopular in Germany).
The Germans aren't going to do something for nothing in return
I read it that he was saying that with EZ structural reform, monetary stimulus would not be necessary.
Jens Weidmann's analysis of EZ low-flation being limited to energy prices and not the wider consumer economy is excellent.
The same argument almost certainly applies to UK inflation figures where the liars in the BoE, UK Stats muppets and of course Cameron's Government deceitfully imply - if not say in plain words - that it applies across the board on prices. It most certainly does not. Very many essential goods prices in the UK continue to rise at far higher rates than the pawltry 1.2% p.a. announced last week.