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Why Germany Objects To ECB QE (In 1 Crazy Chart)
While "lowflation" continues to stun central bankers around the world, Zee Germans remain stoic on the sidelines (courtesy of Jens 'nein nein nein' Weidmann's last voice of reason left in the world) in their derision of the ECB's sovereign QE efforts. If you wondered why they are so vehemntly opposed to the printing of money... perhaps the following chart will help explain - just how quickly a nation can swing from 'zee stabilitee' to 'zee hyperinflation'.
Source: Goldman Sachs
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The Germans may not like QE, but the totality of their vassal status means they will go along with it when the order is eventually given.
*chuckle*
With Euroblock sovereign bonds already at such low yields (Even the PIIGS) it is difficult to understand what good would come from the ECB buying sovereign debt (On the secondary market to make it "Legal")? The Germans may be guided in part by history but I would suggest that common sense plays a large part also?
Common sense, now there's a commodity in short supply these days.
Especially within the tenured PhD economics professor and Central banking communities?
exactly. I see several narratives, all centered on what the authors are selling
- Dr. Krugman selling endless deficits financed by monetizations as the only way to fight Mars. so the eurozone sovs are supposed to spend more, and the ECB to buy their debt
- megabanks asking for more, sweet credit
- some megabanks "all in" in a further decline of the EURUSD, aided by ECB jawboning
- the doom! doom! doom! sellers having a fancy tale about all CBs "printing like mad", regardless
- and the Squid selling a fancy, convoluted story about the eurozone having too little quality collateral, selling both doom! and spend more! and print!
here below my longer rant on this theme
path of least pain>fucking print dat shit, print, i don't wanna work...
I think the Fed will buy state munis before ECB has a real QE. ECB just has to buy a little more time for $ support to give out and they'll be positioned for the new system.
Hard to disagree with your logic. I think last Friday German 10 years were yielding something like 55 basis points. How much lower can they go?
A monetarist might argue that creating high-powered money would increase reserves and stimulate lending, but I can't imagine lack of reserves is what's limiting bank lending in Europe right now...
Indeed. The experience elsewhere has been that the printed funds just finish back at the CB in the form of "Excess Reserves", which just creates more leverage on the Balance Sheets of the Commercial Banks helps nobody excpet perhaps the CB's who can force the Commercial Banks to buy Sovereign debt using these "Created from thin air" funds during periods of QE-off. The problem is that the CB's don't understand (Or at least want to admit in public) that the problemsa are structural and the product of TOO MUCH DEBT. Monetary Policy, ie printing more money, can't solve that problem. CB's should be standing up to Governments and saying we have done what we can, now you must get your budgets back in balance. Which was the whole point of having "Independent" CB's in the first place..
"problemsa are structural and the product of TOO MUCH DEBT. Monetary Policy, ie printing more money, can't solve that problem."
Yes. It. Can.
It just depends on the kind of money. Credit? Nope, it just creates more debt. Paper? Yes, a Euro note can pay many bank debts while credit is extinguished as it pays one debt.
Sorry, you lost me.....
Oh I think I see what you are getting at
For every issue of 1 unit of credit you genenrated 19/20 of debt in the fractional reserve banking system operating at a leverage of 20:1 (could be higher) because only one is real. But paying down the value with real paper backed by a hard asset cancels the debt.
The problem is they are not printing more money backed by a hard asset that is their problem it is all rehypothectated or illusionary. NOT REAL. Debt explodes (19/20) and no real value in circulation to actually remove any debt.
Interesting.
"CB's should be standing up to Governments and saying we have done what we can, now you must get your budgets back in balance. Which was the whole point of having "Independent" CB's in the first place.."
which is actually exactly what the ECB has been doing and saying... when talking in the eurozone, to eurozone parliaments
while jawboning the EUR lower when talking... in English. with many sweet promises of printing, perhaps so that this immense machinery that is the "Wall Street Stocks Forever UP!" does not complain
now, about eurozone governments bringing their budgets bank in balance... see here, the European_Fiscal_Compact
Ermm not really... Europe produces all it needs, so if worse comes to worst Europe could decide to stop globalization and become self sufficient.
In this light Germany wants to keep its options open by not jumping into the ocean like lemmings.
So, no QE.
PS This is one of the main reasons why the UK will leave the EU, as they are the real vassal state and failed to change Merkel's mind. Zee Germans said NEIN to the UK/US.
I wonder what their opinion is if 50,000 US troops weren't there. Nein!
I still have my money on Super Mario bringing the EU down.
Super Mario might be bailing on the ECB sooner than later
The reason for hyperinflation in Germany was because of the enormous reparation tributes in gold because of the Versailles despotism so banks and communities were allowed to produce their own money to keep the economy from collapsing and this money was accepted by the central bank to be exchanged to Reichsmark (not Goldmark).
NIRP is a EU stripper that you pay $20.00 for a 2 minute lap dance.
Merkel, Like the FAGGOT Obama, does exactly as she/it are told. If the German people are fed-up with the EU then they have to Jettison Merkel. We needed to Emer-Jett Obozo years ago but the Republicans are just as dirty as the Democrats.
You noticed that ... under pseudo democracy you get two sides pretending to argue but in fact they represent the same. So you go backwards and forwards constrained in beleiveing this democracy is real and you make a difference.
Get over it, all serfs are dispendable and in fact you need to jetison the lot.
The media plays its part here too, if any were to become a threat to the status quo then they immediately become outcasts kind of kicks democracy in the face but only to silence the voice.
Well when they come for the sheeple I don't care you got what you voted for and why I jacked the concept of democracy and voting forever.
I AM NOT VOTING TO BE A SLAVE AND IF > 50% REFUSE TO VOTE THEN CONCENSUS WAS NEVER GIVEN ALLOWING THE SLAVE REVOLT TO OCCUR.
Germany just passed new national minimum wage law
http://www.bbc.com/news/business-28140594
The new new national minimum wage law will trickle in new taxation to budget new government wage increases.
can't believe they haven't mustered the stones to throw off the occupation shackles yet.
"can't believe they haven't mustered the stones to throw off the occupation shackles yet."
That's because they want: "Money for nothing and chicks for free", Dire Straits.
Typical liberal sh.t heads!
They want the US to defend them from Russia so that they can piss away all their capital in entitlements and to "entertain" the "Greens" by building tunnels for frogs to cross their high speed expressways.
I put very little faith in the Germans.
A decaying society of self-important yes-men followers. They first followed Bismark, and got lucky at the right moment in history. Then they followed the Kaiser, Hitler and then the lie that is Pax Americana and the Bundesbank.
Soon they will be buttfucked like everybody else, unless they wake up and actually stand for something, and say "Nein" for once in their history. Merken is a bought and paid for pussy.
Not holding my breath.
How are they different from any other nation of yes-men? The US has been the same since the civil war
Germans are brought up from childhood to believe very much at the core of their being in "die Regeln" (the rules). In fact they have a police force of people (das Ordnungsamt) who's job it is to enforce all those petty forgotten laws which the rest of the planet largely ignores.
As a Brit in Germany I find it amusing when they end discussions with "those are the rules" as if "that's it", even when the rules are patently pernicious, absurd or misapplied. Hence The Weimar Hyperinflation and The Holocaust. BTW Anyone who thinks the Germans will leave the Euro while there are no rules to do so is delusional. They will "do the Euro" until collapse.
lol. while you are right in many ways when it comes to Germans and "ze rules"...
when it comes to the EU and it's regulations.... it's the British Civil Service that becomes the strangest follower of all rules without any recourse to sanity, enforcing them even when they are patently pernicious, absurd or misapplied. something that in Brussels has been always seen as "creative missaplication" for political purposes
agree, "They will "do the Euro" until collapse" in the same way as you Brits "will "do the British Pound" until collapse". that's history, people cling to useful currency until it becomes worthless. eventually
the main difference is after an eventual, not-so-clear-when collapse. Germany, France, Italy and all the other eurozoners could go on with new, national currencies, fresh out of the box, with their long histories, as if they never left. an option which gives a further argument for not leaving that currency union which makes your countryman so mad, like the currency grids of old which caused untold protestations on your isles, until Soros kicked the "then-overvalued" Pound in the face
oh I largely agree. British Civil Servants take great pleasure in applying stupid and downright bizarre laws, the stranger it is the more likely it is to be enforced. What's different is the mindset. The Germans will apply the rules because applying rules is the right thing to do. The Brits on the other hand will apply rules because applying rules is an opportunity for mischief and they'll watch the chaos unfold. The irony being the only word we have for this is German; "shadenfreude".
can't fault your reasoning. when is the UK going to find it's way in or out of the EU? it's becoming silly. the FT was even ventilating a tongue-in-cheek comment section article about Greater London leaving the UK and keeping in the EU while "Little England" (sic) would finally leave the EU
The Euro-zone is in a far bigger mess than recent headlines and figures suggest. Most of the growth in the Euro-zone over recent years has been in Germany and that bright spot is now under pressure.
Italy has been in recession for two years; France’s economy has been stagnant for months. Now that Germany is slowing many economist think the chances of a Japan-style deflationary spiral have risen sharply. Blame is being cast upon German policymakers that remain pigheadedly opposed to the stimulus the euro area wants, but what they need is serious reforms. Debt does matter! Bottom-line and what it all boils down to is Germany can’t keep buying Greek bonds with German taxpayer money until the end of time.
http://brucewilds.blogspot.com/2014/10/global-economic-malaise-due-to-debt.html
The rest of the EU up to their noses in debt need to inflate it away. The Germans see no reason to commit mass suicide with the PIIIGS. The proper solution is to dismantle the EU.
Thar be a depression.
Get to work Mr. Bullard!
Meanwhile, in our own backyard...Your time is now free to your employer if it does not relate to the productivity for which you were hired. So next time you are forced to sweep the floors for free, shut up and just do it slave!
"...the Supreme Court ruled that under the federal Fair Labor Standards Act, a company is required to compensate workers only for duties that are "tied to the productive work" that employees are hired to perform. Writing for the court, Justice Clarence Thomas said that it matters not that an employer requires an activity; the activity must be "indispensable" and "tied to the productive work" that the employee is hired to do."
There's something very wrong with the thinking that goes on in these "bright legal minds"...
Where in HELL does Thomas get the idea that it's OK to demand another's time without compensating them? Where is the law that says an employer can categorize that time differently so as to avoid paying for it?
Scalia is even worse...have you read any of his opinions? I read one he wrote on a bankruptcy ruling that sounded like the reasoning used by a paranoid schizophrenic. The man spent TWO FUCKING PAGES attempting to torture a novel meaning out of the word "projected", and not ONCE did this esteemed Constitutional Originalist ever even ask rhetorically what the original meaning of the damned law he was talking about WAS!
This followed the ruling of a lesser court where THAT judge also agonized over this very-hard-to-properly-define-word...
Since the original law contained probably at least 15-20 words, I figure we can expect our judiciary to get a handle on what that pesky law actually means in 50 years or so...
Or they can just ask a reasonably literate 12 year old.
So it was that little Weimar hyperinflation/Hitler episode that makes them wary of the results of a currency collapse?
Europe is like a dysfunctional family agreeing that things will be better if they all live under one roof.
*cough*
The Club Med citizens, Belgians, and French are getting very nasty about continued austerity, Italy and France are wobbling, and Greece may repudiate their "odious debt", so Draghi is in a panic to do SOMETHING, ANYTHING!!! that will stave off an implosion. Germany wants to maintain the Euro system that enshrines Germany as the manufacturing and exporting master to the rest of the EU, and to protect the bail out of the PIIGS which was a stealth bail out of French and German banks which had lent rashly to the PIIGS. At the same time, the voters of Germany do not like sending hard-earned money to the PIIGS as a bail out (not realizing that the PIIGS never got it, but that it saved the German banks).
Draghi must also be concerned about the currency race to the bottom being practiced by so many countries will result in the Euro rising disastrously, hurting exports from the already weak EU economies. The recent rise of the US dollar from a flight of capital from emerging markets to the relative safety of the dollar has given Draghi some breathing time, but he must fear the oil price crash and de-dollarization moves of the BRICS and SCO nations will push down the dollar. Raising interest rates is not an option since that would immediately cause crises in France and Italy and sink the PIIGS for good. About the only tool left in Draghi's Keynesian toolbox, now that ZIRP, NIRP and a form of purchase of Sovereign bonds has been tried (outright purchase of sovereign debt by the ECB is outlawed by EU law), is rampant money printing - and to do that he will have to get the Bundesbank to sign on.
I find it hard to believe that Draghi actually holds the view that ECB QE will stimulate the EU economy - he must be aware of the failure of QE in the US and Japan, and the role of easy credit in the creation of the PIIGS problem. But as a means of providing capital to EU banks which are teetering, QE may be the answer. The fall of the Ruble, by the way, has reportedly put some Austrian and French banks on the ropes, adding to Draghi's concerns no doubt.
Germany has most effective economy in EU that is why deflation is good for them - falling out competitors will leave markets to germans
US troops occupy EU. US has 120 military bases in 20 EU countries.
US will determine the way. Probably crash EU, before it leaves NATO and goes to Euroasia
Yeah. And it's Gold which is unstable?
why weimar style inflation is not possible in EU today ?
Weimar hyperinflation was only possible because germany had welfare distribution system established and functioning
Today EU does not have welfare distribution system anywhere near on the scale of weimar republic
you forgot the /sarc
why you think so? welfare spending in the eurozone is done through the national budgets. the same which are tending - as per treaties - towards balanced budgets
lots of people here comment without taking any context with reality, for example the painful adjustment several countries in the eurozone have taken for their pensions
So the FED is stealing physical gold now? Shave off a bit here , shave off a bit there.
https://www.youtube.com/watch?v=4ML24eiVM_Y
(there is a part 2 also)
"Zee Germans remain stoic on the sidelines (courtesy of Jens 'nein nein nein' Weidmann's last voice of reason left in the world) in their derision of the ECB's sovereign QE efforts. If you wondered why they are so vehemntly opposed to the printing of money... perhaps the following chart will help explain - just how quickly a nation can swing from 'zee stabilitee' to 'zee hyperinflation'. "
if it was really only Germany, or, better, the non-socialistic political parties in Germany, then the ECB would be printing like mad, at this time
nope, in all polities that partake to the EuroSystem monetary association you'll find people and parties that ask for monetary stability
further, the argument about how quickly a nation can swing from "zee stabilitee" to "zee hyperinflation" is a tad weak. war payments picture heavily in the story of the German, but not only German Hyperinflation
fact: the highest balance sheet sum that the ECB had was 3'100 billions in June 2012. that number, written out, is 3'100'000'000'000, or 3.1 trillion
fact: since then, for over two years, the ecb balance sheet has been shrinking. to below 2'000 billions in September 2014, or just less then 2.0 trillion
that's one cool trillion... "unprinting". or de-printing. something so unprecedented, so incredibly out of what is expected from central banks in a financial world dominated by the FED, that it's still not really understood except by few, and completely droned out from the discussions dominated by Wall Street asking for more printing, by all cbs
here an interesting article from Business Insider from September 2014, of course with a bank (Barclays) asking for more printing by the ECB (note Barclays is not in the eurozone)
note the "eligible collateral" that is around and could potentially be used for more ECB "printing". note that if the ECB would want to seriously tap the first categories of collateral (Regional Government Securities, ABS, other marketable assets, corporate bonds, covered bank bonds and uncovered bank bonds, it would have a pool of 8.0 trillion at it's disposal
let's assume that it would be only buying up (or lending to banks, LTRO-style, based on the collateral) half of it, this would mean a potential increase of 4.0 trillion
this without touching the forbidden "central government securities" (sic/sigh) which, with a potential of more then 6.0 trillion, would give a potential increase of 2.0 trillion
so what do we have here? a relentless banker-sponsored propaganda campaign towards "the ECB must print, we the banks are convinced about it"
and a relentless (doom!) propaganda campaign against central banks in general that refuses to see that while the ECB could easily add 4.0 trillion to it's balance sheet, with not too much sweat... it did the opposite for two years, and went from 3.1 down to 2.0
so what am I supposed to believe? Barclays and the other megabanks all telling me that the ECB must print, without ever going into details about why? or Goldman Sachs with it's "dearth of eligible collateral in the eurozone" fancy story?
or the (perhaps) "anti-cb" (sometimes pro-gold, but always pro-doom!) counter-propaganda that tells me that the ECB is already "printing like mad", when it's doing the opposite since two years? something so incredible, so counterintuitive that should have been the theme of at least a dozen ZH articles? except that it does not fit any usual, simple "doomer" narrative?
or should I believe the very ECB, which is saying everything it can to keep the EURUSD down? and which shifted "new, moar printing" from September to November, and now to January or perhaps March?
or should I believe "the markets", which have again an overhang of immense bets on the EURUSD going down?
"printing" is also called monetization. the usual, simplest and imho still quite accurate narrative is that first you have gov spending too much, and then the CB buying it up
for all purposes, the ECB did not "buy it up". it just threatened the "markets" to do so, something that has tradition here, but not in the US
there is no "glut" of "central gov securities" in the eurozone. there wasn't and there isn't. even the Squid's fancy story supports this view. and since the sovereigns aren't "borrowing like mad"... there is no need for QE from a point of view of them and their funding
the only part that would have any "good times" from ECB "printing in 2015" is the megabanks. and no, they do have influence on eurozone politics, but not that much as you-know-where
so I call bullshit on all three narratives. Barclay's et al's "the ECB must print in 2015", the Squid's "too little collateral in the eurozone" and the "doom! the ECB is already printing like mad"
energy prices are falling. this is the "good kind" of deflation, and is already shifting eurozone CPIs down (yes, we count food and energy in our CPIs. barbaric, I know") since one year
you want a forecast? I hate to give them, because nobody can really predict the future, but if I had to, I'd say: watch us eurozoners in 2015 how we'll have our deflation and enjoy it, too
here in the same article an executive summary of the above
I have a distinct feeling that the Bundesbank element of the ECB is losing ground as deflation eats away at any chance for kick starting the Eu economies out of the doldrums.
All seem to agree now that if in January the negative price indices indicate deflation is here to stay, the situation of fiscal attrition as of banker's margins will warrant that ECB pump up the sovereign bond purchases to the avowed 1 trillion additional limit that previous experience has proven is sustainable.
I don't see how Mutti will be able to resist the ominous slide of all EU into deflation, like Greece today.
They ARE all in.
And that probably also explains why for EU the Saud energy move is a blessing in disguise.
Thanks Ghordius, a very sensible and reasonable post.
Sometimes I wonder which agenda ZH has.
in defense of ZH: I see less of an agenda and more a valuable business model: whenever I want to read about "the worst" and "the ugliest" - which includes all kinds of propaganda - I can turn to ZH and find it, together with all kinds of comments
of course I'm also hooked on Tylers' caustic remarks, and I can pander to my sympathies for alternative points of view (Tyler should just include a few socialist critical websites, imho)
schadenfreude, you are welcome. cheers
With global productive output soon there will not be enough output to service all this global debt.
Currently Japan at 2.5x total GDP many countries are provably around the 1x mark or higher if you remove all the manipulations. All the value in the world is being used to support the debt and that includes all freshly created value.
Sure you can keep printing the value making the number bigger is all but THE TRUE RATE OF INFLATION IS THE VALUE OF MONEY BEING SPENT so I think it is obvious this is the relative deflation between the two metrics.
Keep eating the QE, growing the problem when in fact the only option under such a scenario was to burn the debt out in full then the global productive output can service a newer lower level of debt.
If you don't then you go on a trajectory of increasing multiples of global GDP output being tied up in debt destroying ever further into the future or maybe that is where we are now having been operating this kind of economy for so long now.
CENTRAL BANKER MADDNESS COMES TO MIND.
Talk about going parabolic.
Most people probably look at this chart and see the most ideal currency history for Germany represented by the two circled areas: The Classical Gold Standard, and the current Euro period.
I don't.
I see the ideal period as being the 'Wild' swings between 0% and 6% inflation on the far left of the chart.
Firstly, I see this as ideal because 6% inflation that only lasts for one year, and is followed by a deflation or zero inflation, seems not so bad given the almost universally unrecorded truth that we've seen such swings in this decade already, and in every decade, that get 'erased' by the keepers of the monetary keys through changes in the definitions. But a language with untstable definitions isn't a language.
Secondly, I see the 'wild' period at the left of the chart as ideal because it was arrived at with less central control, and hence more honesty, and also because the lack of a single universal currency means also the lack of a single point of monetary failure.
Thirdly, I see the 'wild' period at left as ideal because I understand that the centralized control of the first circled area - the classical gold standard - is what made the weimar hyperinflation possible. It is not possible for an entire economy to go into mass inflation or mass deflation when there is no central monetary control such as when there are competing currencies...only sectors thereof may experience them.
Fourthy, the far left of the chart is ideal in my view, because I understand that the innacurate expectations of those spikes upward are what causes the spikes downward, and the realizations of the downward spikes are what cause the upward spikes. A monetary environment where there is seemingly perfect monetary stability is either manipulated, or one where no one is learning anything - in stasis - either of which will end in an inflationary or deflationary collapse.