In February 2011, I was in the audience of a lecture given by John Taylor on the “exit strategy”. One main theme was that the policy of the Fed called “Quantitative Easing” meant a high risk of monetization and inflation, if not hyper-inflation, in the U.S. economy. In the Q&A session, I asked Professor Taylor why he thought that “monetization” is inflationary. I argued that Quantitative Easing boils down to portfolio shifts in banks’ balance sheets, and that asset reallocation does not seem to be causing an increase in demand, nor a price increase. Read more
Author: Andrea Terzi
Letter to The Economist
SIR – You described the ECB as moving forward at “breakneck speed”, while businesses and workers in the Eurozone are not doing likewise (“Busy, busy”, September 4th). But more should be said about the trajectory along which the ECB seems to be advancing so quickly. As the ECB embarks on QE, you note that the ABS market is “simply too small” to boost growth and the sovereign bond market, while large enough, is politically unfeasible.
I would raise a more fundamental question: What does the ECB expect to achieve by removing (from banks’ balance sheets) assets carrying positive yield and replacing them with “reserves” (that now yield a minus 0.2%)?
The notion that QE encourages bank lending and that reserves multiply into bank loans is flawed. A number of academic and practitioner articles have dispelled the myths surrounding money creation and QE. If this is true, then the ECB may be moving at “breakneck speed” toward a brick wall.
Negative EONIA rates are not *cracks* in the banking system
From Reuters: UPDATE 3-Negative euro overnight rates show cracks in banking system
While there are many signs of cracks in the Eurozone, European banks “paying” negative rates to other banks for lending money is not one of those. It is simply the profit-maximizing consequence of the ECB’s decision to charge banks for any reserves above the required minimum.
Fiscal responsibility means quality spending and the “right” deficit
A response to Steve Hanke’s defense of austerity
Since the outcome of the European elections, political leaders in the EU’s most stagnating countries have been calling for an end to austerity. While they seem unable to develop a realistic and politically palatable alternative, Europe remains in the doldrums, and pro-austerity views are having a comeback. One such example is Professor Steve Hanke’s defense of austerity (in “The EU’s Anti-Austerity Hypocrites” which aims at reasonable objectives with the wrong tools.
L’Europa ha bisogno di una scossa per uscire dalla stagnazione: un taglio dell’Iva del 50%
Reposted from FIRSTonline
L’Europa rimane nella morsa della stagnazione. La crescita del Pil dell’Eurozona nel secondo trimestre 2014 è piantata sullo zero. L’economia tedesca fa peggio della media e arretra: meno 0,2%. Chi nelle settimane scorse vedeva rosa notando il moderato calo della disoccupazione europea ora ne è sorpreso. Ma chi oggi si sorprende, chi si aspettava un risultato, sia pur minimo, dai tassi negativi della Bce e dagli annunci di programmi d’acquisto, o dagli 80 euro, non ha studiato a fondo la macroeconomia.