Comments on: Can a real central bank save Europe? Sat, 03 Jan 2015 16:42:55 +0000 hourly 1 By: JLWest Sun, 05 Aug 2012 04:42:30 +0000 From all I have read there are a few things that would make a huge difference in all countries with big debt.

1. Get rid of the massive waste in government spending.
2. Get rid of the corruption of both in the Government and
Corporate world.
3. Make the tax system fair.
4. Collect the taxes.

Make the cost of breaking these rules so damn tough people will think long and hard before they break them. But when they do land on them like a ton of bricks. It’s loss of property and jail time for CEO and CFO plus huge fines.

By: romblanch Wed, 25 Jul 2012 10:19:20 +0000 I don’t really understand why having central bank allowing governments to spend as much money as they want without any control or contingency is considered to be the adequate long term solution especially when stock of debt are already at high level.

Obviously this is what “markets” want now . But given multiples examples of past and recent markets failures should we really consider this as a proof of success ? (just as a quick reminder, Greece crisis is as well due to the fact that investors have been lending to much money and at the wrong price to Greece in the early years of the Euro). One could as well argue that what “markets” want is at the bare minimum to avoid loss on their investments and will approve any proposal that meet this objective . But the long term benefits for the lenders don’t really enter in their analysis for investing.

Not to say that the solutions currently applied in Europe are perfect and faultless . But at least they are based on the sound principle that you should not spend (to much) more than what you have or can reasonably think to have in a relative close future.

By: whyknot Tue, 24 Jul 2012 10:11:44 +0000 Maybe it is time to repay the debt ?

By: Samrch Mon, 23 Jul 2012 03:27:29 +0000 As long as the weak nations import more than they export. They will have financial problems. Manipulation of debt will not hit the underling problem that they do not invest in local export industries.

By: Samrch Mon, 23 Jul 2012 03:22:10 +0000 Small nations have a greater proportion of GDP in trade than the USA. The weak ones in Europe import much more than they export and invested in temporally raising local real estate prices. They need to invest in export industries and tax other investment by locals and other things along that line even if kicks them out of the EU.

The problem is not financial manipulation it lack of Export industries and no one telling the voters that. Also things like corruption make running large enterprises hard.

Te USA is larger so it will take more time but we appear to be in same boat.

By: Nawaralsaadi3 Mon, 23 Jul 2012 03:00:34 +0000 The ECB has abdicated its responsibility to insure an orderly financial system, actually by the ECB own admission their monetary policy is not being transmitted (Christian Noyer – July 16th) yet I don’t see them do anything about except talk. It is comical that Draghi talks this Saturday about a stable Euro, talk from an institution that has no credibility is worthless, only real action showing that they really stand behind the Euro matters; the funny thing is that they claim to be trying to safeguard the value of the currency by not printing it, yet the value of the currency is being destroyed due to lack of faith in its viability, a far worse demise than QE.

By: Andrewp111 Sun, 22 Jul 2012 13:28:07 +0000 The difference is that the USA, Japan , and the UK are single countries, whereas the EU is not. Deficit spending in the USA is done by the Federal Government. If the ECB funded the deficits of Greece, Spain, Ireland, etc…, that would be the equivalent of our own Fed buying the debt of California, Illinois, and New Jersey. Even with his vast powers, Bernanke never suggested that he has the legal right to buy Munis. If the Fed monetized CA debt, the other States would be screaming bloody murder. Subsidizing the budgets of some states more than others is what politics is for, and central banks are not competent to do this. That role is for Parliaments.

By: Samuel-1-Reich Sat, 21 Jul 2012 12:13:07 +0000 Small states have a great portion of GDP in trade. The ones in question simply do not export enough to support their imports. They need to grow export industry even if they have exit the EU to do it.

Some ways to do it are export subsidies, tax on non-export industries and non-export industry investments. Loans to firms expanding exports and cutting prices.

By: Maunsell Sat, 21 Jul 2012 04:21:57 +0000 This article is effectively saying that we should protect priveleged failure via more money printing.

In addition if one wants to carry on with Japan like policies that the UK and the USA are following then we should expect Japan like outcomes i.e.
(i) Huge ongoing government deficits and build up
of government debt
(ii) An economy that has stagnated for 20 years
(iii) Propping up zombie banks with low interest rates, who in turn prop up zombie companies/entities on extend and pretend schemes. These zombie banks/companies kill the real economy – not allowing their failure perpetuates excess capacity, sucks pricing power and profitability from viable competitors and prevents the system from cleaning itself out.
(iv) A reduction of 70% plus in stock market.

Europe has two keys issues that need to be fixed

(i) An undercapitalised/overleveraged banking system existing on a sliver of equity who are not in a position to take their losses and are thus doing everything in their power to socialise these losses onto the backs of taxpayers (if required via the ECB/ESM).

This socialisation is already happening, in part, via subsidized low interest rates, government guarantees of bank debt, ECB financing of banks unable to access public markets, transfers of bad bank assets onto taxpayer backed vehicles and bailout of sovereigns to date via the ESFS/ESM and the ECB.

However the banks want this socialisation to be expanded so that they don’t have to take potential losses on Spanish or Italian sovereign debt. They are now screaming for either the ECB to buy these debts from them, for these debts to be mutualised onto all Eurozone taxpayers via Eurobonds or for the ESM to get a banking licence (so that it can be levered up via the ECB) to buy these sovereign debts – all of which result in increasing exposure for taxpayers.

(ii) Peripheral European governments who have let public sector expenditure expand dramatically over the last 10 years especially in relation to public sector salaries and pensions.

Trying to solve this mess via more ECB money printing and further socialisation of debt onto to the backs of taxpayers is not a long term viable solution. Two key things need to happen
1. Banks needs to be assessed based on a tri-age system, i.e. those (a) likely to die and who are not viable in the long term, (b) those who could survive with proper treatment but would die otherwise and are viable in the longer term, (c) those with less serious wounds but who need some care.

(a) Those not viable in the longer term and insolvent should be wound down (as in any
insolvency) with losses being borne based on normal principles of priority of creditors.
(b) Those who are likely to be viable in the long term but have an immediate solvency issue
need to go through a FDIC/Iceland like process where assets are seized and divided into a
good and bad bank. The good bank assets can be either onsold or recapitalised (via
restructuring of existing creditors if necessary) with the remaining bad bank being wound
down and any proceeds from this process plus proceeds from the good bank sale used to
pay off creditors in existence at time of seizure.

(c) These banks need to be recapitalised – this can be done via restrictions on cash
dividends, share buybacks and cash bonuses but may also need recapitalisation
temporarily via Governments.

2. Governments need to get their spending under control which may mean some painful reductions in salaries and pensions.

If government have to default or restructure their debt then so be it. One way to do this (other than via a hard default) in a controlled manner without imposing costs on taxpayers would to transfer a certain portion of their debt to a central fund and for repayments to be funded via a financial transaction tax on all share, bond, derivative, swap, forex transactions in the Eurozone. Let’s say €1.6 Trillion of Sovereign debt was transferred to such a fund (€1.0 trillion Italy, €0.3 trillion Spain and €0.3 trillion Ireland, Portugal and Greece) this could be repaid over 20 years at circa €115bn a year assuming interest rate of 4%.

This €115bn repayment per annum would be a financial transaction tax equivalent to circa 0.9% of Eurozone GDP (assuming Eurozone GDP of circa 12 trillion per annum) – a small price for the financial industry to pay to get themselves out of the mess they in large part created.

By: tk2 Fri, 20 Jul 2012 14:32:49 +0000 As usual from this author- complete BS. “Money printing” cannot be an explanation for the differences in perceptions since it implies market irrationality, namely, that banks care about a haircut when a country defaults but do not care if the same haircut is applied through inflation. No, the real explanation is the “reserve currency” explanation, albeit a historical one. The British pound and US dollar are/have been dominating reserve currencies, dollar now, the pound in past. Since there is no anchor in the system like the gold standard, this status has lead to abuse of the system when costs are shifted abroad (who does not like cheap Chinese goods?) and, as a byproduct, huge and politically influential financial sector. As a result, governments of those countries and “markets” are essentially the same thing. Whether Wall Street controls Capitol Hill or vice versa does not matter but they are closely wired. Defaulting on the US debt would mean to lose confidence in yourself. Which is unlikely. That is so called “flight to safety”, you simply take your printed money home to a place where you control 100% everything.