tag:blogger.com,1999:blog-2546602206734889307.post8176973024100206090..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Watching the ECB play chessMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-2546602206734889307.post-69827971011408169332012-08-11T09:13:47.754+00:002012-08-11T09:13:47.754+00:00No, it is not clear, but I think this is the wrong...No, it is not clear, but I think this is the wrong question. <br /><br />It's not like there is a 70% that if the ECB spends $1 to purchase risky asset A, it will make $1, and a 30% chance it will lose $1, so the ECB should go ahead and load up. <br /><br />The member nations, at least the ones that count, don't want the ECB to lose any money at all. Neither do any governments, which is why central banks are extremely conservative in which assets they purchase. <br /><br />That means that the ECB, and central banks generally, do not possess bazookas that can be fired at risk assets. <br /><br />But unlike other central banks, no EMU debtor can issue riskless liabilities. Therefore the ECB does not have a bazooka at all. It is much more fearful of markets than other central banks.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48204339584108477222012-08-09T15:38:05.566+00:002012-08-09T15:38:05.566+00:00But is it clear it will lose more by the ECB inter...But is it clear it will lose more by the ECB intervening than it might under the current approach?Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-52697274212899585692012-08-07T18:47:16.561+00:002012-08-07T18:47:16.561+00:00The ECB has to be willing to risk losing the money...The ECB has to be willing to risk losing the money, even if, by having this will, it is not likely to lose money ex-post. <br /><br />Thinking that it never will need to lose money requires certain rationality and coordination assumptions that you cannot assume will always arise out of aggregate market behavior -- i.e. sometimes you do need to fire the bazooka. Having a bazooka only if you never need to use it is not the same as having the bazooka unconditionally.<br /><br />This means the member governments need to be willing to accept a contingent off-balance sheet liability that will, every once in a while, be put on the balance sheet. That's a political commitment, the lack of which is a real obstacle.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-39626635188390217272012-08-07T16:01:45.891+00:002012-08-07T16:01:45.891+00:00Ralph. I suspect they would lose nothing, because ...Ralph. I suspect they would lose nothing, because the ECB would never have to buy anything. The moment they announced their policy, interest rates would immediately fall.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-24620978090507830012012-08-07T15:33:12.903+00:002012-08-07T15:33:12.903+00:00If this is a concern, then Eurozone fiscal rules w...If this is a concern, then Eurozone fiscal rules would be of the following kind: if country X has inflation above the Eurozone average, it should decrease government spending. That would make much more sense than the current fiscal rules. Its called countercyclical fiscal policy.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-12726780168630727002012-08-07T14:34:49.557+00:002012-08-07T14:34:49.557+00:00''...then economies would have been able t...''...then economies would have been able to focus on restoring competitiveness in a controlled and efficient manner. ''<br /><br />and here lies the problem: where is the proof these countries would actually adopt policies that would restore ''competitiveness in a controlled and efficient manner''?<br />They don't have a history doing so.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-13405912857011653772012-08-06T10:11:38.083+00:002012-08-06T10:11:38.083+00:00Prof Simon, I can’t fault your ECONOMICS. But I th...Prof Simon, I can’t fault your ECONOMICS. But I think you’ve missed the POLITICAL dimension.<br /> <br />That is, the power behind the ECB throne is Germany. I.e. Germany is a a major shareholder in the ECB. And it’s not in Germany’s interests to buy periphery debt that might turn out to be worthless.<br /><br />If Germans saw periphery countries in the same light as West Germans saw East Germans just after unification (i.e. if Europe was politically united) there wouldn’t be so much of a problem.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-4680439784748028492012-08-05T18:45:48.643+00:002012-08-05T18:45:48.643+00:00Would "playing chicken" be a more approp...Would "playing chicken" be a more appropriate metaphor?Lukenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-14649062318171968542012-08-05T14:42:59.055+00:002012-08-05T14:42:59.055+00:00Its easy to tell when a boom has gone too far. Jus...Its easy to tell when a boom has gone too far. Just as its easy to tell when a recession hurts too much. I'm not going to tell economists how they should improve their game because when I finally do I want to make sure I get every ounce of credit. <br /><br />I absolutely and categorically knew a huge recession was imminent before it happened in the UK as I really could see it brewing in 2007. It doesn't take a lot of brains what I could see and sense and why I knew it was coming. The only unfortunate aspect is that I did know how deep and how long it would last for.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-63419475860065013082012-08-05T13:14:28.827+00:002012-08-05T13:14:28.827+00:00If this is a chess game then its clear that neithe...If this is a chess game then its clear that neither side can agree on the rules of the game. And that the banks must be the king, since all the other pieces are expendable to protect themjbrown981noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31208912356024658372012-08-05T08:58:06.562+00:002012-08-05T08:58:06.562+00:00It is not true that investment spending always loo...It is not true that investment spending always looks unsustainable ex post. But it is true that, aside from con men who can sniff out opportunity, it is not easy to tell when booms have gone too far. The danger of taking away the punch bowl too soon is less than the danger of financial crisis, recession, and depression. Waiting until the problem is obvious means that it will be too late to take effective action.Minnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-66626426097228565632012-08-05T08:49:46.334+00:002012-08-05T08:49:46.334+00:00"Adjustment should be painful for creditors a..."Adjustment should be painful for creditors and debtors alike."<br /><br />What? The world must be made safe for creditors. Especially foreign creditors. That is the mantra of the World Bank, the IMF, and central banks everywhere.Minnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-71638557909512376842012-08-04T22:32:38.315+00:002012-08-04T22:32:38.315+00:00I don't really follow this, particularly the c...I don't really follow this, particularly the claim that<br />private sector spending (capital misallocation?) has "caused" the crisis - by which you mean AD collapse?<br /><br />How do you identify the "sustainability" of private sector (or indeed public sector) spending, ex ante?<br /><br />Investment spending always looks unsustainable ex post, if there is an unanticipated AD collapse.Anonymousnoreply@blogger.com