tag:blogger.com,1999:blog-2546602206734889307.post5040762084941426371..comments2024-03-19T09:54:37.187+00:00Comments on mainly macro: The non-independent ECBMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger88125tag:blogger.com,1999:blog-2546602206734889307.post-78723223382277096432015-07-20T07:36:23.686+00:002015-07-20T07:36:23.686+00:00Most currency transfers today are electronic via t...Most currency transfers today are electronic via the EFT system, and only currency that has been "printed" electronically by the ECB is accepted as Euros. The Bank of Greece can indeed print Euros to fill up its ATM machines, and dare the ECB to do anything about it, but the ECB will then simply subtract that amount from the amount from the assets of the Greek banks that it recognizes as valid for EFT purposes. <br /><br />Reality is that we haven't had a cash economy for decades, and printing cash is no longer how money gets created. It'll keep Greece's local cash-based economy going, but won't do diddly for the problem of importing and exporting goods, neither of which have been done in cash since the early 20th century. No bank is going to accept EFT transfers from a Greek bank if there's illegal money printing going on, because of fear that they'll have Euros taken out of *their* accounts on file with the ECB if they do. And without EFT transfers, there's no imports to Greece -- and since Greece's main exports rely on imports as their inputs, thus no exports.<br />BadTuxhttps://www.blogger.com/profile/01345749557330760251noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-60479557013283614872015-07-20T03:31:57.747+00:002015-07-20T03:31:57.747+00:00Athens prints its own banknotes. I do not underst...Athens prints its own banknotes. I do not understand why Varoufakis thought that this would be difficult. Simply print Greek euros. If the other eurozone members refuse to recognize them, the fallout happens in the *other* eurozone countries.neroden@gmailhttps://www.blogger.com/profile/07475686367097445497noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-47238838777631448862015-07-20T03:30:43.425+00:002015-07-20T03:30:43.425+00:00Three of the Scottish banks print their own bankno...Three of the Scottish banks print their own banknotes, so Scotland would have a powerful way of fighting back against this sort of BoE tactic.<br /><br />The thing is, Athens *also* prints its own banknotes. Unfortunately, nobody in Syriza was quite radical enough to realize what that meant... what happens if the Bank of Greece prints euros against the instructions of the ECB? Well, the ECB becomes somewhat powerless... and it all becomes politics.neroden@gmailhttps://www.blogger.com/profile/07475686367097445497noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-74313273607583410242015-07-18T02:22:41.466+00:002015-07-18T02:22:41.466+00:00Yes, a form of racism. You should hear Germans tal...Yes, a form of racism. You should hear Germans talk about Greeks. They use all the code words of a US southern segregationist talking about blacks. Greeks are lazy, they say. Spendthrift. Spend all their time sexing rather than working. Must be forced to behave like good Germans with all tools necessary because they're too stupid to know how to behave properly. If Greece grew watermelons I have no doubt these fine Deutschfolk would talk about how those Greeks just sit around on their front porches eating watermelon all the time. So it is not just economics and politics here, there is a decided bigotry against Greeks in Germany, at the very least, and as we both know Germans dominate the ECB.BadTuxhttps://www.blogger.com/profile/01345749557330760251noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-78927239635729934602015-07-14T07:07:46.169+00:002015-07-14T07:07:46.169+00:00I think he emphasised how inequality breeds more i...I think he emphasised how inequality breeds more inequality - ie it increases divergences between capital and labour, including between countries where capital is or is not concentrated. So really the situation in poorer countries - basically colonies of industrialised countries - worsens and so with it global inequality.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15761946412572911882015-07-13T08:59:03.735+00:002015-07-13T08:59:03.735+00:00In 2007 I was in the US when Barclays withdrew all...In 2007 I was in the US when Barclays withdrew all its finance from the US mortgage market and wondered why the news hardly produced a ripple of response.<br />Through the year I pondered the relationship between money and value and how the debt situation could be resolved without some prolonged (relative) hardship. I couldn't think of a way.<br />In 2008 I witnessed the folly of pouring government money into insolvent banks.StuartPhttps://www.blogger.com/profile/13748038209546648459noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-17810541246675936372015-07-12T23:45:57.950+00:002015-07-12T23:45:57.950+00:00"Now it is almost the definition of a private..."Now it is almost the definition of a private bank that if everyone who has an account at the bank wants to withdraw their money, the bank will run out of cash and go bust. That is why bank runs are so dangerous. It is also why one of the key roles of a central bank is to supply an otherwise solvent private bank with all the cash they need, so they will never deny depositors their money. (To be a lender of last resort.) If they did not do this, anyone could start a rumour that a bank was insolvent, and as people withdrew their cash just in case the rumour was true, the bank would run out of money and go bust anyway."<br /><br />Is the exchange rate fixed (emphasis on the fixed part) at 1 to 1 even if price inflation went above target?Too Much Fednoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-38361616390298774252015-07-12T17:10:16.623+00:002015-07-12T17:10:16.623+00:00"But Greece does not want to abandon the Euro..."But Greece does not want to abandon the Euro, and the other Eurozone countries have no formal grounds to expel Greece. Greece will only leave the Eurozone if the ECB stops supplying Euros."<br /><br />I don't know if that is so obvious. <br /><br />The question is: will there be a Grexit given that 1) the ECB continues supplying liquidity to Greek banks and 2) the Greek gov't and the Troika fail on negotiating a deal and the Greek gov't defaults on Troika money.<br /><br />If the ECB perceives an increase in Grexit risk due to the referendum, despite supplying Greek banks, its decision is not political (maybe their risk analysis is flawed, but that is a technical discussion, not a political one).JPnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-7927868476408506092015-07-12T17:06:46.063+00:002015-07-12T17:06:46.063+00:00"Take a unitary state with its own central ba..."Take a unitary state with its own central bank. But the central bank has a fixed exchange rate policy, and can hold either domestic or foreign government bonds. Now suppose the domestic government is at risk of insolvency.<br /><br />A truly independent central bank would stop buying domestic government bonds and hold only foreign government bonds."<br />This is completely insane. The "independent central bank" thing is a religious thing among economists. I guess if the people at the central bank will have to be run by sociopaths.<br />I notice none of these comment mention real people or real resources and are all about money.<br />Absolutely disgusting.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73888560650036281982015-07-12T16:26:36.546+00:002015-07-12T16:26:36.546+00:00Hello JEC: The problem here is a conflict with the...Hello JEC: The problem here is a conflict with the ECB's primary mandate, 2% upper limit price stability. Difficult, but given that it is the EU head of states who, in the end, sign the EU treaties, and these ministers can rewrite them and change the ECB's mandate, I'd say that the ECB should toe the line here too, with caution and guarantees that this is their will and that treaty change will come on this basis... But, yes, difficult problem... Patrick VBnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-52179915600420228302015-07-12T12:53:33.837+00:002015-07-12T12:53:33.837+00:00Nick, it's all rather circular, because Greece...Nick, it's all rather circular, because Greece was committed to remaining in the euro until the ECB pulled liquidity. So the risk to the ECB was generated by the ECB. It makes sense only if the ECB is acting in solidarity with the creditors.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-49395538011883083202015-07-12T12:31:41.357+00:002015-07-12T12:31:41.357+00:00"it argues that income inequality helps growt..."it argues that income inequality helps growth in poor countries".<br /><br />That' what Marx said from the Communist Manifesto onward.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-61145461525103842202015-07-12T11:19:50.709+00:002015-07-12T11:19:50.709+00:00"Perhaps Syriza did not believe the ECB would..."Perhaps Syriza did not believe the ECB would act in such a political way."<br /><br />This is the best explanation of the past few weeks of Eurozone news I've seen anywhere.W. Pedenhttps://www.blogger.com/profile/15799200383624207846noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-71358267038518528722015-07-12T09:22:03.396+00:002015-07-12T09:22:03.396+00:00Patrick: Let me ask the question in another way. ...Patrick: Let me ask the question in another way. If it happened to be the will of the Euro area ministers to prioritize employment over price stability in the Euro area -- i.e. to raise inflation in an effort to reduce unemployment -- would it be legitimate for the ECB to execute this policy?JEChttps://www.blogger.com/profile/13107662855215626812noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15530033940429903002015-07-12T09:15:09.991+00:002015-07-12T09:15:09.991+00:00Anon: the ECB is not an ordinary central bank. (O...Anon: the ECB is not an ordinary central bank. (OK, it never really was ordinary, simply because the Euro is not an ordinary currency.) It combines the monetary policy duties and powers of a central bank with the duties and powers of a bank regulator. To put it in a US context, it is as if the Federal Reserve and the FDIC were the same entity. <br /><br />This was not always so. If we were having this conversation in 2012, I would probably be agreeing with you. <br /><br />Funding for bank resolution is also something on which EU policy has changed pretty radically in the last few years. Specifically, a Single Resolution Mechanism (SRM) backed by a Euro-area wide Single Resolution Fund (SRF) has already been established, and the costs of bank resolution will be fully "mutualized" over an eight-year transition period. (Detailed funding formulas have been formally adopted and everything.) <br /><br />Which means that the Euro area has already agreed to become a de facto transfer union, for this particular purpose at least. The only way they have managed to avoid saying as much is by declining to call "a compulsory levy charged against banks and paid to a governmental entity" a "tax." Therefore, no "tax money" is involved. (It sounds a lot like a tax to me, but I'm not trying to keep my seat in the Bundestag, so what do I know?)<br /><br />Curiously, none of this seems to have come up in the general press coverage of the Greek crisis. JEChttps://www.blogger.com/profile/13107662855215626812noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-53923180426866636712015-07-12T08:34:40.962+00:002015-07-12T08:34:40.962+00:00Some years ago there was a bank strike in the Repu...Some years ago there was a bank strike in the Republic of Ireland for several months. Did the economy collapse? In Greece what is happening to the vast amount of cash (euros) that is not being deposited into the banks? The economy is a high cash economy, which is why the government finds it so difficult to collect taxes. If Grexit is decided this weekend, the losers will be the creditors. The Greek economy will continue on a cash basis using euros until the new drachma is printed and circulated. Sure, many Greeks will be hurt, but the economy will recover and thrive under a sovereign currency.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-32054553903912040762015-07-11T21:07:07.306+00:002015-07-11T21:07:07.306+00:00I think something is missing in your Scottish stor...I think something is missing in your Scottish story: you claim after the bank run has started, the central bank should be the lender of last resort.<br />Surely, something must be done to stop the bank run too, otherwise the banks will go bust anyway.<br />I would assume the government needs to nationalize the banks, and take other measures to bring back trust into the banking system. Like what happened in the UK and other countries during the crisis. <br />But in Greece government did the opposite of bringing back trust: there was already a slow motion bankrun going on for months, and than the Greek government called for a referendum, accelerating the bank run. Calling for a referendum is their democratic right you may say, but what about the responsibility of the Greek government to prevent and/or stop a bank run?<br />Imagine the UK government would not have acted when banks were in trouble during the crisis, would the BoE have provided unlimited support?<br />Ofcourse it's inconceivable this would have happened in the UK, as BoE and government would work together. In the case of Greece, the Greek government used the slow motion bank run going on for months as a political tool, as they knew it would cost the taxpayers of others countries money if negotiations collapsed and emergency loans would not be paid back. It just shows what a mess the eurozone structure is. <br />I think ECB was well aware the Greek government was playing a dangerous game, they had to do something.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-76659631626823394902015-07-11T19:54:48.155+00:002015-07-11T19:54:48.155+00:00different anon - the fact that the Greek sovereign...different anon - the fact that the Greek sovereign can no longer recapitalise its banks if needed (which would protect the ECB).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-70485597471918152182015-07-11T19:52:32.853+00:002015-07-11T19:52:32.853+00:00JEC - not so. A central bank cannot "resolve&...JEC - not so. A central bank cannot "resolve" a banking crisis on insolvent (rather than illiquid) institutions. It requires real fiscal resources in the form of a recapitalisation (e.g. the FED didn't bail out the US banks, it was the US Treasury through TARP, same in the UK). <br /><br />If the ECB lent to insolvent institutions, it would take a loss on those loans. It would then have to be made whole by being recapitalised itself by its shareholders - the rest of the Eurozone. This is a "bailout" by the back door - a transfer from the rest of the Eurozone to Greece. It is better that any such transfer should have the backing of the elected leaders of the other Eurozone countries, rather than ECB technocrats.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-24553904588781865722015-07-11T18:09:51.836+00:002015-07-11T18:09:51.836+00:00Hi Simon, I guess you are referring to the ECB dec...Hi Simon, I guess you are referring to the ECB decision to cap its ELA for Greece. This came right after a refusal by Greece to accept Eurogroup demands and the call for a referendum. I saw it as an attempt to increase fear, to cause panic in Greece (Varoufakis spoke, rightly I think, of an attempt to terrorize the Greek people into submission). I interpreted this as the ECB following the lead of the EU Council/Eurogroup to "tighten the screws" even further on Greece, to indicate that the latest refusal and call for a No in the referendum would push Greece out of the Euro Area, break its banks and bring even greater hardship to the economy. It was, I thought, an attempt by the ECB to align with the other EU institutions to force Tsipras to accept the creditor demands. Very political, but fully covered by the will of the Euro Area ministers, I guessed. And totally legitimate, following the ECB's own rules.Patrick VBnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-82256761916881827072015-07-11T17:45:52.305+00:002015-07-11T17:45:52.305+00:00I think this is an underestimated point in the way...I think this is an underestimated point in the way the drama has unfolded. As the Greek government had no meaningful capacity to create a new currency, then the ECB inevitably had them over a barrel. A lot of what we've seen in the media has been posturing and self-justification - trying to control the narrative. Underneath, it's pure power politics.gastro georgenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-7671945088531035192015-07-11T16:38:37.571+00:002015-07-11T16:38:37.571+00:00On October 2014 the ECB disagreed:
http://ftalpha...On October 2014 the ECB disagreed:<br /><br />http://ftalphaville.ft.com/2015/07/02/2133491/greece-shows-ecbs-stress-tests-were-nonsense/<br /><br />So what changed its mind?Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-91511295759073024492015-07-11T16:33:02.265+00:002015-07-11T16:33:02.265+00:00I think this depends on how the Bank of England wo...I think this depends on how the Bank of England would have regarded the independence vote. If it regarded the vote as immediately transferring 'ownership' to rUK, then maybe you are right. I suspect instead it would have continued to regard itself as being jointly 'owned' by the prospective rUK and Scottish governments, until any negotiations ruled otherwise. In that case it could not have been told what to do by just one of its two owners. That is also the relevant analogy for Greece.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59237922061892959812015-07-11T16:29:38.327+00:002015-07-11T16:29:38.327+00:00Up until 28th June the ECB had supplied all the ca...Up until 28th June the ECB had supplied all the cash that was required by the Bank of Greece. That is what being a lender of last resort means. The moment it put a limit to the amount of cash it would supply, it would provoke a bank run and capital controls. So the only possible excuse for its change of policy was a change in solvency, But again nothing happened just before 28th June to indicate a change in solvency.<br /><br />According to your logic, the ECB should work out how much collateral each EZ country's banks have, and announce its lending limits in each case. That would provoke a bank run is every EZ country. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-36020463103828695192015-07-11T16:27:19.451+00:002015-07-11T16:27:19.451+00:00The prospect of imminent receipt of further outsid...The prospect of imminent receipt of further outside funding to fill a then-existing insolvency of the Greek government (and its bonds serving as ELA collateral) was removed when the referendum was announced. The Greek banks have been insolvent for the entire relevant period, but ECB justified overlooking that so long as new funding was deemed probable; that all ended with the referendum - the ECB couldn't justify ignoring it any longer - reality had to be acknowledged.RogerFoxnoreply@blogger.com