Tag Archives: Quantitative easing

Abracadabra – Can 1.3 trillion of Imaginary Money save the Euro.

18 Wednesday Feb 2015

Posted by in Uncategorized

≈ Comments Off on Abracadabra – Can 1.3 trillion of Imaginary Money save the Euro.

Tags

, ,

European institutions appear weak and incapable of defending European principles and the proper functioning of the euro.Euro coins on fire

Greece is on the verge of balking on billions of Euro it has borrowed.

If they do it will trigger a free for all and the end of the Euro.

The euro is seen as the ultimate underpinning for the edifice of European integration. The financial crisis and its aftermath have shown that the euro instead has the potential to destroy the whole project.

Political reform is needed to sustain the euro but this is unlikely to pass the political feasibility test with the current governments of Europe. At present the European Union is a club with virtually no economic union: no fiscal union, no banking union, no shared economic governance institutions, and no meaningful coordination of structural economic policies.

The Greek crisis will pitted debtors against creditors.

Not with standing the deep interdependence between them Debtor countries want salvation through solidarity and are thus committed to policy solutions that distribute the costs beyond their borders. Creditor countries, on the other hand, want to insulate their tax payers from exposure to the debtor states and are reluctant to discuss large-scale burden-sharing.

We all know that Greece cooked the books to join the euro in the first place. However, France and Germany also broke the very rules that they had insisted on for everyone else. In 2004, Greece announced it had lied to get around the Maastricht Criteria. Surprisingly, the EU imposed no sanctions! Why not?

Because the EU wanted to strengthen, not weaken, the power of the euro in international currency markets. A strong euro would convince other EU countries, like the UK, Denmark, and Sweden, to adopt the euro.

Greece has been a chief benefactor of the EU budget; Since 2009, Greece has been kept on life support by two bailouts from the European Union, European Central Bank and International Monetary Fund worth a total of €240 billion ($320 billion).

In 2009, EU transactions summed up to 2.35% of GDP. From 1994-99, about $20 billion in EU structural funds and Greece federal financing were exhausted on projects to urbanize and build up Greece’s transportation system in time for the Olympics in 2004.

GERMANY-ECB-EU-FOREX-RATE-EUROZONE-BANK-MONEY

Would a Greek default  plunge the world into a  financial crisis? No. It prove systemic for the EU as a whole.

Greece, Ireland and Portugal, are already in their fourth year of austerity, face many difficult years ahead, as do states with high levels of debt. 

If the single currency survives, it will survive on the basis of more integration within the euro area as the ‘hardest of hard cores’ and hence deep divisions between the ‘ins’ and ‘outs’.

There is also the deeper question of the consent of the people. If the euro area reaches a federal moment and a federal question, then the consent of Europe’s peoples must be sought at least within the euro area.

Without it the currency the European Union as we know it would not be sustainable in the longer term.

Whether an exit for Greece can be achieved without triggering a massive financial crisis is doubtful. The result will be a disorderly collapse of the euro and probably of the single market as well.

The result of a Greek walk away would be substantial losses for established governing parties and more electoral success for extreme populist parties and National elections remain the most legitimate channel for selecting political office holders in Europe. European parliament elections are second order political events.

Next in  line would be Italy: It is too big to fail and too big to bail.

Greece’s creditors must accept the necessity of a write-off of at least a portion of Greek debt. The current practice of extending the terms of Greek loans and pretending that Greek will – some day – make good on its commitments cannot be sustained.

A Greek default would have a more immediate effect. First, Greek banks — already on the brink — would go bankrupt. Next, losses would threaten the solvency of other European banks, particularly in Germany and France. Even worse, the EU’s central bank (ECB) holds a lot of Greek and other sovereign debt. If Greece defaults, it could put the future of the ECB at risk. Other indebted countries might decide, or be forced, to default. Without a central bank to bail them out, the EU itself may not survive.

The crisis requires collective action from the ECB and the 17 member states in an environment of deep divergence of preferences and interests.

Make no mistake: this is going to end badly. By this time next year, either Greece will be out of the euro – or Syriza will be out of power.

Luckily I have thought of a solution.

Why not give the Greeks a huge pile of imaginary Quantitative Easing Money. Then they can give this imaginary money back to pay off their debts.

Abracadabra the Euro is saved.

Go back

Your message has been sent

Quantitative Easing – enough money to stretch from earth to the moon.

31 Friday Oct 2014

Posted by in Uncategorized

≈ Comments Off on Quantitative Easing – enough money to stretch from earth to the moon.

Tags

, , , ,

Popular media’s definition of quantitative easing focuses on the concept of central banks increasing the size of their balance sheets to increase the amount of credit available to borrowers.

Theoretically, this leads to increased spending results in increased consumption, which increases the demand for goods and services, fosters job creation and, ultimately, creates economic vitality. (a simple explanation)

The idea is that by making it easier to obtain loans, interest rates will drop and consumers and businesses will borrow and spend.

So why are we most of us still struggling to make a living?

What in fact is happening is that a flood of cash has encouraged reckless financial behavior and directed a fire-hose of money to emerging economies that cannot manage the cash.

As I understand it the sole purpose of money is as a stable measure of value that facilitates the exchange of goods and investment. Quantitative easing, by its very name, involves the corruption of money’s sole purpose as a stable medium of exchange.

If only life were so simple.

By destabilizing the value of money, Quantitative easing works against the very investment that would drive economic growth. It’s supporting the very government spending and housing consumption that got us into trouble to begin with. It is the horribly obtuse notion that central banks can produce real economic growth through their monetary machinations.

It is financing the ongoing economic hardship through its expanded borrowing of bank reserves. invest in emerging markets, commodity-based economies, commodities themselves, and non-local opportunities rather than to lend to local businesses that are having difficulty getting loans.

Quantitative easing policies have benefited mainly the wealthy. For example 40% of those gains went to the richest 5% of British households.

Quantitative easing cash ends up overwhelmingly in profits, thereby exacerbating income inequality. The consequent social tensions that arise from it, is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy.

It is a primary driver of income inequality.

It might well have been better saved if insolvent firms, institutions like Banks had been allowed to restructure through bankruptcy, and our central banks had provided credit only to sound banks on a short-term basis.

What we have now is central banks selling the assets they have accumulated and it wont be long before interest rates start to climb, choking off what they call the recovery.

Technically, a central bank could become insolvent ( although its liabilities are essentially costless) in a manner similar to a commercial bank. In practice, the situation is very different because a central bank’s assets and liabilities are different from those of a commercial bank, and because the central bank can issue money to meet its obligations. In effect, they can bail themselves out by printing money.

I am no financial ingenious guru but the evidence of Quantitative easing seems to me to be a devaluation of buying power of your money. A good first step in avoiding such a lack of confidence would be to start unwinding the QE policies.

When we look back it might have been better to have put a million in the bank account of ever citizen, which they could have drawn down over twenty to twenty-five years provided they cleared their mortgage, took out health and old age insurance. This would have stimulate the economy for all.

As I said I’m no financial adviser and I’m certainly not “rich, my advice to anyone reading this post  ”Rather than settling for a wage (and be “owned” by bosses), you should be come owners.

Have a look at the below. All comments welcome.

http://youtu.be/JYTyluv4Gws

Go back

Your message has been sent

 

 

 

 

 

 

 

 

 

 

Because the Fed’s—it does not pay interest on Federal Reserve Notes and typically pays no interest on reserves—it almost always remits money to the Treasury.

Since 2008, however, the Fed has sold off virtually all of its short-term Treasury securities and acquired instead longer-term Treasuries and the debt and MBS issued by Fannie Mae and Freddie Mac.

These securities are riskier relative to those normally held by the Fed for two reasons.whether a central bank can become insolvent, therefore, centers on what it can do to cause the public to lose confidence in its currency. A good first step in avoiding such a lack of confidence would be to start unwinding the QE policies.

 

 

Even the invention of quantitative easing is shrouded in it did raise economic activity a bit. controversy. that central banks have the capacity to keep inflation in check if the money they have created begins circulating more rapidly.