http://www.zerohedge.com/news/bundesbanks-weidmann-warns-debt-monetization-addictive-drug
Submitted by Tyler Durden on 08/26/2012 08:31 -0400
It is one thing for various anti-Central Planning (and thus central bank) outlets to warn, over 3 years ago, that easy monetary policy is merely an enabling substance, and is addictive as any drug to a dysfunctional political establishment which is more than happy to avoid fiscal prudence if monetary policy is readily available to delay the inevitable day of reckoning when monetizing the debt will no longer work. It is a different matter entirely when the head of the world's only solvent central bank - the German Bundesbank, which happens to be the biggest guarantor of that other mega hedge funds the ECB, and which of all developed economies also happens to have had the closest recent encounter with hyperinflation (unlike all the "other" theoretical experts who enjoy talking extensively about matters they have zero experience with). In an interview with German Spiegel magazine, Buba head Jens Weidmann, once again has loudly warned what as recently as 2009 very few dared to even think: namely that rampant and gratuitous deficit plugging using central bank debt issuance, and thus explicitly monetizing the debt, "can be addictive as a drug." Obviously, like any drug overdose, the aftereffects are always fatal.
Submitted by Tyler Durden on 08/25/2012 13:05 -0400
Submitted by testosteronepit on 08/24/2012 21:59 -0400
Bundesbank's Weidmann Warns: Debt Monetization Is An Addictive Drug
It is one thing for various anti-Central Planning (and thus central bank) outlets to warn, over 3 years ago, that easy monetary policy is merely an enabling substance, and is addictive as any drug to a dysfunctional political establishment which is more than happy to avoid fiscal prudence if monetary policy is readily available to delay the inevitable day of reckoning when monetizing the debt will no longer work. It is a different matter entirely when the head of the world's only solvent central bank - the German Bundesbank, which happens to be the biggest guarantor of that other mega hedge funds the ECB, and which of all developed economies also happens to have had the closest recent encounter with hyperinflation (unlike all the "other" theoretical experts who enjoy talking extensively about matters they have zero experience with). In an interview with German Spiegel magazine, Buba head Jens Weidmann, once again has loudly warned what as recently as 2009 very few dared to even think: namely that rampant and gratuitous deficit plugging using central bank debt issuance, and thus explicitly monetizing the debt, "can be addictive as a drug." Obviously, like any drug overdose, the aftereffects are always fatal.Bundesbank President Jens Weidmann has strongly criticized of the plans of the European Central Bank to launch a new program to purchase government bonds. "Such a policy is for me too reminiscent of public funding via printing," Weidmann warns in an interview with SPIEGEL. "In democracies it is parliaments that should decide on such an extensive pooling of risks, and not central banks."If you buy the Euro-banks government bonds of individual countries, "the papers end up in the balance sheet of the Eurosystem," Weidmann warns: "Ultimately, the taxpayers of all other countries pay." The basic problems are not solved in this way, the Bundesbank president - on the contrary: "The blessing of the central banks would raise persistent monetization demands," said Weidmann in SPIEGEL. "We should not underestimate the risk that central bank financing can be addictive like a drug."
Is Weidmann insane? After all, central banks are known to alwaysend their futile unconventional and massive monetization programs on cue and when promised, because they are always so well attuned to the threat of runaway inflation when the assets of global cental banks account for 30% of global GDP. Naturally, this explains why after two failed Quantitative Easing episodes, and two additional Curve shaping, flow-facilitating exercises by the Fed, there is not even a peep of more NEW QE on the horizon - after all Ben has certainly learned his lesson that the Fed is powerless to do anything when the political authorities are bickering and will do nothing to reach a consensus until the market is in free fall mode, as it was in August 2011 when the only catalyst that led to a debt ceiling hike was a market plunge.
Oh wait...
Spigel continues.
Weidmann also provides for the independence of the ECB at risk. At second glance, to trap it in the plans "amounts to concerted actions of government bailouts and the Federal Reserve. This creates a link between fiscal and monetary policy." He wanted to "avoid, that monetary policy is under the dominance of fiscal policy."
Does the BUBA head see an imminent inflationary threat? No, and thank god. Because if the time comes that real inflation does finally arrive (as opposed to soaring prices only in things that "nobody"needs like food and energy) and the major central banks have to some how offload about $20 trillion in asset between them, then say goodbye to the status quo.... and any fiat reserve status.
Weidmann does not see an immediate threat of inflation. "But if the monetary policy can be pegged as comprehensive political problem solvers, the central banks' real goal is threatening to drift more and more into the background." Weidmann warns therefore against commitments of the ECB to "guarantee the whereabouts of member countries in the euro zone at any price". When deciding on a possible exit of Greece "must surely play a role that no further damage is done to the trust framework of monetary union and keep the economic conditions of the assistance programs credibility."All of the above, and the fact that German now singlehandedly calls all the shots in Europe, also explains why the ECB's latest rumored actions have slipped into the twilight zone: bond yield thresholds, though not just any bond yield thresholds, but of dodecatuple "secret" type which are completely not public (and thus do not hinder reelection chances): in other words, Schrodinger monetary policy, where CBs get the effect of the policies they (but not Germany) would like to enact, but are terrified to launch the cause.According to recent SPIEGEL information, European central bankers would establish interest rate thresholds above which the ECB would intervene with bond purchases. This would ensure that interest rates on government bonds issued by countries such as Spain and Italy do not rise above a certain level. This proposal was, however, missing some central bankers' and the federal government's approval. A spokesman for Finance Minister Wolfgang Schaeuble called the discussed variant as "burdened with problems." Therefore, some central bankers argue now apparently for the caps to be set internally, and remain unpublished. Some central bankers would prefer this approach to a recently discussed official ceiling, the newspaper reported.The Governing Council will decide at its 6 September meeting what the promised bond purchases could look like.Spoiler alert: they will look like nothing, because the ECB will not go ahead and enact any bond caps, secret or otherwise. Unless they want to conduct monetary policy in the absence of Germany, who have about had it with the Goldman alumnus' attempt to make European monetary policy merely an add on to Goldman year end bonus policy.Finally, for those who think the US is immune from any of this, look at the chart below. It shows that most recently, a whopping 40% of US funding needs were "met" through debt issuance.
http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10699
Do Whatever It Takes!
- August 24, 2012
I believe it was the History Channel, but it may have been Discovery. It was one of those restless nights where sleep wasn’t coming easy – a couple years back, as I recall. The subject of the program was an intellectual framework for better understanding the escalation of aerial attacks against civilians during World War II.
Prior to the war, it was generally accepted that there was a moral imperative to protect civilians. Memories of “Great War” atrocities were fresh in leaders’ minds, while major technological advancements in aeronautics and ballistics were recognized as creating unprecedented capacity to inflict devastation upon population centers.
In September of 1939, President Roosevelt issued an “Appeal… on Aerial Bombardment of Civilian Populations” to the governments of France, Germany, Italy, Poland and Britain: “If resort is had to this form [aerial bombardment] of inhuman barbarism during the period of the tragic conflagration with which the world is now confronted, hundreds of thousands of innocent human beings who have no responsibility for, and who are not even remotely participating in, the hostilities which have now broken out, will lose their lives. I am therefore addressing this urgent appeal to every government which may be engaged in hostilities publicly to affirm its determination that its armed forces shall in no event, and under no circumstances, undertake the bombardment from the air of civilian populations or of unfortified cities…”
As the war commenced, efforts were indeed made by most “belligerents” to limit aerial attacks to military targets away from innocent civilians. It wasn’t long, however, before civilian deaths mounted as bombs were unleashed ever closer to population centers. And then not much time elapsed before industrial targets were viewed as fair game, with civilians paying a progressively devastating price. Somehow, an increasingly desperate war mindset saw targeting population centers in much less unacceptable terms. Soon it was perfectly acceptable. War-time justification and rationalization saw conventional bombing of civilian targets regress into direct firebombing and incendiary raids on major cities in Europe and Asia. Less than six years passed between President Roosevelt’s “Appeal” and the dropping of nuclear bombs on Hiroshima and Nagasaki.
I have no interest in debating the politics of World War II. It’s just that I often contemplate the dynamics of this horrific war-time escalation and how it might in a way pertain to what we’ve been witnessing in global monetary management.
History is littered with devastating monetary fiascos. I have shelves stacked with books that recount in lurid detail the havoc wrought from money and Credit-induced boom and bust dynamics. Each episode has its own nuances – i.e. differences in the nature of prevailing Credit instruments, financial institutions, leveraging methods, governmental oversight and responsibility, and varying market, economic and societal ill-effects. Yet in virtually all cases, the post-mortem was similarly unequivocal: the inflation of “money” (various monetary instruments) was understood as a root cause of booms that ended with great economic and social hardship. In most cases, there were aspects of an increasingly unwieldy escalation of money printing/debasement – along with, of course, all the attendant rationalizations, justifications and assurances.
Federal Reserve Credit ended 1990 at $291bn. Monetary stimulus, viewed as necessarily extraordinary at the time of the ‘91/92 recession (deflation risk!), saw Fed Credit post a two-year increase of $51bn (to $342bn). The Fed expanded $35bn during the crisis-year 1998 (to $511bn) and then Y2K worries were behind 1999’s at the time unprecedented $108bn increase. The ‘01/02 recession saw a two-year $120bn surge in Fed Credit, to $747bn. Yet nothing in the history of central banking could compare to the Federal Reserve’s four-month $1.36 TN increase in Credit back in 2008 (to end ’08 at a then incredible $2.247 TN).
As the foremost academic expert on reflationary monetary policy strategies, Dr. Bernanke was uniquely prepared for the 2008 crisis. His “helicopter Ben” references to the government’s electronic printing press caused a bit of a stir when the prolific new governor arrived at the Fed in 2002. The implementation of his radical policies in 2008 was controversial and generated intense debate. The chairman placated his critics with earnest discussion of the details of the Fed’s “exit strategy.”
MarketNews International’s Steven Beckner reported on Dr. Bernanke’s response to questions during the May 6, 2009 appearance before the Congressional Joint Economic Committee: “…Bernanke faced several questions about the potential inflationary implications of the Fed's expansionary monetary policies, which he answered with reassurances. The Fed is spending ‘enormous time’ on crafting an exit strategy from its credit easing programs that have more than doubled the size of the Fed balance sheet, he said. He revealed that the FOMC once again spent the first day of its two-day meeting last week discussing its balance sheet and its ‘exit strategy’ for shrinking the balance sheet and the excess reserves that have been generated as the Fed increased loans and asset purchases over the past year. He said ‘we have a plan in place’ and said the Fed is ‘trying to strengthen and improve it.’ ‘I want to assure the American people that we are very focused -- like a laser beam if I may -- on this issue of the exit and of making sure we have price stability in the medium term… We are working very hard to make sure that, while on the one hand it's very important for us to provide a lot of support for this economy right now because it needs support, but at the same time we understand the necessity of winding this down in an orderly way at the appropriate moment so we will not have an inflation problem on the other side.”
As a student of monetary history, I was comfortable back in 2009 writing that it was all a myth: there would be no exit. The Fed’s inflationary measures would inflate securities markets and reignite Bubble dynamics. And the newfound “global government finance Bubble” would ensure systemic fragility to any meaningful effort by the Fed to dislodge the punchbowl from a Credit system wasted from egregious leveraging and speculation and an economy debilitated by severe structural economic deficiencies (a consequence of preceding Bubbles). And here we are today with not only the Fed’s balance sheet much larger than it was back in 2009, the Bernanke Fed is hankering to embark on yet another round of quantitative easing (electronic money printing).
The Bernanke Fed’s radical policy approach has taken the world by storm. The ECB’s balance sheet (essentially ECB Credit) ended 2003 at $835bn, having expanded only $32bn over the preceding four years. ECB assets today surpass $3.0 TN and counting (perhaps rapidly). The Bank of England has been a leading-edge experimenter in quantitative easing, although with results sufficiently unimpressive to ensure QE proponents clamor for greater munitions. Meanwhile, China and “developing” central bank balance sheets have inflated tremendously, largely because of an unprecedented increase in foreign reserve assets (chiefly the IOU’s from profligate borrowers). Central bank international reserve holdings have increased 50% in the past four years to $10.533 TN. Predictably, China and others now face the serious dilemma of hangovers from previous stimulus programs having created fragilities and, apparently, the desperate need for only more stimuli.
Dr. Bernanke in 2008 justified the unprecedented inflation of Federal Reserve Credit as a necessary and temporary response to extraordinary deflation risks. Especially with global food and energy prices again surging higher, the Fed and global central bankers these days have dropped all pretense that their measures are to combat falling price levels. In a letter to Congressman Darrell Issa that was released today, chairman Bernanke explained that “there is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.” At the ECB, a radical plan to monetize debt from troubled sovereigns is rationalized as somehow now within its strict (“no bailout” and “no financing of governments”) mandate because of “convertibility risk” and a malfunctioning “monetary transfer mechanism.” As they say, “rules were meant to be broken” and, apparently, well-earned credibility was destined to be forever abandoned.
There is more vocal chatter from dovish Federal Reserve officials as to the benefits of open-ended quantitative easing. Seasoned analysts that should know better even suggest that it is advisable for the Fed to expand its securities holdings (“monetization”/“money printing”) so long as the unemployment rate remains below a targeted level, as if somehow this offers a cure for what ails our economy. At the Draghi ECB, there is a desire for a huge “bazooka” of unlimited bond buying capacity and yield caps to ensure that no one dare be tempted into a bearish bet against European bond prices. And, amazingly, there is hardly a word of protest against the prospect for a major escalation in what is already the most radical monetary policy the world has ever experienced. The prolonged battle has numbed the senses – on both sides.
Chronicling the mortgage finance Bubble over a number of years, I was often sickened by the thought that millions of innocent fellow Americans would see their financial positions devastated come the inevitable bust. History had so proven the moral and ethical imperative of stable money and Credit, and I simply couldn’t comprehend the ineptness of policymakers throughout the Bubble period. And we have worked so diligently to avoid learning lessons from the experience, failing in particular to appreciate how central bank command over interest-rates and market interventions distorts market pricing mechanisms and fuels dangerous speculation and Bubble excesses.
Historical accounts of monetary fiascos often delved into the role of monetary quackery and the contemporary charlatans from those fateful boom periods. I am struck of late by the relative silence of the critics as compared to the vociferous confidence of those claiming that the only problem with monetary inflation is that central banks haven’t been sufficiently committed to it.
Federal Reserve Bank of Chicago President Charles Evans is distinguishing himself as an inflationist extraordinaire. Yet even he is being outdone by some current and former Bank of England (BOE) officials, certainly including outgoing member Adam Posen, who apparently sees no limit to the amount or type of securities a central bank should monetize. “I personally view the teeth-gnashing and garment-rending about what’s fiscal and monetary as too much drama for too little content,” as quoted by the Financial Times. In an article highlighting comments from Dr. Posen and former BOE member Danny Blanchflower, the UK Telegraph went with the headline “‘No clue’ Bank of England urged to drop ‘anguished religious ethics’ over QE.”
But I’ll delve into another comment from Dr. Posen that goes beyond monetary quackery to touch upon a critical issue. Wednesday from Bloomberg (Karin Matussek): “It is in Germany’s commercial and economic interest to restructure the debt of euro-zone countries in trouble, Posen said, according to the transcript of an interview released by the [BBC]… The debt crisis is the result of decisions by the Germans who acted similarly to sub-prime lenders in the US… ‘It was German government decisions and German banks who lent the money to all these countries so they could buy German exports,’ said Posen. Germany has ‘been running a scheme and so just as everywhere around the world you want to restructure the debt, you can’t make it all on the borrower.’ Lenders have to ‘take a hit’ as well, he said."
Curious how those contemptible subprime lenders and Germans all contracted the same lending disease. Does Dr. Posen somehow absolve the role that extraordinarily loose global monetary policy played in incentivizing the so-called “schemes” run by U.S. subprime lenders and the German banks to finance their respective Bubbles? Will Dr. Posen and others accept the reality that inflationary monetary policy is locked into a precarious state of exacerbating global imbalances, where excess liquidity and mispriced finance incentivize the ongoing accumulation of untenable debts by borrowers and uncollectable financial holdings by lenders (not to mention leveraged positions by the inflated speculator community)?
It may today be rational for mortgage lenders to take a hit and renegotiate mortgages with U.S. subprime borrowers, and perhaps for Germany as well to forgive debts from Greece, Portugal, Ireland, Cyprus, Spain, Italy and so on. And, while we’re at it, China, Japan and the developing nations might as well begin to prepare for hits to be taken on U.S. Treasury and agency holdings. And let’s go ahead and have the Japanese public take a hit on their nation’s untenable debt load. Geez, I guess U.S. banks and corporations might as well get working on the write-downs that will be necessary on their inflating holdings of government obligations as well. And there are these tens of trillions of pension benefits…
This gets to the heart of the issue I have with today’s monetary charlatans: They are content to completely ignore history, including the now 20-year sordid experience with contemporary “activist” central banking and resulting monetary inflations. At this point, there is clearly no end point and certainly no “exit strategy.” They are experts supposedly with solutions, of course unwilling to admit that their policies have directly contributed to losses by millions upon millions of innocent victims around the world. They prescribe more potent doses of what we have already repeatedly witnessed ends in calamity. And somehow they have turned the monetary inflation debate upside down, intimating that it would be immoral and unethical to not keep printing.
There might be some casualties and unfortunate collateral damage, but the increasing stakes associated with the war against recession and deflation justifies a dramatic escalation, we are to believe. This is no time to turn soft – to waiver in the face of great adversity. The backdrop beckons for strong leadership and decisive action. The enemy of humanity must be confronted and terminated. Predictably, the answer is for more and more – more only cheaper money and now even the “nuclear option” of unlimited, costless quantitative easing by resolute central banks the world over. “Do whatever it takes!”
The Unvarnished Truth About Greece
While Belize is comfortable buggering bondholders, the Greeks (following this morning's headlines) remain beholden to their euro-zone overlords - having survived a few more months on the back of reach-around 'bailouts' and ponzi-financing - all in the effort of providing more time for the 'rest of Europe' to figure out how to handle the 'Athens moment' that is surely coming. With September and October critical 'event-rich' months, Patrick Young, of DV Advisors, provides the clearest and least 'rose-tinted' perspective on where Greece has been, where they are now, and where this will all end. From the forged application for euro-zone membership to Oz-like fantasies of growth and austerity targets that remain pipe-dreams (and are constantly being missed), the bold Irishman in this brief clip explains "Greece has not done anything to really help itself, missed every deadline its been given" and the PM's comments on their 'spectacular come-back' clarifies the 'utter delusion' among the Greek political class because "Greece is bankrupt; full stop; game over" and Merkel must agree to 'let' Greece leave the Euro (post Troika) - as the rise of civil unrest, since whatever new money flows their way exits right out the back door and never 'helps' the people, is inevitable.
Especially following these mixed headlines (via Bloomberg):
- *HOLLANDE: PEOPLE SHOULD STOP ASKING IF GREECE WILL STAY IN EURO
- *HOLLANDE SAYS GREECE HAS TO DEMONSTRATE CREDIBILITY
- *SAMARAS SAYS GREECE WILL STAY IN THE EURO ZONE
- Alexander Dobrindt, general secretary of the Christian Social Union, said he sees no way around Greece leaving the euro area, Bild am Sonntag reported, citing an interview.
- Dobrindt sees Greece out of the euro in 2013
- Greece should receive EU support when it leaves the currency union and have the option of returning: Dobrindt
Greece left to twist in the wind ....
http://www.zerohedge.com/contributed/2012-08-24/letting-greece-twist-wind
Letting Greece Twist In The Wind
Wolf Richter www.testosteronepit.com
With impeccable timing, it seeped to the surface that a group of ten experts at the German Finance Ministry is studying ways to deal with a Greek exit from the Eurozone. Though rumors about a “Plan-B” had been circulating for months, the leak provided details. A Finance Ministry spokesperson clarified helpfully on Friday, rather than denying it, that the group has been in existence for over a year.Impeccable timing because it happened as Greek Prime Minister Antonis Samaras was arriving in Berlin for his begging and charm expedition. German Chancellor Angela Merkel must have smiled. The heat was on.
They should be soul mates, Samaras and Merkel, both belonging to conservative parties. But during the prior government when he led the opposition, he fought tooth and nail against her sacrosanct structural reforms. So their schmooze on Friday must have been quite something. But at the press conference, she said, “I want Greece to remain part of the Eurozone.” And she knew of “no one in the governing parties who doesn’t want that.”
Yes, she said that! Despite the onslaught of politicians in her government who over the past months promoted Greece’s exit—even hours before the meeting, on ZDF’s morning TV show. Maybe Merkel didn’t watch it. “We cannot provide more money,” Volker Kauder, Chairman of her CDU/CSU parliamentary group, told Germans nationwide. And Greece’s exit, he added, would be “no problem for the euro.”
Nevertheless, she soldiered on: “Commitments must be kept.” And warned, “Words must be followed by deeds.” She was “deeply convinced” that the Samaras government would do “everything” to solve the problems, but any decision would have to wait “for the Troika report.”
Ah-ha. Inspectors the EU, the ECB, and the IMF will spend much of September combing through Greece with a fine-toothed comb to come up with a report, the big report, the one that would determine if Greece deserved more bailout billions. The report would be so big that every politician, even Merkel, could hide behind it. No one would want to be the one to kick Greece out. But the faceless Troika report issued by a triple-layered, non-democratic bureaucracy could take the heat [read.... Greece Prints Euros To Stay Afloat, The ECB Approves, The Bundesbank Nods, No One Wants To Get Blamed For Kicking Greece Out].
She laced her speech with meaningless expressions of support but didn’t commit to anything. It was a good beginning, she said, but much work remained to be done—sounding like a broken record.
But she can’t change her tune easily. In a poll released on Friday, 72% of Germans were against giving Greece the third bailout package that would be required if Greece were given more time to implement its reforms; 67% were against giving Greece more time, and 61% thought Greece should return to the drachma. So a switcheroo would be costly for her.
“We’re a very proud people, and we don’t want to be dependent on borrowed money,” Samaras said when it was his turn. “We don’t want more money. We need time to breathe.” Then he lamented the “toxic declarations” by a “high-ranking politician”—a jab at vice-Chancellor Philipp Rösler, Volker Kauder, or any of the others. How could they publicly discuss that Greece would revert to the drachma? That’s why no one wanted to invest in Greece. It was rendering the privatization of state-owned enterprises impossible. Greece needed investment, not austerity, he said.
So Merkel grabbed his balls and yanked: She’d been reading the Greek tabloids..., she said—the papers that had been depicting her with Hitler mustache and Nazi uniform—as if to say, look, this is politics ... tit for tat. Then she jabbered about “two realities” in Germany and Greece that would have to be brought back together.
He deemed the discussion “especially constructive.” For Merkel, it was “intensive.” In other words, they hadn’t agreed on anything. Samaras packed up his bags empty-handed. Nothing would happen before the Troika report. And then Merkel could hide behind it. She has been on record from day one that she wanted Greece to remain in the Eurozone. No one could blame her. Greece would run out of money, default, and revert to the drachma on its own. And voters couldn’t blame her for throwing more of their money at Greece to keep it in the Eurozone another year or two. So maybe she’d hang on to power, something almost no head of state has been able to do in the debt crisis.
Yet, hope is once again gushing through the system that the debt crisis could be wished away by a nod from Merkel, a wink from the Bundesbank, or a click of the mouse at the ECB. But in Greece there has been an incident.... Euro Optimism Surges, A Greek Tax Revolt Flares Up: It’s Decision Time, Again.
And here is.... The Eurozone Crisis Between Euro-Morons And Zombie-Bankers by George Dorgan.
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