WRKO Radio interview this am

Warren,

Your proposal for a distribution from the ECB we discussed before always had the ‘problem’ that that would imply that ECB will end up with negative equity. Maybe according the ECB charter not a problem, but they think that it will be inflationary to ‘monetize deficits’.

On the INET conference in Berlin early April George Soros spoke about the idea to capitalize seignorage rights that member states had transferred to the ECB. Based on independent calculations from Citibank (Willem Buiter) and Goldman Sachs (Huw Pill) they came to a valuation between EUR 2 – 3trln. As far as I understand the idea was then to put this in a Special Purpose Vehicle (SPV) and that this SPV could then use the ECB to finance purchasing the bonds of member states. In such a way Art 123 Lisbon Treaty (no direct bond purchases by ECB) would not be violated.

Personally I wonder what seignorage rights mean in a fiat money system where the govt never ‘has’ or ‘does not have’ the currency as was the case before member states entered the ez.
I also wonder how the transaction (accounting wise) would be for the transfer of these EUR 2-3 trln rights.

How do you consider this idea?
Is this just another idea like EFSF getting a bank license which would in fact open the channel to the ‘unlimited’ spending capacity of the ECB?

P.S.:
I saw on the internet that Paul Davidson and Michael Hudson (UMKC), both MMT if I am not mistaken, also participated in the INET conference. I did not however hear them present your 2 proposals there (ecb distribution; Mosler bonds). Maybe they have /had some view on this idea regarding seignorage?

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WARREN MOSLER Reply:
April 24th, 2012 at 3:36 pm

don’t know the details of what they call seignorage? interest not paid on cash in circulation?

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Ed Rombach Reply:
April 24th, 2012 at 4:42 pm

@WARREN MOSLER,

Warren – You should give us a little more heads up about these upcoming events. Imagine my surprise as I got into my car to head off to a job interview to hear a familiar voice on Boston RKO AM talking about Eurozone debt woes. Problem is that I came in about half way through the broadcast.

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walter Reply:
April 24th, 2012 at 7:25 pm

@WARREN MOSLER,
For Buiter’s (Citi) definition and calculation see this document (dec 2011), page 7:
http://willembuiter.com/caffe2.pdf
As far as I see it he basically has a narrow definition of seignorage:
1. the change in base money
In a broader sense he adds:
2. interest earned by investing the resources obtained through the past issuance of base money in interest-bearing assets (also called: central bank interest saved)
and
3+4) Inflation tax (anticipated and unanticipated), the reduction of the real value of the stock of base money by inflation

This document of dec 2011 refers to another publication from him in feb 2007.
http://www.nber.org/papers/w12919.pdf

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In countries like Greece people maybe think that the euro itself is not the problem and protects them against devaluations they had before with their own govts mismanaging their own currency. Although many will start to wonder by now when the austerity demands from Brussels continue.
In countries like Holland the sentiment against the euro is growing and it looks like it is going to be THE theme for the elections after the govt collapsed last weekend. Especially now with significant amounts going south as ‘loans’ while everybody feels they will never see that back.
And as you mention no enforcement mechanism for discipline. Retirement age lower, public workers’ salaries higher, weaker tax collection etc etc.

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