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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Archive for the 'ECB' Category

Draghi on sector balances

Posted by WARREN MOSLER on 18th February 2013

The euro declined against the dollar on Monday after the European Central Bank President Mario Draghi said economic indicators signaled further weakness in the euro zone.

“Available indicators signal further weakness at the beginning of 2013, with domestic demand remaining dampened. This is due to weak consumer and investor sentiment and to the necessary balance sheet adjustments in both the public and private sectors. Foreign demand also remains subdued,” Draghi said in a statement before the European Parliament’s Committee on Economic and Monetary Affairs in Brussels.

Public and private sectors to continue to deleverage?

Posted in ECB | No Comments »


Posted by WARREN MOSLER on 14th February 2013

Negative rates are just a tax, of course. Pretty close to a PSI.

With deficits as high as they are, all they need to do is leave it all alone and a modest recovery will quickly materialize. But instead they keep pressing the austerity with a ‘we’ve paid the price to get this far- there’s no going back now’ mentality.


>   but also – overlooked:


>   ECB will revise HICP path at the March meeting

Posted in ECB, EU, Government Spending | No Comments »

Draghi Signals Euro Strength May Hurt ECB’s Recovery Efforts

Posted by WARREN MOSLER on 8th February 2013

The problem is there’s nothing he can do about it short of backing off on supporting fiscal austerity.

Buying fx is not an option ideologically, as it would give the appearance that the fx reserves are backing the euro.

Late addition:
One more thing, Japanese buying of member nation euro bonds necessarily weakens the yen.

So does Draghi want that to stop/rates to go up?

Draghi Signals Euro Strength May Hurt ECB’s Recovery Efforts

By Matthew Brockett and Stefan Riecher

Feb 7 (Bloomberg) — “The exchange rate is not a policy target, but it is important for growth and price stability,” ECB President Mario Draghi said at a press conference. “We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.” Draghi noted that the ECB will publish new economic projections next month and stressed that officials will “maintain our accommodative monetary stance.” Draghi said economic weakness will prevail only “in the early part” of this year and “later in 2013, economic activity should gradually recover, supported by our accommodative policy stance.” Still, risks to the economic outlook remain on the downside, he said. Draghi said if monetary policies produced “consequences on the exchange rate that do not reflect the G-20 consensus, we will have to discuss this.”

Posted in Currencies, ECB | No Comments »

quick look ahead for the euro zone

Posted by WARREN MOSLER on 27th December 2012

After describing since inception how the euro zone was going to get to where it is, here’s my guess on what’s coming next.  

First, to recap, it took them long enough and it got bad enough before they did it, but they did decide to ‘do what it takes’ to end the solvency issues and, after the Greek PSI thing, make sure the markets stopped discounting defaults as subsequently evidenced by falling interest rates for member nation debt.

But it’s solvency with conditionality, and so while they solved the solvency and interest rate issue, the ongoing austerity requirements have served to make sure the output gap stays politically too wide.  The deficits are high enough, however, for an uneasy ‘equilibrium’ of
near/just below 0% overall GDP growth and about 11% unemployment.

However, all of this is very strong euro stuff, where the euro appreciates at least until the (small) trade surplus turns to deficit.  This could easily mean 1.50+ vs the dollar (and worse vs the yen) for example. This process at the same time further weakens domestic demand which supports a need for higher member govt deficits just to keep GDP near 0.

So at some point next year I can see deficits that refuse to fall resulting in more demands for austerity, while the strong euro results in demands for ‘monetary easing’ from the ECB.  Of course with what they think is monetary easing actually being monetary tightening (lower rates, bond buying, everything except direct dollar buying, etc.) the fiscal and monetary just works to further support the too strong euro stronger.  

All this gets me back to the idea that the path towards deficit reduction in this hopelessly out of paradigm region keep coming back to the unmentionable PSI/bond tax.  Seems to me we are relentlessly approaching the point where further taxing a decimated population or cutting what remains of public services becomes a whole lot less attractive than taxing the bond holders.  And the process of getting to that point, as in the case of Greece, works to cause all to agree there’s no alternative.  With the far more attractive alternative of proactive increases in deficits that would restore output and employment not even making it into polite discussion, I see the walls closing in around the bond holders, along with the argument over whether the ECB writes down it’s positions back on page 1. And just the mention of PSI in polite company throws a massive wrench (spanner) into the gears.  For example, if bonds go to a discount, they’ll look towards ECB supported buy backs to reduce debt, again, Greek like.  And if prices don’t fall sufficiently, they’ll talk about a forced restructure of one kind or another, all the while arguing about what constitutes default, etc.

The caveats can change the numbers, but seems will just make matters worse.  

The US going full cliff is highly dollar friendly, much like austerity supports the euro.  In fact, the expiration of my FICA cut- the only bipartisan thing Obama has done- which apparently both sides have agreed to let happen, will alone add quite a bit of fiscal drag.  This means less euro appreciation, but also lower US demand for euro zone exports.  So the cliff does nothing good for the euro zone output gap.  

And Japan seems to be targeting the euro zone for exports with it’s euro and dollar buying weakening the yen, as evidenced by Japan’s growing fx reserves (where else can they come from?).

The price of oil could spike, which also makes matters worse.

In general, I don’t see anything good coming out of the current global political leadership.

Please let me know if I’m missing anything!

Posted in Currencies, Deficit, ECB, Employment, EU, Exports, Government Spending | 28 Comments »

Berlusconi comments

Posted by WARREN MOSLER on 20th December 2012

As if their problems end with lower borrowing costs.
No mention of needing to run much larger deficits:
Yesterday Berlusconi put it plainly and simply:

Berlusconi says Italy may be forced to leave the euro zone

Silvio Berlusconi said that Italy would be forced to leave the euro zone unless the ECB gets more powers to ensure lower borrowing costs. Berlusconi, who will again lead his People of Freedom party (PDL) in a national election, said that the ECB should become a lender of last resort for the currency bloc. “If Germany doesn’t accept that the ECB must be a real central bank, if interest rates don’t come down, we will be forced to leave the euro and return to our own currency in order to be competitive,” Berlusconi said.Berlusconi is already campaigning hard for the election with a spate of television interviews in an attempt to close the wide gap with the center-left Democratic Party which is polling at above 30 percent, some 14 points above the PDL.

Posted in ECB, EU | 58 Comments »

Draghi Says ECB Stands Ready to Buy Bonds as economoy weakens

Posted by WARREN MOSLER on 9th November 2012

I guess he doesn’t realize the bond buying is about solvency, not aggregate demand.
Probably didn’t teach that at MIT or any of those other fancy places:

He was born in Rome, where he studied at the Massimiliano Massimo Institute and graduated from La Sapienza University under the supervision of Federico Caffè. Then he earned a PhD in economics from the Massachusetts Institute of Technology in 1976 under the supervision of Franco Modigliani and Robert Solow. He was full professor at the Cesare Alfieri Faculty of Political Science of the University of Florence from 1981 until 1994[3] and fellow of the Institute of Politics at the John F. Kennedy School of Government, Harvard University (2001).

Draghi Says ECB Stands Ready to Buy Bonds as economoy weakens

(Bloomberg) European Central Bank President Mario Draghi said the economic outlook is worsening and the bank stands ready to activate its bond-purchase program if governments fulfil the necessary conditions. “We are ready to undertake” Outright Monetary Transactions, “which will help to avoid extreme scenarios,” Draghi said. “It’s entirely up to Spain and the Spanish government to take the decision,” Draghi said. At the same time, “since the OMT announcement there have been a series of improvements” on financial markets, including “a return of flows from the rest of the world,” he said. “Certainly the outlook is being revised and there’s a picture of a weaker economy,” he said. “The Governing Council decided to keep interest rates unchanged. We have not discussed what we’re going to do next year in terms of monetary policy.”

Posted in ECB | 13 Comments »

Did Central Banks Blow It by Not Coordinating Stimulus?

Posted by WARREN MOSLER on 3rd October 2012

The mainstream is really grasping for straws now.
How about what the call ‘stimulus’ is in fact nothing of the sort?
Seems no amount of evidence will change their minds.
As Paul Samuelson once quipped, economics changes one funeral at a time.

Meanwhile, as previously discussed, the ECB has solved the solvency issue,
and they’re now left with just the bad economy part,
with ‘conditionality’ there to ensure the output gap never closes.

This is strong euro medicine, but US austerity and the fiscal cliff is highly
dollar friendly, and it’s all very much the same globally.

So overall it’s an ongoing case of low demand/large output gaps and self imposed global misery
with no end in sight.

Did Central Banks Blow It by Not Coordinating Stimulus?

In the space of 30 days, five major central banks took turns to deliver aggressive stimulus measures in a bid to boost growth. Could they have made a bigger impact if they had announced the measures on the same day?

Posted in ECB, Fed | 17 Comments »

Draft for Oct. 26 Rome Presentation

Posted by WARREN MOSLER on 27th September 2012

See here for Rome presentation.

Comments welcome!

(Mario Draghi may be on the panel with me)

Posted in CBs, Currencies, ECB, Employment, Government Spending | 113 Comments »

ECB’s Weidmann Says Unlimited Money Creation Risks Inflation

Posted by WARREN MOSLER on 19th September 2012

Only with fixed fx, where ‘money creation’ is better described as ‘deficit spending’.

Shame shame shame.

ECB’s Weidmann Says Unlimited Money Creation Risks Inflation

By Jeff Black and Jana Randow

September 18 (Bloomberg) — Bundesbank President Jens Weidmann said central banks that promise to create unlimited amounts of money risk fueling inflation and losing their credibility.

In a ceremonial speech in Frankfurt today, Weidmann, who opposes the European Central Bank’s plan to spend unlimited amounts on government bonds, spoke of the responsibilities that central banks have to preserve the value of money.

“If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?” he asked. “Is there not a big temptation to misuse this instrument to create short-term room to maneuver even when long-term damage is very likely? Yes, this temptation is very real, and many in the history of money have succumbed to it.”

While Weidmann didn’t directly address ECB policy, he is the only central bank governor from the 17 euro nations to publicly oppose ECB President Mario Draghi’s plan to help curb the borrowing costs of member states engulfed by the region’s debt crisis. Weidmann, who has warned the bond-buying policy is tantamount to financing governments, said today that central banks were given independence to ensure the power to create money couldn’t be abused by politicians.

“If one looks back in history, central banks were often created precisely to give the monarch the freest possible access to seemingly unlimited financial means,” Weidmann said. “The connection between states’ great financial needs and a government controlling the central bank often led to an excessive expansion of the money supply, and the result was devaluation of money through inflation.”

‘Extraordinary Privilege’

The independence of central banks is an “extraordinary privilege” and not an end in itself, he said.

“The independence serves much more to establish with credibility that monetary policy can concentrate without hindrance on keeping the value of money stable,” Weidmann said. “The best protection against the temptations inherent in monetary policy is an enlightened and stability-oriented society.”

Weidmann’s speech forms part of a series of events in Frankfurt on the theme of money in the works of Johann Wolfgang von Goethe.

Posted in ECB | 73 Comments »

Cliff on ECB

Posted by WARREN MOSLER on 7th September 2012

Over 6 weeks ago we distributed the attached Eurosystem Solutions paper.

It described the unique non-standard measures being used for by the Eurosystem and ECB to address bank solvency and national solvency issues and the movement towards a real solution involving the ECB.

Now the ECB has announced what is very close to the real solution: unlimited bond purchases.

Regardless of conditionality, or even in spite of conditionality, this is the crossing of the line into the notion that there is an entity that can credit accounts in Euro in unlimited amounts.

While conditionality is the apparent necessary circumstance, and it’s likely national authorities will play along, these ECB purchases will have to take place regardless of conditionality. If Spain says they can’t comply, is the ECB going to let them default? The ECB has done all this to avoid Spanish default.

The best case is for the markets to recognize the ECB backstop and so regular purchases aren’t very necessary. There will be lots of movement towards coordination of budgets and banking supervision.

But the ECB line has been crossed.

Sixteen years after our AVM/III July 1996 Bretton Woods conference that identified the severe credit problems with the looming Maastrict rules (1/1/99), and eleven years after Warren’s famous paper on the potential European credit crisis “The Rites of Passage” we are finally seeing the necessary repair to the EMU.

There still remain political obstacles, court challenges and the like, but the imperatives to avoid a complete collapse of the Euro financial system have driven virtually all the important constituents to this necessary path of solution.

Posted in CBs, Currencies, ECB | 35 Comments »

ECB to sterilize bond purchases

Posted by WARREN MOSLER on 5th September 2012

>   (email exchange)
>   ”To sterilize the bond purchases, the ECB will remove from the system elsewhere the same
>   amount of money it spends, ensuring the program has a neutral impact on the money
>   supply.”
>   blimey…

ECB Plan Said to Pledge Unlimited, Sterilized Bond-Buying

Posted in Bonds, CBs, ECB | 25 Comments »

Asmussen statement

Posted by WARREN MOSLER on 22nd August 2012

>   (email exchange)
>   On Wed, Aug 22, 2012 at 3:02 AM, wrote:
>   You are totally right about him, I sent you a word doc with his exact words
>   (emphasis mine)

Repeat: Asmussen: ECB Wants To Eliminate Doubts About Euro
2012-08-20 05:36:05.371 GMT

–First Ran On Mainwire At 2257 GMT/1857 ET Sunday

FRANKFURT (MNI) – The European Central Bank wants to remove any doubt about the permanence of the common currency, ECB Executive Board member Joerg Asmussen said in a newspaper interview published in Monday’s edition of the German daily Frankfurter Rundschau.

The German board member told the paper that financial market certainty regarding the continued existence of the euro was a necessary condition for the currency’s stability.

The ECB’s planned new bond-buying program is superior to its predecessor, the Securities Market Program, and the Governing Council will work on details at its next meeting, Asmussen said.

Noting the high risk premia for some sovereign bonds in the euro area, which he said were in part due to concerns about the reversibility of the euro, Asmussen said that such an exchange rate risk was theoretically not admissible in a currency union and was leading to the incomplete transmission of ECB monetary policy to some euro area economies.

“Our measures attempt to repair this defect in the monetary policy transmission mechanism,” he said. The worries about the euro’s permanence are no wonder, he added, given “how carelessly” the currency is talked about in Europe.

“It is precisely these concerns about the continued existence of the euro that we want to rid market participants of,” he said.

Asmussen asserted that the ECB is acting within its mandate, adding that “a currency can only be stable if there is no doubt about its existence.”

The new bond-buying program meant to address this issue “will be better conceived” than the SMP, he said, repeating that the ECB will only act in tandem with the EFSF or ESM and that interested countries must submit a request and satisfy “comprehensive economic policy conditions.”

The ECB’s Governing Council “will decide in complete independence whether, when and how bonds are purchased on the secondary market,” he added.

What happened last summer with Italy, which failed to use the time bought by ECB bond purchases to make necessary adjustments, cannot be allowed to happen again, he said.

Moreover, in the new program the ECB will deal with the problem of senior status, which interferes with affected countries’ return to capital markets because private investors fear being disadvantaged vis-a-vis the ECB, he said.

Asked if the new program could be successful because it will be unlimited in time and scope, Asmussen confirmed that ECB President Mario Draghi had said as much.

“But wait and see,” he said. “We are working on the design of the new program and will occupy ourselves with these questions in our next meeting.”

Credit and money growth in the euro area are “moderate,” and “inflation expectations in the entire Eurozone are firmly anchored to our target,” he said. “We are monitoring price developments very closely and have all the necessary instruments to fight possible inflationary dangers effectively and in a timely manner.”

Posted in Banking, Bonds, ECB | 19 Comments »

Joerg Asmussen

Posted by WARREN MOSLER on 21st August 2012

Karim writes:

Germany’s director at the ECB, Joerg Asmussen, has signaled his full backing of Draghi’s bond purchasing plan reports the Daily Telegraph.

This is one more step in turning the Bundesbank’s opposition into the equivalent of Lacker’s dissent at the FOMC. One dissent cant derail the overwhelming majority. That is especially true now that a fellow countryman also supports the plan. Technically speaking, Asmussen’s position (as an Executive Board Member) is senior to that of the Bundesbank President (Governing Council): Sort of like Janet Yellen vs John Williams.

As background, note Asmussen was a Merkel appointee and had no prior affiliation with the Bundesbank.
See professional career here.

Posted in ECB | No Comments »

ECB Says It May Buy Bonds If Strict Conditionality Ensured

Posted by WARREN MOSLER on 9th August 2012

A mixed bag.

It addresses the solvency issue and can bring rates down to whatever the ECB wants them to pay.

But the ‘conditionality’ likely continues the contractionary bias it’s already introduced.

If pressed as implied, this is a prescription for rising unemployment and political turmoil.

The euro zone has massive ‘demand leakages’ into pension funds, corporate reserves, cash in circulation,
the desire of foreign governments to hold euro balances, etc. that are a powerful contractionary bias.

They can only be offset by deficit spending by the domestic private sector, the foreign sector (net exports)
or the euro zone public sector entities.

In my humble opinion
nothing less than full public sector recognition of this ‘accounting identity’
is a necessary prerequisite to a constructive response.

ECB Says It May Buy Bonds If Strict Conditionality Ensured

Aug. 9 (Bloomberg) — The European Central Bank said it may intervene in bond markets in tandem with Europe’s bailout funds if troubled nations commit to improving their economies and fiscal positions.

“The adherence of governments to their commitments and the fulfilment by the European Financial Stability Facility/European Stability Mechanism of their role are necessary conditions,”

the Frankfurt-based ECB said in its monthly bulletin today, echoing President Mario Draghi’s remarks on Aug. 2. The central bank “may undertake outright open market operations of a size adequate to reach its objective.”

The ECB is stepping up its crisis response after Spanish and Italian bond yields surged, exacerbating a sovereign debt crisis that has forced five of the 17-euro members into seeking external aid. Draghi last week justified any potential intervention, saying rising borrowing costs in “several countries and financial fragmentation hinders the effective working of monetary policy.”

Still, “in order to create the fundamental conditions for such risk premia to disappear, policy makers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination,”

the ECB said. “Governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist — with strict and effective conditionality.”


Market Tensions


A further worsening of the crisis is likely to hurt economic growth in the euro area, “with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment,” the report said.

Today’s bulletin also contains the quarterly survey of professional forecasters. Their estimate for 2012 inflation remained unchanged at 2.3 percent. For 2013, they expect annual price gains to average 1.7 percent, down from 1.8 percent previously estimated, and for 2014 they predict 1.9 percent. The longer term inflation forecast remained at 2 percent.

On growth, the forecasters predict a 0.3 percent contraction for 2012, down from a 0.2 percent contraction expected last quarter. For 2013, they anticipate growth of 0.6 percent, down from a previous estimate of 1 percent. For 2014, they see the economy expanding 1.4 percent.

Posted in ECB | 17 Comments »

ECB’s Hansson Says Germany Can Be Outvoted on Governing Council

Posted by WARREN MOSLER on 3rd August 2012

Karim writes:

This is correct. The Bundesbank voting no is technically equivalent to Lacker dissenting at every FOMC meeting this year. It would be a bigger statement if dissents came from the Executive Board (the equivalent of Yellen dissenting vs a regional Fed bank president).

ECB’s Hansson Says Germany Can Be Outvoted on Governing Council

By Ott Ummelas

August 3 (Bloomberg) — European Central Bank policy maker Ardo Hansson, who heads Estonia’s central bank, said Germany c be outvoted on the ECB’s Governing Council.

“There are 23 members in the council and if there will be a vote then everyone’s vote has the same weight in the sense that some questions are solved by a majority,” Hansson told Eesti Rahvusringhaaling radio today when asked if new ECB bond purchases can be approved without German support.

While there was unanimity on the council to investigate options in the coming month, “there could be differing views of details and these would need to be solved in negotiations,” Hansson said. He also said purchases will focus on “relatively short-term debt instruments.”

Posted in ECB, Fed | 2 Comments »

ECB August Meeting

Posted by WARREN MOSLER on 2nd August 2012

Not to forget this is the just the beginning of ‘doing what it takes’ to sustain the euro, and make it ‘safe’ for investors.

That’s all inclusive, though not necessarily immediate.

And ‘anchoring’ the short end ‘automatically’ goes a very long way towards anchoring the long end with regard to risk premium.

Karim writes:

Draghi announced significant philosophical changes today. The key announcements were:

  • The ECB was ready to renounce seniority on its bond purchases.
  • The size of future purchases was open-ended: ‘size adequate to reach its objectives’.
  • Future purchases may not be sterilized, as they have been with the SMP so far.
  • Purchases would be front-end focused as that ‘falls squarely in line with monetary policy instruments’. A key instrument is obviously the LTROs. So would imagine purchases would be 3yrs and in on the curve.

The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions [for some action on the ECB side]. The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed.

Other news was that:

  • As in the excerpt above, purchases would be subject to strict conditionality via the EFSF (i.e., Spain has to accept a Memorandum of Understanding). Fiscal consolidation and structural reform were listed as the key conditions.
  • He threw cold water on the ESM getting a banking license, saying he was ‘surprised by the attention this has received’.
  • Logistics and objectives on bond purchases were TBD by a committee.
  • Further non-standard measures were forthcoming.
  • Rate cuts were discussed but unanimously voted down; as for a negative depo rate he said ‘we are in unchartered waters’, implying the hurdle may be high.

Relative to levels before Draghi’s London speech last week, Spanish 2y yields are 200bps lower, and 10yr yields are 50bps lower.

Posted in Bonds, Currencies, ECB | 160 Comments »

ECB notes?

Posted by WARREN MOSLER on 1st August 2012

An interesting move by the ECB would be to offer short to medium term notes in the market place.

As discussed over the years, unlike other currencies, the euro has no ‘risk free deposits’ available to anyone other than member banks and foreign governments.

This has probably caused substantial numbers of investors to sell their euro for other currencies rather than hold any of the available euro denominated financial assets.

If so, ECB notes could mark the return of these portfolio to ‘normal’ allocations to euro denominated financial assets, which would offer strong support for the euro vs other currencies.

And with the ECB measuring success by the strength of the euro, this could be an attractive proposition.

It would attract euro deposits from the banking system, which the ECB can easily accommodate by continuing its current policy of liquidity provision for its member banks as needed.

Additionally, and not that it actually matters for inflation, lending, aggregate demand, etc., most monetarists would not include these notes as part of the ‘money supply’ but instead as an anti inflationary ‘sterilization’ measure.

Posted in Banking, Currencies, ECB | 11 Comments »

Eurogroup chair sees decisions soon in debt crisis

Posted by WARREN MOSLER on 29th July 2012

Note that past remarks indicate the euro leaders equate ‘success’ with ‘strong euro’, particularly the ECB, with its single mandate.

So with the euro reacting positively to Draghi’s ‘pledge’, which came after a decline in the euro, more of same is encouraged.

Eurogroup chair sees decisions soon in debt crisis

By Geir Moulson

July 29 (AP) — The German and Italian leaders issued a new pledge to protect the eurozone, while the influential eurogroup chairman was quoted Sunday as saying that officials have no time to lose and will decide in the coming days what measures to take.

The weekend comments capped a string of assurances from European leaders that they will do everything they can to save the 17-nation euro. They came before markets open for a week in which close attention will be focused on Thursday’s monthly meeting of the European Central Bank’s policy-setting governing council.

Last Thursday, ECB President Mario Draghi said the bank would do “whatever it takes” to preserve the euro — and markets surged on hopes of action.

German Chancellor Angela Merkel and Italian Premier Mario Monti “agreed that Germany and Italy will do everything to protect the eurozone” in a phone conversation Saturday, German government spokesman Georg Streiter said, a statement that was echoed by Monti’s office.

That was nearly identical to a statement issued Friday by Merkel and French President Francois Hollande, which followed Draghi’s comments.

Posted in Currencies, ECB, EU | 7 Comments »

mmt euro discussion origins

Posted by WARREN MOSLER on 29th July 2012

This is from Pavlina’s paper for those of you tracing origins of MMT euro discussion:

Link here.

Notice how in private correspondence Mosler applies the same logic in analyzing the ramifications of the restrictions on deficit spending in the current plan for European Monetary Union:

Operating factors will require reserve adds and drains to keep the system in balance and maintain control of the interbank rate. However, the ECB is able only to act defensively, like all CBs [Central Banks]. It cannot proactively lend Eurosa reserve add, without an offsetting drain. The deficit spending I refer to is needed to offset the need of the private sector to be a net nominal saver in Euros. In the currently proposed system, even the increasing demand for currency in circulation must be accommodated via collateralized loans from the ECB. Net nominal wealth of the system cannot increase. The private sector demand for an increase in net nominal wealth will have to be from the reverse happening at the member nation level. If member nations are restricted from doing this [to deficit spend], a vicious deflationary spiral will result. (Mosler, 1996)

Posted in Currencies, ECB, EU | 4 Comments »

Your HuffPost Blog Post – The Economics of Eurozone Trade Differentials and Fiscal Transfers

Posted by WARREN MOSLER on 16th July 2012

The Economics of Eurozone Trade Differentials and Fiscal Transfers

Posted in ECB, EU, trade | 8 Comments »