Joerg Asmussen

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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.

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The 10th plague

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As previously discussed, action was taken after the disease began infecting the core.

Headlines:
Germany backs Draghi bond plan against Bundesbank
Bundesbank Says German Economy May Cool Further in Second Half
Spain Home Rents Rise, First Time Since January, Fotocasa Says

And, also as previously discussed, I’m watching for signs deficits may be high enough for
euro zone GDP stability this quarter.

Germany backs Draghi bond plan against Bundesbank

By Ambrose Evans-Pritchard

August 20 (Telegraph) — “A currency can only be stable if its future existence is not in doubt,” said Jrg Asmussen, the powerful German member of the ECB’s executive board. Mr Asmussen told the Frankfurter Rundschau that the surge in Club Med bond yields over recent months “reflects fears about the reversibility of the euro, and thus a currency exchange risk” rather than bad economic policies in struggling states. Mr Asmussen confirmed that purchases may be “unlimited” in scale, a far cry from the half-hearted intervention of the past two years, which failed to stem capital flight. The Daily Telegraph can confirm reports in Der Spiegel that ECB technicians are examining plans to cap Spanish and Italian bond yields, among other options.

Bundesbank Says German Economy May Cool Further in Second Half

By Stefan Riecher

August 20 (Bloomberg) — “The prevailing uncertainty in the euro area could have a more negative impact on economic activity in Germany in the second half of the year,” the Bundesbank said in its monthly report. “However, as long as demand for German products from non euro-area countries remains essentially intact, a reversal of the cyclical trend in Germany is highly unlikely.” Growth in Europe’s largest economy slowed to 0.3 percent in the second quarter from 0.5 percent in the first as demand from euro-area trading partners waned. “In addition to ongoing strong construction activity, the outlook for private consumption remains favorable,” the Bundesbank said.

Spain Home Rents Rise, First Time Since January, Fotocasa Says

August 21 (Bloomberg) — Rental prices for Spanish homes rose 0.8 percent in July from June, recording the first monthly increase since January, real-estate website Fotocasa.es and IESE Business School said in an e-mailed statement.

Average rental prices stood at 7.56 euros ($9.38) per square meter, up from 7.49 euros per square meter in June, according to the statement.

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My comments on my Jan 2003 ten year outlook

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>   
>    Posted By Warren Mosler on January 15, 2003 at 13:04:00:
>   
>   Here’s what’s being set up.
>   
>   1. Bush tax stuff is way too small to turn the economy.
>   
>   2. Over the next 24 months the economy weakens as the deficit grinds its way to the usual
>   5% of gdp or more – $500 billion + – mainly through falling revenue as unemployment
>   rises, corporate earnings wither, etc.
>   

A month or so after this was written I met with Andy Card, Bush’s chief of staff, and told him much the same. He got it and they took immediate action to increase spending and cut taxes. It was shortly after that meeting that Bush was asked about the deficit and said he doesn’t look at numbers on pieces of paper, he looks at jobs, and did all he could to make the deficit as large as possible. It got up to 200 billion for Q3 or about 800 billion annually; enough to turn the economy enough to not lose the election.

>   
>   3. Hillary Clinton wins the Presidency by a landslide promising to increase taxes on the
>   rich to assist the poor and balance the budget.
>   

I forget why she didn’t run and/or lost to Kerry?

>   
>   4. After the innaguration the program gets passed while the federal deficit remains around
>   $600 billion.
>   
>   5. The economy recovers as it always does after a couple of years of 5%+ deficits restore
>   non govt net financial assets/savings/aggregate demand.
>   

This is pretty much what happened under Bush.

>   
>   6. Once again the Clintons ‘prove’ balancing the budget is good for the economy and win
>   two terms.
>   
>   7. Half way into her 2nd term the strong economy drives the budget into surplus further
>   proving Clintonomics.
>   

This happened under Bush as the strong economy driving by private credit expansion took the deficit down to 1% of GDP by mid 2006. Unfortunately the expansion included the sub prime fraud which was seriously unsustainable.

>   
>   8. The next president is Hillary’s VP who gets the votes counted in his favor this time.
>   
>   9. This next president gets clobbered with another economic downturn caused by the
>   previous surplus, and the federal budget goes into deficit.
>   

It happened during the last few months of the Bush administration. And Obama did get clobbered by it.

>   
>   This time they aren’t ‘fooled’ by Bush style tax cuts anymore, and try instead to again raise
>   taxes on the rich to assist the poor and balance the budget, but they do it too soon, before
>   the deficit is large enough to turn the economy, and it gets much worse.
>   

My timing was far from perfect, but not terrible for a 10 year forecast?
Any other 10 year forecasts from back then on record?

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Euro-Area Exports Rose 2.4% in June

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Unfortunately this is will also be spun as ‘austerity works’ as they don’t realize exports are real costs and imports as real benefits, meaning this is in fact evidence of deteriorating real terms of trade.

And, of course, globally it’s a 0 sum game as for every export there is an equal import. But while we can’t all net export, we can all attempt to net export with overly tight fiscal/low aggregate demand/high unemployment etc. in a very ugly race to the bottom.

Additionally, a rise in net exports from euro zone domestic policy comes with upward pressure on the currency that continues to the point where there are no net exports.

That’s why the ‘export models’ include the govt building foreign exchange reserves, as it sells its currency vs the currency of the region targeted for exports. Hence the growing hoards of $US reserves by all the nations targeting the US for exports.

However, the euro zone, unlike Germany under the mark, doesn’t do that for ideological reasons. They don’t want to buy $US and build $US reserves and give the appearance that the $US is the ‘reserve currency’ backing the euro. And so instead of sustaining net exports, the euro goes up to the point where there are no net exports. Note that the euro appreciated from about 85 to 160 to the dollar during its first decade before backing off to under 120 due to portfolio shifting from blind fear of oblivion. And during that time the currency movement always kept net exports in check.

This is all why the ECB doing ‘whatever it takes’ which means conditional funding to sustain solvency while keeping fiscal ‘overly tight’ is extremely euro friendly.

Euro-Area Exports Rose 2.4% in June, Led by Germany: Economy

By Simone Meier

August 17 (Bloomberg) — Euro-area exports rose for a second month in June, driven by a surge in shipments from Germany, as companies tapped into emerging markets to offset declining demand at home.\

Exports from the 17-nation currency bloc advanced a seasonally adjusted 2.4 percent from May, when they gained 0.4 percent, the European Union’s statistics office in Luxembourg said today. Imports stagnated in the period and the trade surplus widened to 10.5 billion euros ($13 billion) from 6.8 billion euros.

Europe’s economy contracted 0.2 percent in the second quarter as tougher austerity measures pushed at least six member states including Italy and Spain into recession. With households and companies across the region cutting spending, exporters such as L’Oreal SA, the world’s largest cosmetics maker, have relied on faster-growing Asian markets to bolster sales.

“The euro-region economy is undergoing a mild recession,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “The global growth dynamic has eased somewhat, but exports will continue to support development to a certain extent in the second half of the year.”

German exports jumped 6.6 percent in June to 40.9 billion euros, while imports in Europe’s largest economy rose 1.5 percent. Shipments from Italy increased 2 percent in the period.
France and Spain reported gains of 1 percent and 1.4 percent, respectively.

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Ryan the next Bachmann?

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There’s a reason the hardcore budget balancer/deficit hawk does not last long under the microscope. Their numbers can’t add up, which leaves them with contradictory statements.

Why can’t they add up? The dollar is a ‘closed system’, what’s called a case of ‘inside money’ due to the fact that they all come from govt and/or its designated agents (apart from counterfeits).

This means the dollars in our pension funds, IRA’s, corporate reserves, cash in circulation, foreign central bank reserves, etc. all come from someone else spending more than his income.

Yes, the rest of the private sector can and does often spend a bit more than it’s income to supply those ‘saver’s dollars’ but most of it comes from the $15 trillion or so the US govt has spent in excess of its tax collections. That’s called federal deficit spending.

In fact, the US govt debt is equal to the net dollar denominated ‘savings’ of all the other sectors combined. To the penny. It can’t come from anywhere else.

That means any plan to balance the federal budget is also a plan that doesn’t allow global dollar savings to grow. This means the ‘automatic savings’ like dollars going into and compounding in pension funds, IRA’s, corporate reserves, cash in circulation, and foreign central bank reserves, etc. either can’t happen or are ‘supplied’ by equal private sector debt increases.

So a plan to reduce the deficit $10 trillion from current forecasts is also a plan that either causes private sector debt to increase by that much and/or causes pensions, IRA’s, corporate reserves, cash in circulation, and foreign central bank reserves to decrease by that much.

None of which is consistent with a growing economy, to say the least.

This means, any plan for long term deficit reduction that includes relatively high rates of growth is what can be called a financial optical illusion, that doesn’t hold up on close examination.

And that’s why all the budget balancers ultimately fail. Yes, their headline rhetoric can be casually convincing and even win local elections. But under serious scrutiny, it all falls apart.

But maybe this time it’s different.
:(

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