More AEP

AEP ‘s opinions now coming thick and fast…


It [the ECB] needs to launch quantitative easing on a massive scale to head off a eurozone debacle, if necessary purchasing half the entire stock of Italian and Spanish debt, they argue.

Stephen King, HSBC’s chief economist, said the ECB should drop its ideological opposition to QE and embrace easy money in “exactly the same” way as the US Federal Reserve.

“At the heart of the problem is the ECB’s unwillingness to be seen ‘monetizing’ government debt. Yet if the alternative to QE is the collapse of the euro or a descent into depression, then massive expansion of the ECB’s balance sheet seems a small price to pay,” he said.

The ECB should not ‘sterilize’ purchases of Italian and Spanish bonds to offset stimulus but instead allow the liquidity to course through the system. Dr King said the eurozone will have to embrace fiscal union in the end or face the same sort of “fiscal anarchy leading to financial implosion” that destroyed post-Soviet rouble area.”

I am not sure whether the first phrase is AEP’s or whether it is the continuation of the caption of “a chorus of economists”. Be that as it may my question is this. Economists have clearly failed to identify the potential crisis in advance. Once we were clearly engulfed by a crisis that bore striking resemblance to 1929 and 1970 economists have obviously failed to propose any solutions that have any impact on the developing crisis. That being the case, why should anyone think that going nuclear with solutions that have already been tried and are obviously discredited should now be a viable the solution? Incidentally, AEP is already on record saying that our monetary system is already hitting the buffer due to “suffocating debt”.

Also, with regards to Mervin King’s comments and his proposal for not sterilizing intervention. Sterilization is a technique that should result in a central bank intervening in the markets with no effect on inflation. Mr King is now suggesting that this massive intervention should not be sterilized presumably because he wishes to boost inflation thus a devaluation of the currency thus a rise in the general price index. The idea is to boost the economy presumably… via debasement of the currency…

BUT I HAVE A BETTER SOLUTION FOR MR. KING… why not take this money and give a government salary to every man woman and child? Can you imagine the economic boost we’d get out of that? My tongue may be firmly planted in my cheek but in the same universe where monetization of debt is deemed a viable policy, a government salary for every citizen of the realm would be a far more efficient way to achieve the same result.

David Marsh, co-chairman of OMFIF, said the statement was “half-hearted” and suggested that dissenting German hawks were imposing limits. “The ECB is clearly not going in with all guns blazing,” he said.”

As if Hank Paulson by going in with all guns blazing in 2008 with a then astounding budget of US$750 Billion (which morphed in a now astounding US$13Trillion and counting) has accomplished anything.

Investors have not forgotten that the ECB failed to stop Greek, Irish, and Portuguese yields from spiralling out of control before each needed a rescue, even though it purchased almost a fifth of their combined debts.

Gary Jenkins from Evolution Securities said Greek yields fell from 12.43pc to 7.35pc in the week following the ECB’s first bond purchases, only to creep back up over the next six weeks.

Jacques Cailloux, Europe economist at RBS, said the ECB’s intervention had stopped a collapse of South European bond markets for now, but ultimately the ECB will have to act as buyer-of-last-resort on a huge scale.

Investors will take advantage of bond rallies to cut exposure to Italy and Spain, shifting the risk onto the ECB and the taxpayer. The crisis will flare up again if the ECB stops buying.

Here AEP hides behind comments of other pundits and market participants. Nonetheless, sentence after sentence confirms that what is being suggested has already been tried and has already mathematically and spectacularly failed for if it hadn’t we would not be in this predicament at present.  But, it seems leaders and experts take comfort in the fact that “intervention has stopped a collapse for now”… but why has none of them noticed that whatever issue caused the problem then is now an even bigger issue? Why can none of them see the diminishing marginal utility of debt?

Barely a month ago the consensus thought recovery was at hand. “We were looking at the end of QE, and exit strategies, and we could see an oasis across the desert.”

There was never any such consensus. Not arithmetically, not intellectually and not even in any given parallel universe. This is pure propaganda


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One Response to “More AEP”

  1. Patrick Donnelly Says:

    Australia did QE. It gave $1000 to nearly everyone! V for velocity of money was about 2!

    AEP is thick alright! Thickwith the bankers…. …..

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