Fri Jan 23rd, 2015 at 09:14:23 PM EST
What holes are there in this argument, oh mighty Eurotrib mages?
Beppe Grillo's Blog
"The fears relating to Quantitative Easing (QE) have turned out to be unfounded. Before Mario Draghi spoke, there were two thorny issues worrying the M5S.
THE CONSTRAINTS ON THE REAL ECONOMY
We are talking about a measure involving more than 1000 billion euro to be used for buying bonds to finance the public debt of European States. The problem is that, given that the ECB's mandate prevents it from directly financing states, all this new wave of liquidity will once more go to the banks, that are already stuffed full of State bonds. The hope is that they will reuse the money to loan more to families and to companies, in such a way that there'll be an increase in the level of inflation (- that has collapsed to a record low - far lower than the ECB's aim of of 2%), that will in turn stimulate consumption and investment.
It's the same old story - and it has however, never worked. Because in spite of the billions received from the ECB, the banks have still not unblocked the loans to families and to companies.
HISTORY SHOWS US WHAT HAPPENS
As happened before with the previous manoeuvres and the various LTROs, the banks that are overwhelmed with unpaid debts amounting to 181 billion Euro, prefer to reinvest the liquidity in financial activity. And they are doing this also to meet the requirements relating to capital that is kept under observation by the ECB acting in its new role as a supervisory body, and paradoxically this helps to remove incentives relating to that very activity of providing credit that people are saying is to be encouraged.
If, however the banks are not passing on liquidity to the families and the SMEs there'll be no way of stimulating consumption and investment, and above all, there'll be no significant impact on inflation. In reality, the liquidity will be seen only in the financial markets, and will further increase the turnover of the banks and the financial institutions and thus will increase the risk of instability and speculative bubbles.
WHAT THE M5S IS PROPOSING
There is however something, simple, banal and immediate that can be done to make QE become a real opportunity for the citizens and for the economy, something that is different from the usual financial speculation. the ECB could bring in the condition that the banks must use the liquidity to buy five year state bonds at an interest rate of zero, and this would provide a different, innovative and ethical way of financing the public accounts. State bonds liberated from these interest rates that in these 4 years have cost us more than 300 billion euro and they represent the umpteenth tool for transferring wealth from the pockets of the citizens to the banks, to speculators and to the privileged few. This would make it possible to direct the liquidity into the only functioning channel when the transmission of the monetary policy has stopped working: into public spending that has been drastically cut in the last few years - thus eliminating essential services, with devastating consequences for the economy. With the 90 billion euro thus collected, the Italian State could implement something that would have an extraordinary impact: providing a citizen's income for at least five years. This is our counter-proposal: let the ECB provide liquidity and therefore help to further reduce interest rates, and let the banks provide the finance for public spending without speculating, thus the State will save billions in interest payments and it will provide real support to consumption and to the real economy, - something that monetary policy has not managed to provide in the last 5 years." Marco Valli, M5S spokesperson Europe
It's the old helicopter drop, innit? If you want a 'consumer' society, this is the last card to play, otherwise what then lies around the corner?