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Another modest proposal. LQD.

by melo 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.

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.

(More below...)


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.

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.


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?

Yes, QE money could be used for stimulus of domestic economies, but all the bankers know that the purpose of banking is for the private sector, (themselves), to be the primary beneficiaries of the activity. And most of the wealthy elite are conservative and would see this as Communism and the end of everything.

If the money was spent on self liquidating loans for needed public infrastructure, say clean, reliable energy, there would be little risk. But the current banking sector is used to dipping their hands massively into such tills, and are far more concerned with how much they and their clients can pocket than with whether the end investment is sound. We have allowed a massive pollution of the whole process.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jan 24th, 2015 at 01:05:46 AM EST
The ECB would do well to capitalize publicly owned and run banks in all Euro-zone countries along the lines advocated by Ellen Brown and her Public Banking Institute for US states, counties and cities. But that would undermine the existing power structure and will be fought tooth and nail - mostly the teeth and nails of those attempting any such thing.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jan 24th, 2015 at 01:09:00 AM EST
"It's the old helicopter drop, innit?"

Not quite my understanding of the helicopter drop - that would merely reduce interest rates, but it's still just a loan. And with the currently extremely low interest rates, the gain would not be big.

To me, helicopter drop would mean creating money to directly hand out equally to everyone in the eurozone (same amount for every person, from newborns to elders), until whatever inflation target (I would say 4% target, including catchup of the lower inflation since 2009 -but since 2% is sacrosanct at the moment then, at the very least, a 2% average since 2009) is reached.

This would only be the ECB doing its job of reaching its own target and would have a side effect of improving governments balance sheets as well as reducing inequality and improving people's lives. I see no valid reason to go against this except that it is not in the interest of the rentiers which have captured the system.
Let's be very clear: the Eurozone is violating even its craziest pacts (not, alas, in the direction of reducing the crazyness) in order to serve rentiers' interests.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Jan 24th, 2015 at 05:52:45 AM EST
yeah it s crappy economic, and not going to work, furthermore, most $$ come form the  national banks buying their own bonds, not the ECB.Pointless.

in 2009 when the Australian gov wanted to boost the economy they gave $900 to everyone, absolutely everyone, a surprise check almost.Surprisingly it changed the mood a bit.

I think it has been mentioned here, the tax credit certificates printed by national banks ( as they have the right to do so under Lisbone (but not Masstrich)), is probably the best idea beside leaving this nightmarish Euro, which fortunately is going to happen anytime soon anyway.

by fredouil (fredouil@gmailgmailgmail.com) on Sun Jan 25th, 2015 at 05:50:27 AM EST

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