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Meet "Helicopter Axel"

by Migeru Fri Nov 26th, 2010 at 06:15:41 AM EST

iMarketNews via Zero Hedge: ECB Weber: EFSF Should Convince Markets; If Not Will Do More (November 24, 2010)

The European Financial Stability Fund should be sufficient to dissuade markets from speculating against the solvency of Eurozone member countries, and if not, more money will be provided, European Central Bank Governing Council member Axel Weber said Wednesday.
In other words "we're waving this pot of money in front of the markets and every time they seize, we give them a chunk. This should make them stop but, if it doesn't, we'll make the pot even bigger".

Seriously, if this is not convincing evidence that Axel Weber is unfit to serve as ECB President after Trichet, I don't know what would be. I mean, look at this:

It should be "easy to convince markets" with the EFSF backstop that speculation against governments will not be successful, Weber argued.
Isn't it the case that speculators are succeeding in forcing governments to tap the fund to give to bondholders?
Weber said he was convinced that if the E750 billion is not enough, Europe's political leaders "will do more."
Yeah, how about 1.5 trillion? Is he proposing to drop the money from helicopters, too?


Presumably, given Axel Weber's reputation for being an inflation-fighting hawk (after all, he's the Bundesbank chief, not just a random joe at the ECB), one would have to conclude that adding a few hundred billion to the bailout fund would not be inflationary in the way that supporting crisis-appropriate active employment policies would.

In fact, while advocating saddling European governments with even more debt in order to give money to bondholders, Weber continues to insist the problem here is the public finances:

The sovereign debt crisis is not a crisis of the euro or the Eurozone, but rather one of individual countries, he stressed. The structural problems of Greece and Ireland are not comparable to those of other members, he insisted.
Or to each other, clearly...
EMU member states should retain as much sovereignty as possible in fiscal matters, Weber argued. Rather than demand that Ireland harmonize its 12.5% corporate profit tax with the higher rates elsewhere, EMU conditionality should focus on the bottom line -- the country's deficit and debt.
Right, preserve the corporate tax breaks and continue to focus on the German Stupidity Pact.

In any case, it appears (WSJ) that

the German government views Mr. Weber's comments as badly timed
oh, dear, did Weber piss outside his pot?
In the end, "the crisis will be positive for the Eurozone," since it will oblige the governments to extend their surveillance structures and establish a permanent mechanism to deal with future crises, which will "certainly" occur, Weber predicted.
Especially if you Herr Weber are appointed to the ECB, they will, in short order.

Meantime, the EU is engaging in the usual round of rumours and contradictory statements from officials at various levels:

The European Commission floated a proposal Wednesday to double the size of Europe's €440 billion ($588 billion) bailout fund for indebted euro-zone countries, but the idea was quickly dismissed by Germany, according to people familiar with the situation.
With friends like these...

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Central bankers, central wankers.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 25th, 2010 at 03:21:16 PM EST
I listened to an Yle 'long discussion' today about the dynamics of the Finnish economy with two 'motivational consultants'.

I am more convinced then ever that this is a perception problem, and the perceptual strategies are key.

Thus we must examine perceptions not facts.

You can't be me, I'm taken

by Sven Triloqvist on Thu Nov 25th, 2010 at 04:24:24 PM EST
[ Parent ]
Or rather the perception of facts.

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 25th, 2010 at 04:25:16 PM EST
[ Parent ]
Given the alacrity and lack of negative consequences with which the US financial sector can engage in naked shorting of almost anything, or a financial equivalent in the form of a naked CDO, how does Weber imagine that any amount of money will be sufficient to overcome such attacks?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 25th, 2010 at 11:26:56 PM EST
Mischaracterization.

Dropping euros from helicopters would have a definite and immediate positive impact on the countries underneath.

Bailing out bank bond-holders will probably only contribute to inflating the emerging BRIC bubble.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Fri Nov 26th, 2010 at 06:12:16 AM EST
Dropping euros from helicopters into exclusive resorts.
by Colman (colman at eurotrib.com) on Fri Nov 26th, 2010 at 06:14:41 AM EST
[ Parent ]
The point is that Weber would oppose "printing money" for economic stimulus as that would be "inflationary".

But "printing money" for bank bailouts is okay.

So not "helicopter Axel" in the sense you say, but I still want to embarrass him for being hypocritical.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Nov 26th, 2010 at 06:15:23 AM EST
[ Parent ]
... in favor of tossing money out of a luxury yacht docked in front of an exclusive resort, not so much where the 99% rabble could get their hands on it.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Nov 26th, 2010 at 08:33:14 PM EST
[ Parent ]
But that is exactly where Helicopter Ben has been. He hasn't dropped money from helicopters while flying over populated areas. He has dropped off bales of money at the helipads on top of the TBTFs.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Nov 28th, 2010 at 09:29:12 PM EST
[ Parent ]
Correct, because helicopter drops are necessary fiscal action, monetary action being useless at the zero bound.

That being so, Central Banks are unqualified to engage in them, although as mig points out, they are quite prepared to meddle in matters fiscal in every way they can.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 26th, 2010 at 06:22:21 AM EST
[ Parent ]
The problem is not that Helicopter Axel told the markets that the ECB would support prices. The problem is that the mechanism by which he proposes to support bond prices is such a half-assed load of Brahmin crap: He told the markets that the ECB would support prices on a limited budget and only if things got worse first.

In other words, he is pretending that the central bank has a limited budget and that the central bank does not have the power to set interest rates. Both are abrogations of his duties as a central banker.

If he is sincere about this understanding of central banking, then he is unfit for a leadership position in any modern central bank. If he is insincere about this understanding, he just handed € 750 bn to the bond markets for no perceptible gain in financial stability or fiscal policy manoeuvre room.

If he had, instead, said "the ECB will purchase any number of sovereign €-zone bonds at [bid:ask offers] from the secondary market" then there would have been no problem. The ECB would have set the interest rate for sovereign debt, which is always in its power. Indeed it has to set the rate of sovereign borrowing if it wants to conduct monetary policy, since the interest rate on your sovereign's bonds is the risk free RoR that any domestic business has to assume.

If this latter point is not obvious, recall that the sovereign can always tax businesses before defaulting. It may (should, in this case) decide to not exercise this prerogative. But you cannot base your business model on assuming that your government will shaft its creditors before shafting your business, when it might as well be the other way around.

The ECB would then have assumed the default risk, which is how things ought to be in a well-run floating currency regime. Partly because the sovereign default risk of a floating currency is a wholly artificial construct that disappears completely when the CB takes it. And partly because the rate on sovereign debt, including any default premium, is the monetary policy rate (see above). That's the one central banks are supposed to target. Having bond market pricing of default risk create different policy rates for different €-zone countries is not going to do anything to make monetary policy (already of dubious value in the current institutional setup) any more effective as a tool of macroeconomic stability. Particularly when bond market risk premiums are pro-cyclical...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 26th, 2010 at 09:45:45 AM EST
If he is sincere about this understanding of central banking, then he is unfit for a leadership position in any modern central bank. If he is insincere about this understanding, he just handed € 750 bn to the bond markets for no perceptible gain in financial stability or fiscal policy manoeuvre room.

I'd be interested to know which of these is true.

And it's at least €750 bn, because there was a clear implication that more would be available, in case of some freak financial calamity that no one serious would ever expect.

Now would be a very good time to start another Stop Blair the bankers campaign, with LTEs and petitions to put a stop to this nonsense.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Nov 26th, 2010 at 10:16:06 AM EST
[ Parent ]
Oh, he's sincere. Look at this from the month of June:
Euro rescue plan averts disaster but fears persist | EurActiv
European Central Bank Governing Council member Axel Weber said on Wednesday (9 June) that the way in which the markets were taking a sceptical view of the scheme was "incomprehensible".
The best we can hope from Weber as Central Banker is that when the markets bring him to heel, he says the same as Greenspan, that his entire worldview has collapsed.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 26th, 2010 at 12:19:11 PM EST
[ Parent ]
... and then goes on to keep pontificating about things he has publicly admitted that he has no fucking clue about.

... and he will keep being taken seriously by Die Seriöse Leute.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 26th, 2010 at 12:34:52 PM EST
[ Parent ]
This week he did include in his remarks that the markets suffer from 'limited rationality'

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 26th, 2010 at 01:31:27 PM EST
[ Parent ]
They do not seem to be alone in that respect...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 26th, 2010 at 01:34:51 PM EST
[ Parent ]
I'd prefer "coked-up psychopaths with the morals of a weasel in a hen house" as a descriptive phrase.

YMMV

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Nov 26th, 2010 at 01:54:05 PM EST
[ Parent ]
Descriptive of the central bankers?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 26th, 2010 at 04:05:51 PM EST
[ Parent ]
Like investment banksters, lets give them their fair recognition.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Nov 26th, 2010 at 08:35:11 PM EST
[ Parent ]
he will keep being taken seriously by Die Seriöse Leute.

Of course.

He may be a clueless fuck, but he's their clueless fuck.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Sat Nov 27th, 2010 at 08:25:05 AM EST
[ Parent ]
Michael Hudson: Why Paul Krugman Waves the Flag for Uncle Sam

We are dealing with two quite different ideas of what the proper role of a financial system should be. Commercial banks in the West have created most credit for speculation and asset-price inflation over the last thirty years, not to fund capital formation and industry. The guiding idea of a public-sector bank is to promote long-term investment to raise productivity, output and employment. This is what has enabled China to succeed so rapidly while Western economies have let themselves be financialized. The Baltics, Iceland and now Ireland are examples of the disaster that financial neoliberals cause when given a free hand.

The moral is that China's bank success - and its attempt to avert U.S. currency raiding and arbitrage speculation seeking to loot its foreign reserves - should be emulated, not accused of being economic warfare. This emulation is what the BRIC+ countries have announced as their goal. The Obama administration and European politicians certainly are making an obvious point in urging China to focus more on its own domestic market and accelerate the rise in its living standards. It is clear that markets in the United States and Europe are shrinking as debt deflation sets in.

China is not as economically self-sufficient in natural resources and water as the United States. This means that a sustained rise in its living standards will require spending much of the international savings it has built up. But at least it is on the right path. Can the same be said of America? Does it help to denounce China, or should we rather ask why its productivity, capital investment and living standards are rising while ours are declining?

Asking this question suggests the answer: China's financial system is designed to promote a growing surplus, not siphon it off. A byproduct is to increase real estate and stock market prices - but this is a reflection of capital investment and progress, not a diversion of investment to fuel financial asset stripping as has occurred in the United States with increasingly arrogant greed over the past 30 years.



'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sat Nov 27th, 2010 at 01:43:31 PM EST
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