As the FT notes this morning:
Wolfgang Schäuble has warned that spiralling levels of global debt and liquidity present a major risk to the world economy, in his parting shot as Germany's finance minister. In an interview with the FT ... said there was a danger of “new bubbles” forming due to the trillions of dollars that central banks have pumped into markets.
It took him a long time to form that conclusion. And if as a result there are bubbles now then the blame can be firmly laid at his door. I wrote this in 2010:
No one was sure whether quantitative easing would work and no one is sure for certain whether it has worked. We do however suggest in this report that several things did happen:
- The banks profited enormously from the programme, which is why they bounced back into profit so soon after the crash — and bankers' bonuses never went away;
- The entire government deficit in 2009/10 of £155 billion was basically paid for by the quantitative easing programme. If you wanted to know how the government met its costs, now you do;
- There was a shortage of gilts available for investment purposes as a result of the Bank of England buying so many in the market. Large quantities of funds were invested instead in other financial assets including the stock market and commodities such as food stuffs and metals. The USA also undertook quantitative easing at the same time as the UK, which meant that despite near recessionary conditions commodity prices for coffee and basic metals such as copper have risen enormously. This has impacted on inflation, which has stayed above the Bank of England target rate;
- Deflation has been avoided, although the relative role of quantitative easing in this versus the previous government's reflation policies is unclear;
- Interest rates have remained low.
However, one thing has not happened, and that is that the funds made available have not resulted in new bank lending. In fact bank lending has declined almost steadily since the quantitative easing programme began.
The quantitative easing programme might be considered a short term success, but as we note, the benefit has been captured almost entirely by the financial services sector whilst further asset boom and bust cycles are, at least potentially being recreated with resultant risk to the economy. These are undesirable long run outcomes when the real aim is to get the UK economy working again. For that reason we cannot support a further round of quantitative easing in the form used in 2009.
If that could be seen in 2010 - and I did see it - the question for Schäuble is why has it taken him quite so long to state what is seemingly obvious when all the conditions for another bust have been laid on his watch?
And why isn't he also laying out the real alternatives, rather than austerity, which seems to be his preferred option? In 2010 I also wrote:
The need to reflate the UK economy has not gone away though: there is an urgent need for action to stimulate the economy by investing in the new jobs, infrastructure, products and services we need in this country and there is no sign that this will happen without government intervention. For that reason we propose a new round of quantitative easing — or Green QE2 as we call it.
If Schauble had any sense that is the option he'd take now. That, though, may be asking too much. If he had any sense a great many things would not have happened as they have, including the destruction of the Greek economy. All we can be grateful for is the fact that his influence might be declining.
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Schäuble , Draghi, BIS and IMF appear to dispute your viewpoint but Yellen ( on way out also ?)) appears to buttress it …….
http://www.zerohedge.com/news/2017-10-08/schauble-another-financial-crisis-coming-due-new-bubbles-and-spiralling-global-debt
Johnn Ward,
I suggest…..
… that that is because they are ALL wrong. (You missed Mark Carney from your list BTW. You’ll give him inferiority ‘issues’.)
They speak with one voice. They do not therefore represent a consensus so much as a cartel. Or to put at another way they are singing from the same hymn sheet.
You won’t get ‘All things Bright and Beautiful’ from the sheet music for ‘In the bleak Midwinter’.
Varoufakis’ book “Adults in the Room” provides some interesting snapshots of Schauble – both his understanding of finance (minimal) and his private views of the Greek (non) bailout (paraphrasing) “it was never intended to work”. The book is an easy read, one can argue about Varoufakis’ partiality, that said – the book got past the lawyers. Extract on comment by Glenn Kim (who had provided input to Schauble/Finance Ministry) on Schauble (page 210):
“his command of economics is quite weak. … on more than one occasion … mixing up yeilds and prices & making references to financials without understanding what they mean”
“absolutely hates the markets. Thinks that markets should be controlled by technocrats”
“he is also an ardent Europeanist”
“he believes in the destiny of a German-like Europe”
Fully agree with the last sentence wrt to the mans declining influence.
As usual, I am slightly confused. You say rightly that lending to UK businesses declined since QE began but you only show figures that go up to 2010. The latest report from the Bank of England shows that lending increased quite rapidly after 2014
The item in question was written in 2010…..
Capital treads a fine line. By constraining labour costs (of which Austerity policy is a part, UK and Eurozone for example) through maintaining a certain level of unemployment in an economy or economies (EU Single Market for example) profits can be maximised. If it’s overdone demand falls and social unrest may be triggered as part of our Reverse Dominance instinct.
https://www.theguardian.com/commentisfree/2012/jun/26/robert-mundell-evil-genius-euro
This is the man who said:
“Central banks should not be called upon to finance states”. Really? I didn’t know that!
Mein Gott! Er ist offensichtlich ein dummer Idiot und neoliberaler Submensch schweinehund!! (Sorry ‘Where Eagles Dare’ was on telly at the weekend – just getting carried away).
From what I can tell, his background is purely political and not based in finance. In other words
another willing idiot of which there are far too many at present.
“Central banks should not be called upon to finance states”. Really? I didn’t know that!”
From the mouth of a politician I think that translates as ‘Central banks should only do what I want them to do. Next week I may want them to do something different or differently’.
If you’d like to translate into your eccentric (dachshund cf ‘dog-Latin’ :)) it would perhaps be entertaining, but I don’t believe it would change my interpretation.
Looks like he will be shifted over to become President of the Bundestag. I suppose we need to wait for a coalition to emerge to see who will take over at the German Finance Ministry.
Mike Parr,
“Fully agree with the last sentence wrt to the mans declining influence”
Key word in the sentence you refer to: “All we can be grateful for is the fact that his influence might be declining.” is ‘might’.
It might not aswell. I don’t understand German political structure well enough (at all) to have any confidence in either outcome. I don’t think he’s been demoted.
“I don’t think he’s been demoted” – moved sideways?
I have a feeling that Angie wants to move on & perhaps Schauble was getting too big for his boots.
I was going to get into a discussion about how this could be a Schauble vs Draghi thing, how the Germans / Bundesbank were reluctant and slow to accept QE (their reasons at the time weren’t good and not the reasons Schauble is now citing) as well as a rant about the difference between neo-liberalism and German ordo-liberalism. But that’s kind of geeky and boring so, mercifully, I’ll pass.
Oh go on
It’s 2am in the airport
Entertain me
I’ll second that. I’m still up.