The Guardian reported today that:
The president of the European Central Bank has warned that the coronavirus outbreak will spark an economic downturn in Europe similar to the 2008 financial crash unless EU governments provide financial support for their economies.
Christine Lagarde held a call with EU leaders on Tuesday night to urge them to take action and raise spending in order to counter the economic effects of Covid-19, a source with knowledge of the matter told Bloomberg.
I happened to spend much of this afternoon with Prof Stephanie Kelton discussing modern monetary theory and related issues, including her new book which will be out in July and which I have read and am enthusiastic about.
Amongst the many things on which we agreed was the fact that on this issue Christine Lagarde is right. We both think 2008 may look like a picnic compared with what is going to hit us. Stephanie has suggested the US deficit might exceed $2 trillion. I think the £150bn of 2009 might look modest when the cost of coronavirus comes to be counted.
What it was also easy to agree upon was the fact that Rishi Sunak was wrong in saying that this is a temporary phenomenon: the ripples are going to be big and last for years. And that is why his budget today was so very, very misjudged.
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“Christine Lagarde held a call with EU leaders on Tuesday night to urge them to take action and raise spending in order to counter the economic effects of Covid-19, ” – so the Lisbon criteria no longer apply? The EU (& the world) face a far far greater and longer term crisis with respect to the global climate catastrophe. So far the financial response to this – in the EU (& Uk) has been BAU+a little bit. The EU Euro1 trillion fantasy spend is predicated on banks etc doing much of the heavy lifting – I can recommend looking at what bank shares have been doing recently. Sure private equity and investment banks show some interest – but peanut stuff in comparison to what is needed.
In one of his more truthful moments, Draghi, perma-tans predecessor, said that the resources of the ECB were without limit (it’s on video btw). Given this reality, given the Lisbon criteria which shackles the ability of EUZone countries to raise debt – it is an insult that Perma-garde comes up with “let them eat debt” – she could turn the taps on – but probably does not have permission from the Bundesbank (who sits cheek by jowl wit the ECB in Frankfurt – funny that).
The intention is not to divert attention from Covid – but to position it & the response, in a bigger picture. ECB could let rip with funding – tell the EIB to pull its head out of its arse and press the loud pedal on project funding (whilst buying EIB bonds directly). Won’t happen because the Bundesbank have some stone tablets in their vaults inscribed by God – 1st comandment – thou shalt not issue debt. 2nd In times of difficulty thou shalt hose money at bankers for they are gods chosen etc.
At some point Germany will break on this
The question is when that will happen
This.
And Lagarde had better start working on her “whatever it takes” speech …
I like Lagarde but she is paid an awful lot of money to speak the obvious.
Great you and Stephanie Kelton seem to sing from the same song sheet . Looks like the present UK Chancellor of the Exchecquer’ s been having a peek at your script .
Something I have not seen discussed on the popular economics blogs I commonly follow, there seems to be a liquidity problem on Wall Street. In fact, there’s been a problem since last September 17, and the massive amounts of money the Fed made available a couple of days ago is not being taken up by banks or trading houses.
“The Fed’s money spigot became a gusher this week. On Wednesday, the New York Fed announced that it would be making up to $270 billion, in just one day, available to Wall Street on Thursday. But before Thursday was over, the Fed upped its largess to such a staggering figure that even we were speechless. It said that between Thursday and today, it would offer $1.5 trillion in a combination of 3-month and one-month loans — on top of its other ongoing loan programs.
…
This morning, only $17 billion of the $500 billion offered by the Fed in its 3-month loan was tapped and $24.1 billion of the $500 billion in the one-month loan. When Wall Street thumbs its nose at almost free money, something really strange is going on.”
https://wallstreetonparade.com/2020/03/the-fed-has-233-secret-documents-about-jpmorgans-potential-role-in-the-repo-loan-crisis/
Now I don’t know, maybe the WallStreetOnParade blog is really fringe and I’m being beguiled by a really dumb conspiracy theory. Is this old news that’s been debunked?
There has indeed been an ongoing liquidity problem
But your reaction may be wrong
Liquidity problems disappear when ample liquidity is available
That is now the case
“That is now the case.”
Ya think? Well, I’ll keep watching their site for a while. Maybe they’ll come to the same conclusion.