Monetary and Financial Policy
Negative Interest – hoping in vain for a miracle tool
Conventional monetary policy hardly works any longer. Due to dwindling stocks of cash and the banks' shrinking need for fractional reserves, base-rate policy has increasingly become ineffective. In addition, since the general level of interest is now persistently at or near the natural lower bound of 0%, conventional policy is definitely at its wit's end. Most central bankers and other experts still refuse to see that and want to resort to desperado politics of some kind, for example, breaking the lower bound by imposing negative interest. The real meaning of that concept is poorly understood. In fact, it is a technocratic folly that is bound to fail, doing harm and no good.
Why central banks perform worse than they could, and why sovereign-money reform would help to perform much better
Central banks are nowadays portrayed as the most mighty and powerful institutions, controlling the banking industry and exerting tremendous influence on financial markets and the economy beyond. Central banks themselves are keen to leave no doubt about their being in control of the situation. In actual fact, the decisive monetary power is with the banks. Here is an article that tries to sketch out what central banks actually can do and what they cannot.
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• Willem Buiter, Citigroup, Member of Handelsblatt's ECB Shadow Council postulates
> 10 Theses on the Ideal European Central Bank of the Future, 7 Dec 2017.
• What is the use of the 3-4 trillion euros the ECB has issued through its policies of Quantitatiive Easing? The lion's share of the central bank money is fleeing the euro south and ends up in the euro north > ECB's cash in wealthy states, Irish Examiner, 3 May 2017.
• Thomas Mayer foresees developments > From ZIRP, NIRP, QE and helicopter money to a better monetary policy, FvS Research Institute, Economic Policy Note 16/3/2016.
• Has the ECB assumed the role of the eurozone's Bad Bank? One can see it this way as Max Danzmann explains in his article > Final Deposition of Losses Through the European Central Bank's Balance Sheet.
• William White, former chief economist of the Bank for International Settlements, thinks we are going to face a > Wave of Epic Debt Defaults, much worse than the crisis of 2007/08, The Telegraph, 21 January 2016.
• Too big to fade: Ellen Brown believes Dodd-Frank is > Killing Off Community Banks, truthdig, 23 Oct 2015.
She also reports that in Japan they apparently don't have a problem with monetary financing of public debt > Sovereign Debt Jubilee, Japanese-Style, truthout, 29 July 2017.
• Immense amounts of capital roam the world's financial markets, like a money cloud unloading over shifting hot spots across the globe. Much of that cloud has a social-policy background (pension funds), while the results in many cases are not exactly 'social' > Backed-up capital and the role of pension funds, by M. Ruhri and H. Backhaus, in: transparenz, publ. by the Swiss Free Community-Bank Cooperative, Issue 68, July 2014; transl. by M. Kerr, Feb 2015.
• Mark Pash, Center for Progressive Economics, Ca., raises the question as to why governments are held responsible for the economy without being able to do much about it, in particular, not being supported by a monetary agency that would implement monetary and financial policies at the service of the real economy> It's the economy, stupid! - 24 Sep 2014.
• Mark Blyth and Eric Lonergan recommend to Print Less but Transfer More. Why Central Banks Should Give Money Directly to the People, Foreign Affairs, Sep/Oct 2014.
• Norbert Häring: The veil of deception over money. How central bankers and textbooks distort the nature of banking and central banking, real-world economics review, no.63, March 2013.
• Ulrich Bindseil, The Operational Target of Monetary Policy and the Rise and Fall of Reserve Position Doctrine, ECB Working Paper Series, no. 372, 2004.
Mervyn King is among the few central bankers who openly concede that the money and banking system such as it stands today is unsustainable and will continue to lead into crises. In his book The End of Alchemy he details that critcism and develops the model of the central bank as a 'pawnbroker for all seasons', rather than acting as the anytime unreserved 'lender of last resort'. Here is a critical review > In Praise of the Pawnbroker.
In the video below, Uli Kortsch, Monetary Trust Initiative, explains why community banks are disappearing and what can and should be done in order to reverse the trend.
"It is incumbent on central banks to prevent the growth of dangerous bubbles".
Dean Baker, Centre for Economic and Policy Research, Washington