Central bank politicians who evade democratic scrutiny and election

Last month, the Schweizerische Nationalbank (SNB), the nation’s central bank recorded some large ‘book’ losses after it had abandoned its attempt to stop the Swiss franc (CHF) from appreciating against the euro. It started trying … as a way of protecting its manufacturing sector but abandoned the strategy on January 15, 2015. It had been buying euro in large quantities with francs and on April 30, 2015 the SNB released the – Interim results of the Swiss National Bank as at 31 March 2015 – which showed that its first-quarter 2015 losses were 30 billion CHF or around 29 billion euros. They lost CHF 29.3 billion on its “foreign currency positions” and CHF 1 billion on its gold holdings. This has raised the question, once again, whether central bank losses matter. The answer is always that they do not matter at all given the central bank can never become illiquid as it issues the currency (under some arrangement or another). So the commentators who whip up a lather about impending doom arising from central bank bankruptcies are to be ignored. But central bank officials also publicly express concern about their capital holdings. Why would they introduce that concern into the public domain when they know full well that they cannot go broke. The answer is that they are politicians themselves except they evade democratic scrutiny and election.

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The incommensurate aims of the Greek people

I am continually amazed at the arrogance of the Eurozone leaders who in the face of palpable professional failure hold a straight face and continue to advocate the same disastrous policies as if nothing had happened over the last 7 years. I don’t believe they suffer from – cognitive dissonance. I think they know full well what they are doing and they personally do very well out of the chaos their policies are causing. But it is almost certain that the Greek people are suffering from a cognitive disorder brought on by historical experience and, more recently, by the media onslaught that has erroneously claimed that there would be catastrophic consequences if Greece dared to leave the Eurozone and restore currency sovereignty. The stated aims of the Greek people are incommensurate and there doesn’t appear to be a broad debate going on in Greece, which might make that inconsistency transparent.

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Structural reform – code for smash the worker resistance

The ECB had another lavish annual talkfest in Portugal over the weekend just gone in the guise of their – Forum on Central Banking. Like all these EU-type gatherings there was plenty of fine food and wines. They even provided footage along those lines. The President of the ECB Mario Draghi gave the opening speech – href=”http://www.ecb.europa.eu/press/key/date/2015/html/sp150522.en.html”>Structural reforms, inflation and monetary policy – on May 22, 2015. There was also talk about how “structural and cyclical policies … are heavily interdependent” but then a denial of the same. The message from the President was like a record stuck on the turntable – “to accelerate structural reforms in Europe … even in a weak demand environment”. Well here is my message – similarly like a stuck record – structural imbalances occur because of weak demand and the best time to assess structural policy is when you have first attained full employment by appropriate setting of fiscal deficits, not before. It is madness to deliberately constrain fiscal balances to levels that ensure high and entrenched unemployment and rising underemployment and then expect citizens to support microeconomic policies that further undermine their welfare and damage what job security they have. But that is the EU way and that is why the Eurozone is a massive basket-case failure.

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The rise of non-standard work undermines growth and increases inequality

One of the on-going themes that emerges from the neo-liberal commentariat is that fiscal deficits undermine the future of our children and their children because of the alleged higher implied tax burdens. The theme is without foundation given that each generation can choose its own tax structure, deficits are never paid back, and public spending can build essential long-lived infrastructure, which provides benefits that span many generations. The provision of a first-class public education system feeding into stable, skilled job structures is the best thing that a government can do for the future generations. Sadly, government policy is undermining the future generations but not in the way the neo-liberals would have us believe. One of my on-going themes is the the impact of entrenched youth unemployment, precarious work and degraded public infrastructure on the well-being and future prospects of society as neo-liberal austerity becomes the norm. This theme was reflected (if unintentionally) in a new report, release last week by the OECD – In It Together: Why Less Inequality Benefits All. The Report brings together a number of research findings and empirical facts that we all knew about but are stark when presented in one document.

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Saturday Quiz – May 23, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Friday lay day – Greek pension myths

This is my Friday lay day blog where brevity is the aim. There was an article in the UK Guardian yesterday (May 21, 2015) – Fight to save the Greek pension takes centre stage in Brussels and Athens – which described the personal consequences of the pernicious austerity for recipients of state pensions in Greece. The State Pension system is one of the beachheads in the current struggle between Syriza and the Troika. The latter want further cuts to the entitlements provided to retirees as part of their demolition of living standards in Greece. The former are resisting but are on the path to oblivion given they will not be able to honour their electoral mandate to introduce stimulus policies while remaining in the Eurozone. But I was triggered to examine the latest data on pensions given the popular perception that Greeks get life too easy.

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Japan – signs of growth but grey clouds remain

The Wall Street Journal reported late yesterday (May 20, 2015) that – Japan’s First-Quarter GDP Growth Is Fastest in a Year. This follows the release of the latest national accounts data from the Japanese Ministry of Finance. The WSJ was like many media commentators – quick to put the best spin on the data that they could. They converted the 0.6 per cent quarterly growth figure for March 2015 into a 2.4 per cent annualised figure and pronounced a consumer led recovery. The facts tell us a different story. The biggest contributor to growth in the March-quarter was unsold inventories. Whether this is a sign of lagging sales and overly confident producers, who won’t remain in that state for long, or expectations of strengthening consumer demand, remains to be seen. On the face of it, with real wages continuing to fall and consumer expectations weak, things may not be as rosy as the “2.4 per cent annualised growth” result would suggest.

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Neo-liberal dynamics restored after the shock of the GFC

There was an article in Bloomberg Op Ed yesterday (May 19, 2015) – U.S. Workers Brought the ‘Great Reset’ on Themselves – which argues that those who bemoan the falling standards of living for workers in terms of job stability, real wages growth etc have only themselves to blame because as workers they demand conditions that they are not prepared to sustain as consumers and taxpayers (higher prices, higher taxes). It is an extraordinary argument not because there are not elements of truth in it, but, rather, because it ignores other realities such as the rising income inequalities and the on-going redistribution of national income to profits. It also tallies with what is going on in Australia at present, which is a specific form of the on-going attack on real standards of living for workers and their families through poorly crafted government policy. The policy design reflects ideology rather than any appreciation of what is required to maintain living standards.

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Time for progressives to adopt more direct actions

Australia is about to walk the plank and sign up to the Trans-Pacific Partnership even though much of the contents will not be publicly disclosed. Last week, the US President unsuccessfully tried to get US Senate approval to fast track the authority to commit America to the TPP. His failure in that regard will not stop the process. It appears that if the TPP is introduced corporate control of government discretionary policy through the so-called “investor-to-state dispute settlement” clauses will be much enhanced. This is not an arrangement to make trade fairer and to enhance the well-being of poorer nations or to expand the choice of richer nations. The TPP builds on the punitive measures in various World Trade Organisation agreements, which give multinational corporations substantial legal bite to resist regulatory environments set up by democratically elected governments and to punish nations that resist the dictates of international finance capital. No government in its right mind would sign up to these agreements on behalf of their nations. I will have more to say about the TPP when we know more. But all of this bears on the question of who influences public policy and if we don’t like it what can we do about it. That is the topic of this blog.

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