Should the ECB print more Euros?

realitykeeper

Mario Dragi is concerned about very low inflation in the EU. Low inflation results from low spending by the citizens. To increase economic activity, Mario Dragi is considering ordering the ECB to print more Euros. The idea is that if more Euros are printed, then people who have Euros to spend will spend (rather than holding onto a depreciating currency) - thereby boosting economic activity and the European economy as a whole.

Personally, I believe printing Euros will treat a symptom but not the cause. The reason people don`t want to spend is because they worry about the future. Forcing them to spend will probably backfire because they will sell their Euros in order to safeguard their wealth. Granted, the Yanks and Japs are also deflating their currencies so those with money will look to alternative minor currencies. The point is money will leave Europe if Mario starts printing, so any increase in spending by the citizen`s will be offset by a flow of wealth to minor currencies and other investments beyond the reach of Europe.

Amirani

There's certainly some scope for quantitative easing. Doing so will reduce the public and private debt burden.

Why do you think it would cause money to leave Europe?

flatty

Most of it seems to end up pushing up the stock markets.

realitykeeper

NiallSparky wrote: »

There's certainly some scope for quantitative easing. Doing so will reduce the public and private debt burden.

Why do you think it would cause money to leave Europe?

... because if you have money, you don`t want it to depreciate when more of it is printed by the ECB. To safeguard against this, you would perhaps change your Euros for another currency that is not being printed so much. If, as a consequence of this - another currency gains value relative to the Euro, then money has effectively left the Eurozone.

coolshannagh28

Draghi has escaped so far with the threat of QE however deflation could force his hand. The big problem with printing money is how to place it where it will create demand ,the Americans have failed at this by giving it to investment banks who have used it to inflate a stock market bubble. Bernanke jokingly suggested dropping cash from helicopters and with hindsight he may not have been far wrong.

johnnyskeleton

The ECB's stated policy is to keep inflation below 2%. Draghis policy of trying to get inflation at just under 2% is like treating a 100kph speed limit on a narrow country road as a target to hit without exceeding

johnnyskeleton

coolshannagh28 wrote: »

Draghi has escaped so far with the threat of QE however deflation could force his hand. The big problem with printing money is how to place it where it will create demand ,the Americans have failed at this by giving it to investment banks who have used it to inflate a stock market bubble. Bernanke jokingly suggested dropping cash from helicopters and with hindsight he may not have been far wrong.

Ironically, the Germans had a similar plan in WW2. They believed dropping a load of fake sterling notes into Britain would destabilise their economy.

sock puppet

Money would leave Europe for where? Russia, Turkey and China, to name a few, aren't exactly islands of stability.

Rightwing

The problem is the € is appreciating v the $. It's a tricky situation. Printing money achieves nothing, If it did the world wouldn't know what poverty is.

hatrickpatrick

Rightwing wrote: »

The problem is the € is appreciating v the $. It's a tricky situation. Printing money achieves nothing, If it did the world wouldn't know what poverty is.

The reason it doesn't work is because "printing money" essentially means easing the burdens of banks - how much of it actually ends up in Average Joe's pocket?

A much more radical idea to try in terms of printing money would be some kind of debt forgiveness scheme. The details would have to be worked out, but seeing as the debt-based currency is a large part of what got us into such a mess in the first place, cancelling some debt seems like an idea worth exploring.

Some of the debt is totally artificial as it is owed back to a central bank which never had it to begin with - what would happen if these were cancelled to some extent?

Rightwing

hatrickpatrick wrote: »

The reason it doesn't work is because "printing money" essentially means easing the burdens of banks - how much of it actually ends up in Average Joe's pocket?

A much more radical idea to try in terms of printing money would be some kind of debt forgiveness scheme. The details would have to be worked out, but seeing as the debt-based currency is a large part of what got us into such a mess in the first place, cancelling some debt seems like an idea worth exploring.

Some of the debt is totally artificial as it is owed back to a central bank which never had it to begin with - what would happen if these were cancelled to some extent?

Sure why not give everyone €50K to spend?, it's crazy stuff, can't work, hasn't worked and won't work anywhere.

andrew

Rightwing wrote: »

Sure why not give everyone €50K to spend?

If only we could!

Dob74

Rightwing wrote: »

Sure why not give everyone €50K to spend?, it's crazy stuff, can't work, hasn't worked and won't work anywhere.

Its happening rignt now. The US fed has been printing money since Obama came to office. Now the japs are doing it. Deflation is a worry for the eurozone so it may start yet. Us dollar 1.39 to the euro, the euro is to high. I guess thats unemployment is still high in ez.

realitykeeper

hatrickpatrick wrote: »

A much more radical idea to try in terms of printing money would be some kind of debt forgiveness scheme.

A debt forgiveness scheme would unfairly benefit those with debt over those without it. In other words it would reward stupidity and punish responsibility. Any debt forgiveness scheme should therefore be matched with bundles of cash for those who have no debts.

Rightwing

Dob74 wrote: »

Its happening rignt now. The US fed has been printing money since Obama came to office. Now the japs are doing it. Deflation is a worry for the eurozone so it may start yet. Us dollar 1.39 to the euro, the euro is to high. I guess thats unemployment is still high in ez.

There's no doubt it's happening, but the issue is, is it working? And apart from rising debt, putting government bonds at risk, increased volatility, and a rising and inflated stock market, I can't see much evidence of success.

hatrickpatrick

Rightwing wrote: »

Sure why not give everyone €50K to spend?, it's crazy stuff, can't work, hasn't worked and won't work anywhere.

In this case I'm talking about artificial debt that isn't actually owed to anyone in particular - can anyone explain specifically what would happen if the ECB wrote those loans off to commercial banks which had been bailed out?

Rightwing

hatrickpatrick wrote: »

In this case I'm talking about artificial debt that isn't actually owed to anyone in particular - can anyone explain specifically what would happen if the ECB wrote those loans off to commercial banks which had been bailed out?

Maybe ask Andrew over in the Economics forum.

My understanding is that the ECB would be putting huge pressure on itself, you can't really just writeoff Ireland's bank loans without writing off others. How big are these loans? Some of Europe's big banks are in big, big trouble, and, it would be setting a very poor precedent.

View

hatrickpatrick wrote: »

In this case I'm talking about artificial debt that isn't actually owed to anyone in particular - can anyone explain specifically what would happen if the ECB wrote those loans off to commercial banks which had been bailed out?

Yes, the taxpayers would then do a massive recapitalisation of the ECB - one that would make our domestic one pale into insignificance.

Dob74

Rightwing wrote: »

There's no doubt it's happening, but the issue is, is it working? And apart from rising debt, putting government bonds at risk, increased volatility, and a rising and inflated stock market, I can't see much evidence of success.

Is it working? I think it is especially in the US where unemployment is down.
But like you pointed out the stock market is at an inflated price. Companies aren't spending the money fast enough.
As for debt it will reduce the debt burden. It hurts the value of countries holding large debt as there investment goes down(china, Germany).Fcuk em
Inflation maybe a problem long term but at the moment deflation seems to be more likely short term.

Rightwing

Dob74 wrote: »

Is it working? I think it is especially in the US where unemployment is down.
But like you pointed out the stock market is at an inflated price. Companies aren't spending the money fast enough.
As for debt it will reduce the debt burden. It hurts the value of countries holding large debt as there investment goes down(china, Germany).Fcuk em
Inflation maybe a problem long term but at the moment deflation seems to be more likely short term.

China are pulling their money out, remains to be seen by how much. Then you have the unemployment figure in US, it's not really as low as the headline figure suggests. Did QE do anything for the economy? Seems like the banks have used the cash for risky investments, and it hasn't found it's way into the real economy.

As for deflation, I think I'll start a thread in Economics, Inflation v Deflation. Why should we be against deflation?

noodler

hatrickpatrick wrote: »

In this case I'm talking about artificial debt that isn't actually owed to anyone in particular - can anyone explain specifically what would happen if the ECB wrote those loans off to commercial banks which had been bailed out?

Rightwing wrote: »

Maybe ask Andrew over in the Economics forum.

My understanding is that the ECB would be putting huge pressure on itself, you can't really just writeoff Ireland's bank loans without writing off others. How big are these loans? Some of Europe's big banks are in big, big trouble, and, it would be setting a very poor precedent.

Any losses on ECB loans to member states' banks have to be met by the indiviudal states themselves on a basis proportional to their share capital in the ECB.

So almost 50% for Germany, just over 1% for Ireland etc.

antoobrien

hatrickpatrick wrote: »

what would happen if the ECB wrote those loans off to commercial banks which had been bailed out?

The ECB is an umbrella organisation of 17 central banks, each of which has invested capital into the ECB coffers - including ours.

What will it mean:
Higher interest rates as they'll need to get their money back
and depending on the scale of losses a mix of capital call on central banks (which they more than likely don't have lying around) and/or a reduced loan pool.

Scofflaw

hatrickpatrick wrote: »

In this case I'm talking about artificial debt that isn't actually owed to anyone in particular - can anyone explain specifically what would happen if the ECB wrote those loans off to commercial banks which had been bailed out?

First, you'd need to define which loans you're talking about, because the subject can get enveloped in a fog of misunderstanding very rapidly otherwise.

There are two different sets of loans which could be referred to here:

1. bailout loans: for example, our troika loans. None of this comes from the ECB, and none of it was put (directly, at least) into Irish banks. The ECB cannot write this debt off, because it's not their money.

2. liquidity provision: the ECB is currently providing €29.8bn in liquidity to Irish domestic banks. These are short term provisions, and the banks are constantly reducing this figure. The ECB could write this rolling debt off, which would amount to giving the Irish banks €30bn.

Writing off the first class of debt isn't something the ECB can do, writing off the second class of debt would make no difference to Ireland's government debt - it would make the banks' balance sheets much healthier, certainly, and send an even stronger message that banks that get into trouble really will be let off. I'm not sure that's the aim here.

Was it actually ECB debt you wanted to get written down, or was it troika loans? Or is it more specifically the money provided to the banks for recapitalisation, which is, in its direct form, entirely Irish government money?

cordially,
Scofflaw

Farmer Pudsey

The governments want people to spend. Over the last twenty years they have encouraged spending to achieve growth. This however created a problem in that only a section (even if a large section) did this. This section has drawn down huge debt. Over the years the prudent section have accumulated wealth at the cost of the spenders. We all know the family where the young lad has the latest phone or tablet and the TV in there room.

This section is over borrowed, however how will printing money solve this. Yes a debt forgiveness scheme may. However the governments have over the last ten years especially withdrawn benefits and increased cost to joe public. This has made savers more prudent. They face the cost of educating there children, paying extra taxes and charges and looking after there own pension. On top of that an ageing population is more prudent.

Maybe if the EU removed some of the national debt of the debtors country's it might help in allowing these country's to reignite there economies and encouraging spending. However how will this encourage citizens in country's like Germany to spend. Finiancial prudence is build into them.

The other issue is the fear of financial products as there track record in money management is appalling to ordinary citizens. It has got to a situtation where it seems safer to have cash in the bank as in a pension fund.

noodler

Scofflaw wrote: »

writing off the second class of debt would make no difference to Ireland's government debt - it would make the banks' balance sheets much healthier, certainly,

Well, it could add to Ireland's Government debt because, in theory anyway, each member State would have to make up the loss.

We can get into semantics between the ECB actually saying no need to pay it all back and banks not being physically able.

Scofflaw

noodler wrote: »

Well, it could add to Ireland's Government debt because, in theory anyway, each member State would have to make up the loss.

We can get into semantics between the ECB actually saying no need to pay it all back and banks not being physically able.

There's no real sign they're not able to, though. The high point of their ECB borrowings was over €100bn, now we're down to €30bn, and the decrease has been pretty steady.

cordially,
Scofflaw

noodler

Scofflaw wrote: »

There's no real sign they're not able to, though. The high point of their ECB borrowings was over €100bn, now we're down to €30bn, and the decrease has been pretty steady.

cordially,
Scofflaw

Absolutely, I am not arguing that our banks or any other banks should - I just mean to say that the ECB not getting paid back could lead to such losses being dispersed to national member states.