This position somewhat strange to put it mildly and I suspect this maybe coming our way soon.
Worth 27 minutes of anyone’s time.
Okay, back to basics in the real world. I appreciate reality is in very short supply in some quarters, but let’s just remind ourselves what banks do. They try to attract depositors to lend ‘em money in the form of deposits. The two primary drivers of this are security and interest payments. Sure there are a few useful sundries, direct debits and the like, but fundamentally its safety and interest.
The claims of safety have been well and truly battered in recent years by the bank-runs and the bailouts. Then there’s also the idea now being floated that your money isn’t really yours and the governments should be able to help themselves to 10% of your savings and give you back a sovereign bond in return.
You may recall just how attractive Greek government bonds were and this is the future for all of ‘em more or less, otherwise why the need to compel the trade?
As to interest rates, well if they expect more than a token amount of SAoT’s hard earned, then I would expect interest rates to be positive in real terms. They aren’t; I fancy anyone who keeps more than a few quid in the bank to be pretty stupid given the negative real interest rates. It seems to me to be a guaranteed losing bet. But at least it is marginally better than keeping it all under the mattress right?
Well not if Benoit Coeure gets his way. He thinks the ECB may charge banks for depositing with it and so by extension, wouldn’t banks charge depositors? They can’t just swallow the costs as most are pretty illiquid anyway, so you would think they have to pass on the costs just as they do when interest rates are positive and y’know, sane. And honestly, would you keep any money in the bank if you were charged to do so? Could you think of a quicker or more certain way to bust a bank than this? Can he really think this will get ‘em lending more?
Let’s not even extensively mention the Austrian school which says deferred consumption can be saved and then lent to businesses without expanding the money supply and thus stave off mal-investment but you can’t spend the same money twice by simply counterfeiting some more without there being inflationary consequences leading inevitably to boom and bust.
But for me the reality of all this vile suffering and wholly avoidable poverty can be grasped with this quite monstrous verbage…
Coeure said there was a lack of understanding about the euro zone’s approach to tackling the region’s debt crisis and that he disagreed with those who said the bloc did not have the right tools to fix the situation.
“I would caution those who have doubts about the euro, that they underestimate the political commitment to it at their own risk,” he said. “The ambition to provide long-term foundations for (the monetary union) in less than a decade is a historical step of great significance.”
I had to re-read that. Well Ben fundamentally you haven’t fixed a damn thing in four years, things are in fact getting worse, so maybe those who think you can’t fix things could be right? They seem to have the evidence on their side. Fundamentally the current ECB approach seems to be ‘screw debt repayment and saving, we will print (just wait) and coerce more and more borrowing and play Alice-through-the-looking-glass banking because of a demented attachment to thoroughly debunked demand-deficit theory. We are politically committed to this so to hell with the economic reality we will now ignore.
More suicide economics in this quote
He underscored the bloc’s decision to give the region’s permanent bailout fund the ability to capitalise banks directly, a move he described as “crucial to break the vicious circle between banks and sovereigns that is at the heart of the crisis.”
So now the ECB will just pick banks it likes (and ignore sovereigns it doesn’t apparently until the next time they waiver on the edge) and give them money from somewhere (the ECB does not have a big enough balance sheet for this without some serious counterfeiting) on the basis of what exactly? The worse run the bank (and thus most indebted) get the most money? More cash for the most reckless idiots?
You will recall how well government bailouts for industry generally work so now let us do it on a pan-European basis with funny-money. Christ-on-a-bike, this is total madness and the end of the European banking system as we know it is in sight if anything like this is implemented.
I do not give financial advice yada yada. But if you have half a brain (making you better by half than some European bankers) you may know what to do.