Friday, November 01, 2019

Thoughts from Heald Green, Cheshire, England: 1.11.19

Spanish life is not always likeable but it is compellingly loveable.   
                  Christopher Howse: A Pilgrim in Spain
Spanish Politics 
  • Were you aware there could be a 'digital republic'? In Cataluña, to cite an unpopular - and possibly unique - example.
Spanish Life
  • Another controversial trial verdict. The case is just one of a number of similar sexual assault incidents that have caused widespread public outrage, including protests and demonstrations in places around Spain, as well as calls for the law to be changed.
  • I imagine this could take place in Galicia too, anywhere along our coast.
  • How Spain celebrates Halloween, according to The Local.
Galicia Life.
  • This laudatory (but accurate) article contains the standard - but unfair - reference to 'rainy Galicia'. In fact, the whole of northern Spain - one third of the country - is as green as England or Ireland, for exactly the same reason. So why are Asturias, Cantabria and the Basque Country never mentioned? Pobre Galicia. 
The UK
  •  My guess is that most Brits won't know - I certainly didn't - that 1588 was not the only year in which the weather prevented an invasion of England by severely damaging an incoming fleet. The Danes had this problem at least once during England's Viking Age.
  • Click here for a full rundown of what the dastardly Danes got up to between 865 and 1066. The The Brits seem largely to have forgotten their nasty deeds and are just grateful for their contribution to the simplification of Old English. The strength of the Viking influence on Old English appears from the fact that the indispensable elements of the language – pronouns, modals, comparatives, pronominal adverbs (like "hence" and "together"), conjunctions and prepositions – show the most marked Danish influence.
  • Needless to say, one could never expect Ffart to understand that his politically inept criticism of Corbyn and his endorsement of Johnson would benefit the former but dis-benefit the latter. 
  • As if that wasn't enough . . . President Trump has said that Boris Johnson’s new Brexit deal could prevent Britain from trading with the US in an intervention that threatens to undermine a key element of the prime minister’s election campaign. Some friend and supporter! An utter buffoon. An entire galleon-full of loose cannons.
The Way of the World
  • How terribly woke . . . Sheffield University has banned students from wearing sombreros as fancy dress, angering many of them, including some from Mexico. It said that security staff would challenge any culturally insensitive costumes worn over Hallowe’en, including sombreros and other types of “cultural appropriation”. Not the first example of this madness, of course.
  • How long before men donning female attire - for whatever reason - are accused of cultural appropriation? If not something worse. Cultural rape, for example. How can anyone do satire in this environment? 
  • The hero worship of central bankers has become obscene - democracies must put them back in their box, says Ambrose Evans Pritchard. The full article is below.
Finally . . .
  • Someone even more stupid than Ffart?  . . . I will sort Brexit in months . . . it’s not hard, says Corbyn.
  • As if that weren't dumb enough, it's reported that he and some of his inner circle will put their (unicorn) deal to the public, alongside the Remain option, and then campaign in favour of the latter,  i. e. against their own 'easy' deal. Corbyn, by the way, is from the planet Og.

The hero worship of central bankers has become obscene - democracies must put them back in their box: Ambrose Evans Pritchard, the Daily Telegraph.

Mario Draghi with his successor Christine Lagarde. Who will save us from these jumped up rock stars?

We need an extra chapter to complete Thomas Carlyle’s 19th-century oeuvre, On Heroes, Hero-Worship and The Heroic in History.

Carlyle extolled the Hero as Poet (Dante, Shakespeare), the Hero as Priest (Luther), the Hero as King (Cromwell, Napoleon), but today that star-struck Nietzschean romantic would surely be fawning over the Hero as Central Banker: Mario Draghi.

The adulation of Mr Draghi as he leaves the European Central Bank is unseemly, not just because he made mistakes and leaves the eurozone in a Japanese deflation-trap, but also because the ECB has become a political animal and strayed a long way from democratic accountability. It is a shadow government. Or as Lord Skidelsky puts it: a sort of “Vatican City” answerable to no one.

The Bank of England’s Sir Paul Tucker was too polite to name peers in his book, Unelected Power: The Quest For Legitimacy in Central Banking, but vaulting over-reach by Frankfurt is the sort of behaviour that he had in mind.

This is not to absolve the US Federal Reserve. It too has dangerous itches. Bill Dudley, ex-chief of the powerful New York branch, suggested in August that the Fed should tighten monetary policy to force Donald Trump from office. “After all, Trump’s re-election arguably presents a threat to the US and global economy,” he said. That he should utter such thoughts shows how unhinged his coterie has become.

There is nothing new about rogue central bankers. The Fed did cause the Great Depression by shrinking the money supply (Friedman & Schwartz). Congress had to order it to reflate in 1932 by launching bond purchases.

I remember reading Secrets of the Temple: How the Federal Reserve Runs the Country as far back as the Eighties. William Greider argued even then that the Fed posed as great a danger to US democracy as a rogue CIA or FBI.

To my knowledge, Mr Draghi was not involved in the decision to topple Greece’s prime minister in 2010 – for the sin of calling a referendum on Greece’s EU-IMF Troika austerity package – and install the ECB’s vice-president at the head of a civilian junta. But he played his part in every other dark episode.

As governor of the Bank of Italy and an ECB member he helped draft the secret “Trichet letter” to premier Silvio Berlusconi in 2011 demanding sweeping changes to the country’s labour laws. A second secret letter was sent to Spain’s premier demanding changes to the Spanish constitution no less. The ECB was acting ultra vires. It had no legal authority to do this.

This was the ECB’s condition for agreeing to backstop the bond markets. Berlusconi dragged his feet and was overthrown by monetary means in a soft coup. This is how one ECB governor described the methods to me: “They threaten governments that misbehave with financial destruction. They cut off refinancing and threaten to kill the banking system. They create a roll-over crisis in the bond market. This is what happened to Italy in 2011.”

In the case of Greece. Mr Draghi acted as the EU’s gendarme in bringing the rebel Syriza government to heel. He tightened collateral rules on Greek debt pre-emptively in February 2015, shutting the country out of the ECB’s refinancing window. He then dialled down (ELA) liquidity to private banks – arguably illegally – until the ATMs ran out of money and Syriza folded.

This is what Paul Tucker was hinting out when he warned that central banks are acting as “overmighty citizens” on the outer boundaries of legitimacy, although his point is broader. They have become the “third great pillar of unelected power” alongside the judiciary but without the same tradition of self-restraint.

Sir Paul said they have acquired “quasi-fiscal powers” that amount to a revolution in the system of government. They pick winners and losers. Their actions since 2008 have led to a vast transfer of wealth from the ordinary working stiff to the owners of assets: hence the radical plans for confiscation by Elizabeth Warren in the US, the coming counter-revolution. Whenever central banks face calls for greater accountability, they huffily invoke the sanctity of institutional independence.

But have they actually made a good fist of monetary management over the past 30 years, since the cult of inflation-targeting took hold? The problem with targeting that single variable during a disinflationary supply shock – caused by globalisation and China’s entry into the world trading system – is that it leads instead to asset bubbles. The original sin of the central bank fraternity in the Nineties was not to recognise the implications of this. This is the canonical critique of the Bank for International Settlements.

The central banks allowed the asset booms to run but each time intervened to prevent the necessary purge when recession came.

The BIS says the process became a “debt trap”. The further along, the harder it is to stop. By blocking Schumpeterian creative destruction, they have kept alive an army of “zombie companies” and depressed productivity. This stagnation keeps lowering the Wicksellian natural rate of interest. It is an inter-temporal black hole. “Low interest rates beget to low interest rates,” says the BIS.

Ah yes, but that is not Mario Draghi’s fault, and didn’t he save the euro?

No, he did not. Nor was he a magician. Mr Draghi followed a path already trodden by other central banks, and he was not always on top of the game. Daniela Gabor, shadow banking expert at Bristol University, says he underestimated the monetary potency of the securities and repo markets in 2011-2012 and allowed conditions to tighten violently. This was a key reason why the EMU debt crisis metastasised.

Strictly speaking, it was Angela Merkel who “saved the euro” in the summer of 2012 and she did so because the Italian and Spanish bond markets were by then imploding.

At that point, she agreed to let the ECB act as lender-of-last resort as the path of least political resistance. A fiscal bailout approved by the Bundestag would have been harder. Italy’s Mario Monti said the plan was approved in principle by the Eurogroup. The details were then co-ordinated with the German finance ministry.

Would it have been different if Jean-Claude Trichet had still been running the ECB? Of course not. It is time to puncture this corrosive myth of central bank saviours. They are civil servants. Our democracies should put them back in their boxes.

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