Tag: central banks

The Weimar hyperinflation revisited

In a 2017 blog post, I wondered why Germans remember the hyperinflation of the Weimar Republic era.

Nils Redeker, Lukas Haffert and Tobias Rommel have recently published a paper about this very question. In Misremembering Weimar: unpacking the historic roots of Germany’s monetary policy discourse, they show that

most Germans do not know that Germany’s interwar period was shaped by two separate crises, but rather see them as being one and the same.

Furthermore,

Looking back into a skewed version of their own history, many Germans conclude that mass unemployment and high inflation are just two sides of the same coin. What makes this worse is that this misconception is especially prevalent among well-educated and politically interested Germans. Hence, the group of people following the ECB’s monetary policy most closely is also the group most likely to draw the wrong lessons from German history. But public thinking about Weimar economic history is not just substantially flawed. We can also show that the skewed memory of the Weimar Republic still affects the way in which at least some Germans think about monetary policy today.

Update 15/02/2020: The following comment on a FT Alphaville article about German financial assets corroborates Redeker et al‘s thesis:

The commenter is probably well-educated, or he wouldn’t read Alphaville. But he makes two mistakes. First of all, the hyperinflation did not occur in the 1930s. Secondly, there is a logical inconsistency. If Germans fear hyperinflation, why do they hold 40% of their assets in currency and deposits? That doesn’t make any sense, as a new hyperinflation would make these assets worthless.

Actually, lobbyists are good

Lobbyists are often mistrusted. Special interest groups use them to influence politicians.

However, what’s the alternative? Policy makers cannot know everything. They need input from industry and non-profit groups. Through personal contacts with officials and by publishing articles, lobbyists can get new ideas on the agenda.

Take the responsibility of central banks in the green transition to phase out carbon-based fuels.

European Central Bank (ECB) board member Benoit Cœuré recently declared that the ECB should actively support the transition to a low carbon economy. Continue reading “Actually, lobbyists are good”

“legally”

In a recent episode of the Macro Musings podcast, David Beckworth talked to professor and author Laurence M. Ball about his new book The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster.

Starting around minute 45 of the podcast, they discuss the role of Henry Paulson, the Secretary of the Treasury. Professor Ball notes that “It was Paulson1 who was making the decisions. That’s a little bit odd, because legally, under the Federal Reserve Act, it was the Federal Reserve’s job to decide whether or not they made loans. The Treasury Secretary legally didn’t have any more role than the Secretary of Agriculture or the Governor of Maryland. But Henry Paulson just arrived at the New York Fed and started saying what was gonna happen and people did what he said”.

This doesn’t surprise me one bit. In times of crisis, you cannot avoid politics.

In ‘The next crisis’, the final chapter of Bankers are people, too, I wrote

“It remains to be seen how long regulations will keep risks in check. When a major (shadow) bank fails in spite of all the monitoring and supervision, the value of the institutional framework will become clear. Because of the importance of banking to the economy, I am sure that the highest officials
in government will be involved if a too big to fail bank is about to collapse, whether or not that is against the law.”

So much for legal constraints during a major crisis.

Can we avoid another financial crisis?

Can we avoid another financial crisis? Ten years after the Global Financial Crisis (GFC), we’ll hear the opinions of countless pundits about the likelihood of a new crisis. However, few commenters will be able to answer the question as profoundly as professor Steve Keen. Keen elaborated his views in the 2017 book with the appropriate title Can we avoid another financial crisis? Continue reading “Can we avoid another financial crisis?”

Stop bike-shedding, ECB

Last week, Positive Money Europe celebrated its launch with an event in Brussels: Time to rethink the European Central Bank.

Several speakers noted that it is important for central banks to communicate with society, not only with the financial sector.

One of the people in the audience remarked that it is not enough that the ECB explains what it is doing. It also needs to respond to the needs of society.

The representative of the ECB replied that his institution has become more transparent in response to feedback from the public. For example, the meeting notes of its board are published.

However, this is a classic case of bike-shedding. Publishing notes is a trivial gesture. The real problems in the euro area are massive unemployment in the southern countries and the poor performance of the European economies compared to the US. A genuinely responsive central bank should do much more to support the well-being of Europe’s citizens.

The ECB should care about boosting economic growth, not the color of its bike shed.

So I agree, it is time to rethink the ECB. Let’s break some political taboos and rev up the engines.

Central banking analogies

Economists are fond of analogies to describe technical ideas.

Most of those analogies are confusing and/or useless. As I wrote in the introduction of Bankers are people, too:

Economists and journalists writing for lay audiences tend to use metaphors when explaining financial concepts. For example: ‘Cheap credit is like heroin. It’s addictive, and the economy can overdose from it.’ That may sound nice, but what does it even mean?

Continue reading “Central banking analogies”

Grazie mille, dottore Draghi!

ECB President Mario Draghi has answered a number of questions from the public. People could tweet #AskDraghi to join.

I’m honored that the ECB also picked one of mine 🙂

The website Debating Europe has listed all the replies of Dr. Draghi.

I only wish the ECB President would have responded to this question as well 😀

The Magic of Money

This is a review of a book written over 50 years ago by a central banker.

Based on that introduction, even most finance geeks will probably think “boring!” or “irrelevant!”. Until you learn it has Nazis, hyperinflation and the Nuremberg trials in it. And those are not even the interesting parts. Continue reading “The Magic of Money”

Negative rates: a massive transfer from savers to bank shareholders and governments with little impact on economic growth. (Post in response to Miles Kimball)

This post explores the consequences of deeply negative interest rates set by the ECB, as proposed by professor Miles Kimball. It’s a shorter version of my previous post, plus an estimation of the economic stimulus of the proposal. Continue reading “Negative rates: a massive transfer from savers to bank shareholders and governments with little impact on economic growth. (Post in response to Miles Kimball)”