What the Hell is the ECB Doing?

-edited

Danielle DiMartino poses an interesting question regarding the ECB. I have a set of answers.

What is the ECB Doing?

I started thinking about that question weeks ago.

I have a set of answers and even started writing this post before DiMartino brought it to the forefront.

There are only two answers. One of them is very unsettling.

  1. Ignorance
  2. On Purpose

Occam's Razor

Occam's razor is a principle from philosophy. Suppose there exists two explanations for an occurrence. In this case the one that requires the least amount of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation.

Occam's Razor typically eliminates most conspiracy theories. It's not that conspiracies don't happen, but that simpler solutions are far more likely.

My corollary to the theory is very easy to understand: If stupidity is one of the possible answers, it is the most likely answer.

I am a normally a big fan of Occam's Razor.

But this is so bizarre that I have my doubts.

Importantly, this may not be a conspiracy at all. Mario Draghi can easily be acting alone.

My Lead Question

How stupid can things get before one starts believing something else is in play?

I had already been thinking about that question when not only did ECB president Mario Draghi further push interest rates into negative territory but he also said it was a good idea for the ECB to think about MMT.

Shocking ECB Dissent

Dissent at the Fed happens all the time. It is rare at the ECB. The ECB builds a consensus and it is typically unanimous.

Question on Deutsche Bank and Commerzbank

How is it that Draghi cannot see the damage negative interest rates do to German banks?

Both Deutsche Bank and Commerzbank have complained about negative interest rates.

Deutsche Bank Monthly

Commerzbank Monthly Chart

In Search of the Effective Lower Bound

I discussed negative interest rates on September 25 In Search of the Effective Lower Bound

The concept behind ELF is that at some point further reductions in interest rates hurt the intent.

But what is the intent?

That is one of the new questions I have been thinking about.

And why can't Draghi see that negative rates helped neither the Eurozone, nor Japan?

Alternatively, Draghi can see that negative rates hurt but he either doesn't care or actually wants that outcome.

Counterproductive Policy

On September 10, Eric Dor, Director of Economic Studies at the IESEG School of Management in Paris emailed an article with some interesting charts regarding the Counterproductive Interest Rate Policy of the ECB.

I discussed Dor's article in Questioning Lagarde as Gross Interest Income in Germany Heads Towards Zero

Email from Lacy Hunt

Shortly after posting Dor's take, Lacy Hunt at Hoisington Management, pinged me with these comments.

"Dor's article is outstanding. This is consistent with the great theoretical economics of the late Stanford economist Ronald McKinnon who argued that even before interest rates fall below zero, the counterproductive feedback loops outweigh the benefits of the lower rates even if the interest rates are lower in real as well as nominal terms. If you are not familiar with McKinnon's economics, I strongly urge you to do so."

Bank Margins and Profits with Negative Rates

Target2

Target2 is one of the fundamental flaws of the Eurozone. TARGET stands for “Trans-European Automated Real-time Gross Settlement Express Transfer System”.

It is a measure of capital flight and other imbalances from one Eurozone county to the next.

Here's my own ANYONE question: Can someone, anyone, please tell me how the hell Italy and Spain are going to pay off that debt?

Trade Surplus

Germany runs a huge trade surplus. Make that enormous. German exports are 47.24% of GDP.

I noted that figure and posted many charts two days ago in Nobody Wins, But Germany and EU Hurt Most in Global Trade War.

A reader pointed out that much of that surplus was with other Eurozone countries. Even assuming that is true, so what?

In the US, California (thankfully) does not have its own central bank. But in the EU, Germany does. Spain does. Italy does.

Whereas the central bank of California cannot owe the central bank of Wisconsin, those Eurozone imbalances (and guarantees) are real.

Let's emphasize Italy. Let's also investigate Mario Draghi's background.

Mario Draghi's Background

Mario Draghi is an Italian economist serving as President of the European Central Bank since 2011. He previously served as the Chairman of the Financial Stability Board from 2009 to 2011 and Governor of the Bank of Italy from 2005 to 2011.

Draghi previously worked at Goldman Sachs from 2002 until 2005. In 2014, Draghi was listed as the 8th most powerful person in the world by Forbes. In 2015, Fortune magazine ranked him as the world's second greatest leader. In May 2019, Paul Krugman described him as "[arguably] the greatest central banker of modern times". His term is scheduled to end on 31 October 2019.

Whatever It Takes

Please recall that on July 26, 2012, Mario Draghi gave a speech in which he said "the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."

I discussed that phrase at the time and also on September 12, 2019 in ECB's Counterproductive QE: Whatever It Takes Morphs Into "As Long As It Takes"

Negative Interest Rates are Social Political Poison

As discussed on September 23, Negative Interest Rates Are Social Political Poison.

It gets even worse.

Draghi Open to MMT and a People's QE

On September 24, I noted Draghi Open to MMT and a People's QE

Mario Draghi proposed investigating MMT, a combined Eurozone budget, and "QE for the people" even though these ideas are counter to the Maastricht Treaty of 1992 which formed the Eurozone.

Why?

  • That's what it takes to save Italy
  • That's what it takes to "preserve the Euro".

Whatever it takes baby, and that's what it takes.

Full Circle

We are now full circle.

DiMartino asks "Can someone, ANYONE, please raise your hand ..."

Before answering, please ponder a different question: What better way can there possibly be to get Germany to commingle debts and bail out Italy than to destroy German banks, putting the bailout on the backs of German citizens?

New Corollary to Occam's Razor

When someone who seems to not be stupid, repeats a series of actions that seem amazingly stupid, perhaps the actions are not stupid at all. Rather, we need to understand the real intent.

So, what is that intent?

Show of Hands

Now, may I please have a show of hands?

  1. Draghi really is stupid enough to destroy German banks
  2. Draghi is acting with intent

OK Danielle, and Mish readers, is it number 1 or is it number 2?

There are no other options.

Mike "Mish" Shedlock

Comments (78)
No. 1-39
Country Bob
Country Bob

Choice #2 -- Draghi is acting with intent...

Draghi is engaged in scorched earth policy.

Country Bob
Country Bob

Follow up question to Danielle DiMartino, as she is a former Federal Reserve (Dallas) employee.... what the hell is Powell thinking? What the hell was Bernanke thinking? What the hell was Yellen thinking?

All Dor's points about how counter productive ZIRP is in Europe also apply to Ms DiMartino's former colleagues in the USA

Bam_Man
Bam_Man

I would have to say that I also think that Draghi believes he is acting in the best interest of Italy, by trying to drive down the exchange value of the Euro. Unfortunately, as long as Germany remains a member, that will prove impossible using the tools he has/had at his disposal.

CautiousObserver
CautiousObserver

Q: Can someone, anyone, please tell me how the hell Italy and Spain are going to pay off that debt?

A: Spain and Italy will eventually be offered a deal to pay it back by giving up title of their land and political sovereignty to the EU / Germany. Historically this type of IOU has led to a major war.

Q: Stupidity or Intent?

A: Intent. The EU was always doomed to be a long term failure unless it achieved both economic and political union. Through his actions, Draghi has been consistently doubling down on the economic union, making it more painful to leave. At some point there will either be a political union or a major war to resolve this. Draghi has been playing a game of chicken.

Tony Bennett
Tony Bennett

#2

Draghi does not have to live with the consequence. LaGarde taking over and she'll pursue a different course. Allows Draghi the luxury of ~ "see, if they only did what I suggested things much better".

A version of my Rumsfeld Defense*. Bottom line central banks only have hammers in their toolkits ... so use them they will. Because, under no circumstance will they ever admit nothing more they can do and stand pat.

*Watched quite a few of the Don Rumsfeld pressers the first few years of OIF. Always came across as in control with no doubt on how war prosecuted. If any other approach taken results would have been worse. No matter how FUBAR reality.

Harry-Ireland
Harry-Ireland

It has to be intended. Because those smart people aren't acting dumb. In the end, the goal is a fiscal and political union. It cannot work otherwise, as the past 2 decades have proven. And of course, the sentiment has turned and the anti-EU movements are growing in each memberstate. Yellowvests, Dutch protests, Brexit, even in Germany there's something brewing. Either they continue this destructive path of zero or negative growth, with even more negative interestrates and we enter a recession.....or....the voters speak up and demand change. Or behind door number three; a massive financial crises occurs after a German or Italian bank collapses and bring down the whole thing. I just see no other options. It's not working anymore. I never wanted it, never believed in it and yet, I've suffered the consequences for 2 decades now. Sick and tired of it.

Harry-Ireland
Harry-Ireland

One thing I don't quite understand is, Germany is on top of the pyramid, pretty much the boss in this disgusting project and they objected against resuming QE. So either the 'project' gets priority above all else or there is an internal conflict within Germany which starts seeping to the surface. I hate to say it, I certainly don't wish for it, but only a crisis will get things moving.

Jackula
Jackula

Excellent critical thinking, #2 of course. Keep in mind the German manufacturers don't really care about the German banks future, they just want to make and sell stuff to the rest of Europe. Similar setup to here in the US where Wall Street is more interested in making profits off China now than thinking about the long term best interests of the US

tz3
tz3

EUsury? The elites owe it to the eltes, and aren't going to get the yellow vests or whatever the PIIGS version of deplorables to pay it back.

But the reason the hole keeps getting wider and deeper is that the connected and powerful elite scream any time even the smallest reversal happens. They might lose their cushy jobs at their technically insolvent bank!

So it will go on until some financial accident happens that is too large to suppress and then it will defacto collapse, though there will be something done. And the various bastilles will be stormed the next day.

75% here in the USA were against the TARP bailout, but it might have gotten support if the billionaire banksters were drawn and quartered before being hanged and/or beheaded. Instead they screamed, threatened financial chaos, so the pols caved. Both parties, both presidential candidates voting for it.

frozeninthenorth
frozeninthenorth

I suspect that the ECB cares little for DB and Commerz for the obvious reason that they are less important to Europe's economy than to keep Italy and Greece in the European fold. The ECB has a few choices none of them terribly attractive, but politics will always trump economics for politicians. They can always "buy" piece later on -- after all the Feds did it for the US banking system in 2008...

Keeping Europe together is more important than keeping DB alive -- frankly, I think that they consider keeping the banks alive as a very secondary task, to keeping Europe united.

truthseeker
truthseeker

I’m trying to understand some of this since I don’t really get it. With negative interest rates people, businesses are paying the banks to hold their cash or savings, so keeping MMT in mind, Draghi has the ability to begin a people’s QE without having to worry about paying any interest on these funds. So what will limit him from QE to infinity at this point? Or as long as he doesn’t spend more than he has in the banks, how will all this play out? What will happen?

stillCJ
stillCJ

Editor

Somehow, this reminded me of a Milton Friedman quote: "'One of the great mistakes is to judge policies and programs by their intentions rather than their results."

caradoc-again
caradoc-again

It's #2. The price is deemed worth it. Nefarious.

Lord David Owen knew Trichet (before Draghi) and the ECB President was fully aware of what may need to be done to create the European Union of their dreams with little regard for the consequences. Human consequences.

IT IS PURPOSEFUL.

The core is dark, not to be trusted, nefarious, and it's not just Draghi.

caradoc-again
caradoc-again

Another observation. LaGarde helped skewer Greece vs EU as head of IMF, now to be ECB chief.

Meanwhile new head of IMF is to be ANOTHER European.

How come they get to hijack the IMF head role again.

Do you believe the IMF won't be biased?

All this happens (Draghi, IMF) in plain sight and no one questions or comments. Its also currency manipulation in my book.

Something really stinks at the very heart of all this. Is it me that just doesn't get it?

crazyworld
crazyworld

European countries are heavily depending from State budget. We are all over-here communist at more than 50 per cent. Without the government budgets we would all suffer here from social unrests. QE allow the bankrupt governments here to borrow interest free money to pay their employees and the deficits in social security.Imagine what would be the free market interest rate for loans made by Portugal as an example.

Thanks to QE, Germany has got the possibility to keep on exporting to 2009 completely bankrupt countries like Spain, Greece Portugal, Italy… Of course these countries will never really pay these imports thanks to target 2., But the happy idiots who are participitating in the Euros will pay collectively, not only Germany, when the BCE horror will have to unwind.

In the meantime all savers here (rentiers) are swindled because historical interest levels dont exist any more. They use their capital for a living as long as it will last.

Frankly, why ask if what the BCE try to do is clever or not. They keep the boat afloat as long as they can by throwing new money overboard. We have here a devaluation of the money compared to real goods (real estate, factories…) of about 10 per cent per year since 2010. If china realise one of these days (especially if BCE distribute new printed money to the inhabitants) that our Euros are more and more worthless then we will get a huge inflation here.How will they stop it? Huge interest rate applied followed by deflation and a great economic depression and probably civil wars. There is no way out. The great depression was due after 1987 (first big leverage bubbles) if they had allowed free markets and economic laws to work normally.

RonJ
RonJ

"What the Hell is the ECB Doing?"

"Whatever It Takes"

My question is, why is Draghi doing anything? He is supposed to be leaving office.

Country Bob
Country Bob

Draghi's actions are intentional (choice #2). Its about his post ECB employment.

avidremainer
avidremainer

I get that it is intentional, how will the effects be manifested?

Pater_Tenebrarum
Pater_Tenebrarum

I think one should not underestimate the capacity of high IQ morons like Draghi to simply do stupid things. People like Draghi are often completely bereft of common sense.

suricatta
suricatta

Key question is as always: Cui bono? Who benefits? Answer: 1. The PIIGS, who would be bankrupt overnight if they'd pay just 1 or 2% more on their debt (e.g. Italian 10 year debt went from about 8% in 2012 to 0.8% now)

2. German manufacturers, who care little if Target balances will ultimately be paid and even less that German working stiffs will finally be holding the bag

3. German government/Merkel, who are happy to screw said working stiffs and many future generations as long as they can avoid admitting their huge
mistakes in (mis-)managing the doomed from the start Eurozone

Just think: Draghi would never have become head of ECB without Merkel's approval. She sabotaged the excellent Axel Weber to get a confirmed Italian trickster in - because she needed someone who'd be ready to disregard all rules to keep the Eurozone house of cards from collapsing by printing whatever it takes. For the same reason she ok'd Lagarde, knowing full well that Weidmann could not be relied upon to continue the illegal machinations. So we get the 2nd French ECB head before even 1 German one. And Lagarde is a lawyer/political hack who has 0 qualifications for her new job.

Eurozone is doomed: 60 mio West Germans are paying since 30 years to support 17 mio East Germans, because at the end they're compatriots who had the bad luck of being caught under a totalitarian regime for 44 years. But who believes that German voters will indefinitely agree to pay for about 10 times as many ClubMeders... And even if they did, or if their politicians would somehow succeed in pulling the wool over myopic German voter eyes forever - even the German economy is not strong/big enough to support all those deadbeats.

I have only 1 question for Merkel, Draghi et al.: What is your LONG TERM solution? (other than disappearing safely into retirement before the stuff finally hits the fan)

magoomba
magoomba

Oh dear. This ridiculous business of democracy and 'voting' has really gone on much too long. The fools get it wrong every time now I say. It should have been done away with a long time ago.

BillinCA
BillinCA

Simple: It’s Hanlon’s Razor: ‘Never attribute to malice that which can be adequately explained by stupidity.’

MadDenker
MadDenker

#3 Short Term Thinking

Long term plans always fail, because the world changes tomorrow and you'll need a new plan. (And you never really knew what was happening anyways! ) After enough of this, you just give up and take things one day, one meeting at a time. Depression coming? Do what you can to delay it. Constituents hate your last decision? Change it. Move. Shift. React.

Forces will emerge to steer events away from disaster.

suricatta
suricatta

@ MadDenker: If only that were true - we wouldn't have had catastrophes such as Napoleon's wars, WWI+II, Stalin, Mao, the Great Depression, PolPot, 09/11, Iraq war etc. Head-in-the-sand / fly-by-the-seat-of-your-pants strategies rarely work anywhere outside of the movies.. Europe's 'elites' are behaving utterly egotistic: as long as they have their cushy, paper shuffling jobs, as long as their houses and stock portfolios gain value, all is well - apres nous le deluge. Next generations? Let's make a show of supporting Greta Thunberg - 'Move. Shift. React'. Disgusting.

Anda
Anda

Another way to understand the choice is by what would have happened if further easing had not taken place. Dissent within the ECB can be dismissed as political, because a country either decides its own policy or is subject to that of another authority.

NIRP and QE are keeping the Eurozone solvent. If continuous easing had not occured the financial and political system would have disintegrated. That is still the case, even for Germany which would be left holding defaulted debt and neighbouring markets that were then closed to it. This was known upon entry into the Euro construct and is a purposeful facet to its meaning. The early boom of lending in the south was known to lead to the existing imbalances, though it is questionable if such a degree was sought. Personally I think so, but that the hope was for a kind of political resolution, that did not materialise. So those involved continue with their different ways glued together by low rates and structural improvisation. The one thing avoided by the adhered participants is a show of open dissent, it gets silenced, or it gets silenced. The rest is building positions, covering losses, siphoning off profits and so on.

To reverse QE as previously planned would have sent a powerful signal, that is to say that earnings and state revenue across EZ could tolerate some tension, could accept a profit margin being taken by lenders. It would have said that more could now be expected from the economy. Though inflation is used as a guide to judge surplus liquidity, this is not actually what rates first effect. They effect new liquidity, and they effect expectations of repayment on debt. If those expectations are artificially raised ( just as they were artificially lowered incidentally) then a correct net balance has to be there to allow existing obligation of all kind to also be met. Natural markets see to their own steady proccess of creative destruction, of prudence. With EZ and manipulated rates the whole economy and political reality is instead now balanced on an easy supply if liquidity.

When the US raised rates that was offset by a flow of foreign dollars into US investment, because the US is still the reserve currency of choice and is more politically stable. The EU would not see such inflows, also because its economy is moribund, except Japanese looking for a bit of diversity in negative yield world maybe.

In the south we have Greece looking to find a way around its debt repayment surplus obligations, we have Italy with a synthetic government, we have Spain going to elections for the fourth time in four years, we have France in discontent, we have Portugal also going to elections. We also have Brexit.

Plenty of reasons to keep money supply open. I can think of others, based on potential shocks, on foreign markets etc. The recent lack of takeup of liquidity not only signals that there is no opportunity for use, but also possibly that there is no need to refinance - at the moment.

However, this all overlooks one point. What exactly is the aim of this "no exit" agreement ? As is mentioned by many above, the aim is a new fiscal and political union. That means two things, it will either happen by mmt/eq. mmt / direct monetisation over a long period wiping out the value of national debt and target2 imbalance , which would become mutualised by a change to centralised fiscal authority under "new order" of monetary practice. Otherwise the point of crisis will be unleashed when there is covert political agreement by enough countries to convert to mutualised issuance as reply.

So the intent is there, it is purposeful, and the objectives are "not our concern, we should be thankful for it being kept together so far" .

As to what Draghi, or Lagarde for that matter, think? Well they will claim to be duty bound to monetise if to maintain the financial system intact and the economy afloat. Obviously, very obviously, they know where their actions lead in whatever greater plan exists. As that is not their eventual responsibility, well they are shielded from being directly implicated because publicly they are simply to follow their own remit.

The idea that they want to destroy German banks to commingle debt is not correct. German banks would fail if rates were raised and Euro disintegrated. There is nowhere to pull "surplus cash" from the economy to meet higher rates without upset. Low rates are bailing them out also. It is possible German bank failure will still occur and be the cause of the next crisis.

The wider aim is simply to have debt mutualised at a national level, with political and fiscal integration. In fact, around ZIRP, all they are doing is asking the nations to recognise that the meaning is as good as mutualised already, given national debt to gdp levels are no longer kept to within a limit and that the measure of their money, the balance sheet of the ECB, is now stuffed with a combination of all their assets.

The outside interference in national policy by the likes of troika reinforces the understanding of how "business should be done" and who really "holds the answers" . EU prefers not to use that method now, but the example, as warning, is already set.

Someone asked for the result of this.

For now more of the same, until whatever next step is ready to be implemented, or circumstance beyond their control changes and demands a next step occur.

Also, obviously bank lending and profits fall during low rates, as per an article linked. Low rates are designed to smooth down economic and financial failings, to keep existing debt "sound" not nescessarily providing any stimulating turnover in initiative, which remains locked in subsidy to the pre-existing set of obligations.

"Just my 2 centimos"

Webej
Webej

« If stupidity is one of the possible answers, it is the most likely answer. »

Yes, but an important corollary is:

« If officials own up to incompetence, assume the alternative is far worse. »

Similar to the rule of thumb:

« There's no official confirmation until officials put out a denial. »

Webej
Webej

Stimulating the economy, promoting inflation -- this is all bankster parlay cloaked by well-meaning policy boilerplate templates.

The real purpose is to buy time, delay the day of reckoning, postpone any revelation of insolvency and bankruptcy. When they say "deflation", they mean "bankruptcy", "credit implosion", or, more technically, "repricing outstanding credit".

In the meantime, shift as much debt as possible to the public sector and let the cronies cash out before judgment strikes.

magoomba
magoomba

Mish, is this a good idea?

In today's financial news:

"AS THEY FLEE' 'Huge, bloated, squealing oinkers running amok in the fields devouring everything in sight just as a massive cloud of mutated, carnivorous, ravenous pork chomping locusts descends upon them.'

To be reenacted and filmed in the streets of major financial districts everywhere, by homeless actors in donated business suits, drones, and some computer assistance for more gushing realism as they flee screaming, while being eaten away alive! The footage will be priceless! Sharknado move over! I am donating this blockbuster concept, and all my royalties, for the greatest box office hit EVER made, to the feudal Lords and Ladies of Hollywood, in the certainty that they will in turn be generous to the many eager artists who will make it come to life! 'Nuff said. Now let's get to work! Please feel free to reply for technical advice. S.

World citizen
World citizen

It"s neither IMHO. All central banks worldwide have only one tool available, monetary policy. With that only, interventions on economic realities are always going to be short term and partially ineffective. Playing with money doesn't make money. Draghi has been very clear on this, several times. Without actions on fiscal policy in the various EU countries, raising or lowering interest rates can only achieve so much. And the EU as a whole is one of the most high tax places in the world, hyper regulated, resistant to change... Don't forget, the ECB mission is financial stability, not economic growth. They are patchers, not builders. And in the EU building anything is made almost impossible. Furthermore, ask yourself why all this QE doesn't work? I tell you why, because banks are forbidden to take risks. They could sit in a trillion euros in cash, but they cannot lend that money to anybody who is not risk free. Result? All the QE goes to companies that, since they cannot invest in growth, can only use those funds for stock repurchases... What they do indeed. Draghi, and Powell, and all central bankers cannot convince governments to stimulate growth and innovation... Can only offer easy money to do so. If you are looking for intent AND stupidity, look at governments.

Realist
Realist

Americans love conspiracy theories. All you have to do is read a lot of the comments on this blog to see that. Mish seems to love to believe conspiracy theories as well. Therefore, I vote for conspiracy theory. Also, because no one could possibly be that stupid. It must be done with intent. I pick number 2.

leicestersq
leicestersq

The whole point of the Euro is to create a financial crisis so big, that it can only be solved by doing away with the nation states that use the Euro and replacing them with an undemocratic supernation. All the pieces are now in place.

Solon
Solon

Is he acting with intent? Your question Mish is worded too succinctly, because of course he's acting with an intent of some sort. He's not throwing darts at a board blindfolded and going with whatever. So I take this question to mean: is Draghi deliberately sacrificing German Banks to save Italy?

I'm going to go with stupidity. We know that Draghi and all CBers have a set of assumptions about how the economic world is that are wrong, and thus stupid. We know they engage in policy decisions, when 1) anyone witha brain would know doin nothing is better and 2) won't work, Still stupid.

So what we have in our CBers and their supporting team of economists and academia is an impressive intelligence put towards rationalizing their assumptions about the world and policies that may work. Stupid waste of talent. And in return we get incredibly complex economic theories that hide economic realities behind a blizzard of high-sounding mumbo-jumbo.

In this particular case, I think Draghi sincerely believes that 1) he is buying enough time and that 2) in the long run the "stimulus" to the economy will come fast enough to revive the banks. Because as I say above, they fundamentally misunderstand economics right from their a priori assumptions.

In this case he really is playing with fire. As Pater points out below a collapse of DB will set off dominoes that will bring about a global financial crisis, not the least of which will be in the derivative markets. This crisis will not be contained to Europe. Secondly it will rip the veil away from TARGET, which is something no pro-Europe politician will want or can endure.

Thirdly, there is no guarantee that collapsing the German banking system and forcing into nationalization would actually save Italy. I think an argument could be made that they'd go down too, with the rest of Europe.

And finally, I believe, from Draghi's words and actions over the years, that he is a strong supporter of the European experiment, and his loyalty---and legacy---lies there. Taking down the Germans would do neither Europe or his legacy any good will.

So I'm going with... Gawwd he's dumb.

Mish
Mish

Editor

"My Lord, please find a darker font that can be read with ease. Thanks!"

Comments anyone

Krumel
Krumel

I think the answer lies in his plans for the next ten years.

Will he want to chase tail with friends in Monaco, continue to peddle his goods to increase his cash flow, or run from the finger of blame, as the implosion will require a scapegoat (or a real villain).

What will he do next year?

webspin
webspin

You are only thinking in terms of one dimension if you think interest rates are negative. One must also factor in the inflation/deflation of the underling currency. For example, an interest rate of 10% earned in a currency that is inflating at a rate of 8% is a negative rate of return if you are also paying a 25% tax on your 10% interest "gain". Never assume the marketplace is dumb or you will become educated in the most uncomfortable way.

tonelomatadore
tonelomatadore

#2. Bankers are the worst people alive.

Yancey_Ward
Yancey_Ward

I have said it before, and I will say it again- every single account that represents capital flight from Italy and Spain put into German banks is known, and that when push comes to shove, all those accounts will be confiscated to settle Target imbalances.