We’ve all probably heard the expression, politicians are infatuated with the sound of their own voice.
In economics it’s a bit more subtle. It’s a profession full of those who are infatuated with reading out loud their scribblings to each other. And for the most part that’s about all they’re worth.
Filled with acronyms and other alphabet soup initials they unabashedly spew forth voluminous gaggles of utter nonsense.
Some might prefer a little more crude defintion, intellectual masturbation.
Here’s an example about the European Central Bank, one of the most incompetent central banks perhaps rivaled only by what we’re experiencing from the claptrap in Washington.
Apparently, the author has overlooked the World Economic Forum in his bit about home ownership and mortgages.
If you bother you should notice the similarities here with the ever present government gobble gook, The Inflation Reduction Act and Transmission Protection Instrument.
The European Central Bank (ECB) is becoming more sure-footed. The recently announced Transmission Protection Instrument (TPI) is a case in point. The TPI is yet another useful tool to combat the risk of a break-up of the euro area. ECB Needs
“Some argue that it is unnecessary since the ECB already has a program of Outright Monetary Transactions (OMT) that allows it to support government bond markets. But to use the OMT, a government must first ask for an ESM program (European Stability Mechanism). Such a program is likely to involve IMF-designed austerity measures. Requesting such a program will be seen as admission of failure by voters and risks causing political turbulence.
“Governments are therefore hesitant to apply for one. Instead, they may gamble that they can live through a period of high bond yields on their own. But high bond yields in one country will be transmitted across the euro area, slowing growth and complicating fiscal policy elsewhere. We see that already now. High bond yields in Italy, where public debt has continued to grow on autopilot, push up bond yields elsewhere in the euro area periphery, even though some countries have made progress with fiscal policy before the pandemic.
“The need for the TPI arises precisely because access to the OMT is not automatic and the likelihood that governments will therefore postpone asking for help, which is costly for the rest of the euro are. The TPI, which comes with fewer conditions and is more likely to be used, therefore makes sense.
“Unfortunately, the way it has been motivated does not. The ECB says that the TPI is intended to ensure that the monetary transmission mechanism is equally strong throughout the euro area. But the strength of the transmission mechanism varies naturally between euro area economies given their economic and financial structures. This has not caused concerns in the past.
For instance, monetary policy is more powerful in economies where households generally own their own housing and mortgage borrowing is common. It is more potent in countries where corporate leverage is high. It is particularly effective if borrowing costs are highly sensitive to the ECB’s policy rate because lending rates are floating or fixed only for short periods of time.
And since interest rate changes impact on the exchange rate of the euro, they are transmitted more strongly in economies where a disproportionately large fraction of trade is with economies outside the euro area.
This is another unsubtle attempt to kick the upcoming crackup down the road. There is always a need.
Needs are as related to incompetence as incompetence is part and parcel of central banking.
Central banks are known for having mandates. Clarity has never been and won’t anytime soon be one.
Asking central banks, the ECB in particular, for clarity is like asking the blind man what’s for dinner.