The European Central Bank
seems to have got a bit tired of buying dodgy periphery sovereign debt, and is
now considering buying “packages of bank loans to households and companies” as the
Financial Times put it in a front page article entitled “ECB looks at buying
bank loans in battle to ward off deflation.” (27th Jan).
While Euro politicians
and bankers doubtless think the purpose of the economy is to enable them to
line their own pockets, the actual purpose (as explained in introductory
economics text books) is to supply consumers with what they want (both as
expressed by what they do with their disposable income and the types of public
spending they vote for at election time).
Thus given inadequate
demand (or a danger of “deflation” to use the FT’s phraseology) the obvious and
logical remedy is to give consumers more of the stuff that enables them to
purchase what they want: and that stuff is called . . . wait for it . . . . “money”.
Plus (assuming the ratio of public to private spending is to remain constant)
public spending needs to be increased.
As Warren
Mosler correctly points out, it is not the job of central banks to expose themselves
to the above sort of risk.
Plus if the ECB does buy
the above strange assortment of assets, that nicely illustrates the point I
made in this post
a few days ago, namely that the more reliance is put on monetary stimulus
without a corresponding amount of fiscal
stimulus, the more the state ends up buying an ever larger proportion of private sector
assets. And that must at some stage mean the state / central bank
buying assets which is has no business buying.
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