The insane ECB continues its reign or terror

While the UK’s latest inflation report seems almost optimistic, Europe remains completely fucked. Look, I don’t want to swear, but what else can I do? Remember how much you swear when you stub your toe? That’s not as bad as unemployment, is it? Well millions of people are unemployed thanks to the worst institution in the world, the ECB.

As Matt Yglesias points out, although the periphery’s descent into hell is decelerating, even Germany is suffering. It reported only 0.1% quarter-on-quarter growth for Q1 2013. This is what Eurozone economic “growth” looks like versus US growth.

And, although Karl Smith can’t make Eurostat spit out the numbers he wants someone can. Above is growth rates, what that fails to show is the magnitude of the divergence between the US, where fiscal policy is nuts but monetary policy relatively sane, and the EU where everyone’s just gone batshit crazy and decided things need to get worse before they can get better.

Let this be a lesson to you, you can fill a properly instituted legislature with lunatics and by the magic of checks and balances somehow survive, let them into your central bank and you’re doomed.

Filed under: Economics, Foreign Affairs, European Central Bank, Eurozone, karl smith, Matt Yglesias, the insane ECB

The True Meaning of Francois Hollande: As Politics move in the right direction the Economy is about to fall of a cliff

Here is a great graph via David Beckworth showing Nominal GDP for the whole OECD.

Source: OECD Statistics

Looks like we are all still way below trend. The demand shock starting in 2007/8 has not been corrected and although total spending has recovered to above its precrisis levels that masks wide variation in rates of recovery. Canada’s doing great, Spain, not so much.

During the worst of the crisis the fundamentals of developing world helped to drag global growth back up. In fact the late 00s were good for large parts of the world. China, Brazil, many African countries all performed strongly through to 2012, despite a set back in 2008. In fact global GDP per capita has never been higher.

The bad news is that serious problems appear to be developing all around the world. The Eurozone is still in a permacrisis, industrial production is stagnant in India, China has been fighting deflationary pressures for some time and appears to be beginning to lose, Brazilian industrial production has turned negative. The US is facing huge budget cuts in the autumn which will be broadly contractionary through its economy.

The insane European Central Bank‘s policy rate is at 1%. That’s right, despite the Eurozone imploding the insane ECB is has steadfastly refused to ease policy despite even Germany heading towards recession. Other central banks around the world have all done good jobs avoiding anything as horrific as America’s Great Depression, but they all remain wary of using unconventional tools to expand demand.

In 1999, what Ben Bernanke argued was needed in times of great crisis is the willingness to be aggressive and experiment, to show Rooseveltian Resolve to get the economy moving again:

Needed: Rooseveltian Resolve

Franklin D. Roosevelt was elected President of the United States in 1932 with the mandate to get the country out of the Depression. In the end, the most effective actions he took were the same that Japan needs to take—-namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment—-in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done.

This is the real meaning of Francois Hollande. He needs to say “non!” to more or less everything Merkel and the insane ECB put forward.  Hard money and austerity have been a disaster in a benign international environment, if demand for European and American exports dries up and deflationary pressures go global we will see a recession inside a depression scarily reminiscent of the 1930s. We need a Roosevelt.

Filed under: Economics, Foreign Affairs, Politics, Ben Benanke, Brazil, China, David Beckworth, FDR, India, the insane ECB