Quantitative Easing in the Eurozone, or panic in Mont Pelerin Olympus, a comment by Almost Marx

Mr. Gallo, in his essay, advocates a ‘rethink’ for the E.U., led by The Germans, who defaulted four times in the 20th Century. Read Ms. Tett’s 2015 essay for the particulars:


The stark choice for the German led E.U. is reform or die! Rising ‘Populism’ of both ‘Left’ and ‘Right’: the Brexit and the Trump victory have increased ‘The Panic of the Elites’, enter stage right Mr. Gallo.

Eurozone leaders surely need a rethink of their strategy. One option is to build a more flexible union — with a “variable geometry”, as championed by German Finance Minister Wolfgang Schäuble. The alternative is one of a closer Europe, which both France and Italy support, as well as German opposition leader Martin Schulz. Whichever the way forward, however, eurozone institutions still have plenty of dry powder. The €500bn-strong European Financial Stability fund is still untapped, while Europeans support the EU project even in countries hard-hit by recessions: 73 per cent were either positive or neutral as of mid-2016, according to the European Commission’s eurobarometer.

The technocratic babble of ‘Variable Geometry’ is another name for Quantitative Easing. I provide three links below with pertinent data and thoughts on QE in American and European contexts*.

And then there is the usual attack on the Welfare State, that needs dismantling, in the face of the ‘Crisis’. Caused by the greed of Banks and Investment Houses not by the Welfare State indulging a lazy populace: we are in the ’76 Reagan territory of ‘Welfare Queens driving Cadillacs’ ! Although cloaked in respectable bourgeois political apologetics .

In the decades before the financial crisis, eurozone countries lagged behind the US and the UK, held back in part by higher taxes, less flexible labour markets and more generous welfare policies.

Mr. Gallo then quickly shifts to a sudden concern about ‘inequality’, a sea change in the Party Line of an Utterly failed Neo-Liberalism. The Populist Menace  is chasing him and his fellow travelers at The Financial Times and desperation, even panic has manifested itself in the Mont Pelerin Olympus!

*For some useful background on the Quantitative Easing question, see this essay by  Jeremy Green, Research Fellow, Sheffield Political Economy Research Institute (SPERI) at University of Sheffield, posted at the Naked Capitalism web site September 27,2013.

Headline:  The Regressive Politics of Quantitative Easing

Second, central bank leadership of the policy response also reflects a key feature of neoliberal political economy in practice. Despite all the rhetoric of free markets, competition and deregulation that has been the mainstay of neoliberalism, there is a central contradiction at its heart: neoliberalism has been extremely reliant upon the active interventions of central banks within supposedly “free” markets.

The crisis has been warehoused on the expanding balance sheets of central banks, demonstrating just how much scope for policy manoeuvre there is when governing elites want it. Government debt and private assets, including toxic mortgage-backed securities, have been indefinitely transferred onto central bank accounts. This strategy highlights the role of arbitrary accounting processes, shaped by state institutions, at the heart of supposedly “free market” economies.

Given this room for manoeuvre, there is no doubt that a much more expansionary fiscal policy and a progressive taxation system could have been implemented in response to the crisis, but that response is foreclosed by the ideological confines of the prevailing neoliberal orthodoxy. Instead, we have monetary expansion and fiscal austerity.

In the present period, we’ve witnessed a similar form of wealth redistribution. Recent estimates by Berkeley professor Emmanuel Saez, an influential scholar of income inequality, suggest that 95% of wealth gains since 2009 have accrued to the top 1% of the US income distribution pattern. In Britain the experience has been very similar, with the Bank of England’s own report in 2012 suggesting that QE had benefited Britain’s richest 5% the most.

Quantitative easing is thus exposed. It’s not merely a technical remedy to a malfunctioning financial system, but rather a deeply political policy programme. There are winners and losers just as with any economic policy that affects the overall distribution of wealth and resources within society. The conventional fixation with GDP obscures these dimensions of the recovery and ignores key questions about the distribution of wealth within society.


On the question of Quantitative Easing in an American context read this Fortune essay by Stephen Gandel.

 Headline: Big banks made $650 million off of Fed’s QE program
Jul 23, 2014

A recent study by a Fed economist and one from MIT estimate that Wall Street firms may have made as much as $653 million in fees selling bonds to the Fed. The economists, Zhaogang Song and Haoziang Zhu, conclude that, while that is a lot of money, it was probably a good deal for the Fed. Since QE has started, the Fed has bought $3.7 trillion in U.S. Treasury and mortgage bonds. The $653 million that the banks collected amounts to a commission of just under 0.02%, or 0.02 cents for every $100 in bonds that the Fed bought.

What’s more, QE started in early 2009. So Wall Street collected those fees over five years. And they are spread over a number of different firms. But the economists found that the fees were not spread evenly. Indeed, 70% of the fees the Fed paid Wall Street firms during the period that the professors examined—10 months from November 2010 to September 2011—went to five firms. And you can probably guess who got the most: Goldman Sachs (gs, -0.79%).

“Certain institutions have better access to the Fed and to the markets,” says Bob Eisenbeis, an economist and long-time Fed watcher at Cumberland Advisors. “We have an archaic system that needs to be reformed.”


Yet as the essay progresses we encounter this:

‘The Fed buys its bonds in QE through a reverse auction process. It says it wants to buy bonds and then the firms shout out the prices they are willing to sell them at. The Fed picks the lowest price. But just 20 firms, so-called primary dealers, are allowed to compete in that auction, selling bonds to the Fed and receiving cash from the U.S. central bank.’

‘Along with Goldman, the banks that profited the most from QE trading during the period in question were Morgan Stanley (ms, +2.14%), Barclays (bsc), BNP Paribas (bnp.pa), and JPMorgan Chase (jpm, +1.44%). While Goldman raked in the most from the program, it was not the most profitable. That title went to JPMorgan, which appears to have made nearly $0.04 on every $100 in bonds it sold to the Fed. That’s a penny more than Goldman earned from these deals and the largest profit of all the primary dealers.

The banks probably would have made some of this money trading bonds with others if they hadn’t spent so much time trading with the Fed. Factor those missed opportunities in, and the excess fees the banks made from QE might drop to just $250 million.’


Mr. Tyler Durden offers a summation of the insight of JPMorgan’s report on Q.E. and the European Central Bank, by Nikolaos Panigirtzoglou.

Headline :  “QE Benefits Mostly The Wealthy” JPMorgan Admits, And Lists 8 Ways ECB’s QE Will Hurt Everyone Else”

January 24,2015

Over the past 48 hours, the world has been bombarded with a relentless array of soundbites, originating either at the ECB, or – inexplicably – out of Greece, the place which has been explicitly isolated by Frankfurt, that the European Central Bank’s QE will benefit everyone.

Setting the record straight: it won’t, and not just in our own words which most are familiar with as we have been repeating them since 2009, but those of JPM’s Nikolaos Panigirtzoglou, who just said what has been painfully clear to all but the 99% ever since the start of QE, namely this: “The wealth effects that come with QE are not evenly distributing. The boost in equity and housing wealth is mostly benefiting their major owners, i.e. the wealthy.”

Thank you JPM. Now if only the central banks will also admit what we have been saying for 6 years, then there will be one less reason for us to continue existing.

And of course, even the benefits to those who stand to gain the most from QE are only temporary. Because the same asset prices which rise thanks to money printing are only transitory, and ultimately mean reverting. To wit: “It potentially creates asset bubbles by lowering asset yields by so much relative to historical norms, that an eventual return to normality will be accompanied with sharp price declines.”

So enjoy your music while it lasts dear 0.1%. Collateral eligible for monetization is becoming increasingly scarce and by our calculations there is about 2 years worth of runway left for G3 assets before central bank interventions in the private market result in a complete paralysis of virtually every asset class, and the end of capital markets as we know them.

As for everyone else, here is a list of 8 ways that the ECB’s QE will hurt, not help, by way of JP Morgan.


Almost Marx


About stephenkmacksd

Rootless cosmopolitan,down at heels intellectual;would be writer. 'Polemic is a discourse of conflict, whose effect depends on a delicate balance between the requirements of truth and the enticements of anger, the duty to argue and the zest to inflame. Its rhetoric allows, even enforces, a certain figurative licence. Like epitaphs in Johnson’s adage, it is not under oath.' https://www.lrb.co.uk/v15/n20/perry-anderson/diary
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