by Frank Schnittger
Mon May 9th, 2016 at 06:09:48 AM EST
David Folkerts-Landau, Chief Economist at the Deutsche Bank, has a screed in the Financial Times which is wrong on just about every level that can be imagined. Arguing that the ECB's policy of negative interest rates is undermining public and business confidence, Folkerts-Landau asks:
What should be done? The priority is breaking the negative spiral of lower confidence engendered by ever-looser money. The ECB needs to begin reversing its policy of negative interest rates. Moving back into the black would raise confidence across the eurozone.
Apparently lower interest rates cause people to save more and invest less. Recovery will only come when governments implement "reforms" which involve reducing investment and spending (and employment) still further. The ECB is causing further stagnation and deflation in the Eurozone by reducing interest rates and buying Sovereign and Corporate debt, not responding to it with the main tools at its disposal. The problem is that there are rising debt levels - not the excess savings identified by Draghi as a cause of the crisis.
Has it not occurred to Folkerts-Landau that excessive savings and debt might in fact be two sides of the same coin?
According to Folkerts-Landau:
Worse still, the ECB is failing in its other mandated duty -- to promote stability. Popular opposition to low and negative interest rates, when combined with continuing high unemployment, is fomenting anger with the European project
Ah yes, people are rioting in the streets because of low interest rates which are mysteriously supposed to be causing high unemployment. Not the other way around. If you really want to make the European Project popular again, governments and banks should be imposing much higher levels of austerity, mortgage payments, bankruptcies and unemployment on all.
But perhaps Folkerts-Landau's real problem is given away in the sentence which reads:
Safe keepers of our wealth, such as insurance companies, pension funds and savings banks barely earn a positive spread.
Could it be that he is special pleading for his employer to be allowed to make greater profits from a higher interest rate regime to offset the speculative losses they have incurred in recent times on trading in derivatives? The Financial Times does itself few favours by publishing this drivel.