The Limited Times

Now you can see non-English news...

Monetary policy in crisis: bankers' fear of the storm

2019-09-08T11:40:38.456Z


The power of central bankers is considered huge. That makes them unpopular: with Donald Trump and Germany's supposedly "expropriated savers". The truth is that the weapons of the ECB and the Fed have long since become dull.



column

The most important central bankers' meeting in the world began this year with a gloomy title: Riders on the Storm . So the two Californian economists Alan Taylor and Òscar Jordà had called their lecture, after an old song of the rock band The Doors.

It is an allusion to the state of the economy and its key players. "We are thrown into this world like a dog without bones," it says in the song. People have no choice but to ride the storm - we have to accept the forces of nature as they are.

Quite so lyrically it is then not in the paper (Pdf), which presented the two economists at the end of August at the central bankers meeting in the US town of Jackson Hole. But as a metaphor, the Doors title fits in quite well with the monetary policy present. In a wild world, central bankers are not almighty zampanos (more). Ultimately, they can only follow the great currents that determine world events.

In the economic policy debate, however, there is still a different narrative: central bankers are rulers over prices, interest rates and the economy - and thus decide on the weal and woe of whole economies. That is why stock market investors are staring at the big central banks. Therefore, US President Donald Trump trusts the Federal Reserve Bank to keep the US economy running with interest rate cuts - and hardly leaves a tweet just to demand that. That is why the attitude in the Federal Republic has solidified, the European Central Bank (ECB) "dispossessed German savers" with their lowest interest rates.

All this is grossly exaggerated. The central banks are not Masters of the Universe, but - at best - Riders on the Storm .

Powerless against political interference

Thursday , the outgoing ECB chief Mario Draghi will probably announce another easing of monetary policy. At issue are changes in the terms of the fees on bank deposits at the ECB ("negative deposit rates") and another longer-term liquidity program for the banking sector. Perhaps Draghi will also announce new purchases of securities, after the euro banks have already bought in the past few years papers worth 2.6 trillion euros.

What shoud that? Looking at the numbers raises the question as to which effect further expansive measures can actually have. Interest rates are already extremely low; on average across the euro area, yields on ten-year government bonds are just above zero; German bonds are even traded at negative rates. It's barely lower.

Nor is it urgent that lending in the euro area should be boosted. Banks lend neat money to businesses and private citizens: In the first half of 2019, lending grew at a rate of four percent, at rates averaging less than two percent.

REUTERS

Deceptive idyll? Fed chief Jerome Powell and his British central bank colleague Mark Carney in Jackson Hole

These are not dramatic numbers. Unlike in the years of the acute euro crisis, as banks continue to lower their loan portfolios, companies have been able to re-finance investment for several years.

True, the economy is weakening internationally. Germany's industry, in particular, is suffering from weak order intake ( Monday sees new figures on German exports), while the auto industry is undergoing a far-reaching restructuring process (look out for the International Motor Show on Tuesday ). Brexit and the trade war are major political uncertainty factors affecting the economy. Companies react to it, cut investment plans together and hire only restrained personnel.

In the past, central banks began to lower interest rates during the downturn. But this time, interest rates are already in the basement, and the central banks are sitting on huge securities holdings. What additional measures could bring is unclear. Especially since the downturn is not least the result of political upheavals in London, Washington and Beijing - of events, against which the central banks can do little.

And now? A currency war?

So why is the ECB heading for another round of easing? I see three main reasons:

  • First, the ECB seeks to avoid appreciation of the euro. The US Federal Reserve may cut interest rates further in the coming months (it still has some room left, short-term interest rates in the US are just over two percent). Falling US interest rates, however, mean that the dollar will tend to weaken against other currencies, which in turn would put additional pressure on exports, which are so important for the eurozone. The ECB tries to prevent this. However, a currency-driven monetary policy is quite risky for a large economy like the Eurozone: the scenario of a full-blown currency war is approaching.
  • Second, the ECB signals to Member States that they should spend more money. Particularly countries such as Germany and the Netherlands, which drive rich budget surpluses and are only moderately indebted, should turn in the financial policy and spend money on pump to support the weakening economy (watch from Tuesday on the budget debate in the Bundestag). Accordingly, the future head of the ECB, Christine Lagarde, expressed his views to the European Parliament these days. The Eurobank, it looks like, is heading for more easing exercises to convince the eurozone countries that interest rates will remain low for the foreseeable future. Excessive thrift is not a sensible strategy under these conditions.
  • Third, the ECB is trying to maintain the illusion that it can do anything effective at all. The dilemma of the central banks is that they can not openly admit how much their former power has suffered. Because their influence they exercise more and more by incantations of the markets (in jargon called "Forward Guidance"). Since the financial crisis, they have massively expanded their communication tools. But this only works if everyone believes that the central banks are still masters of the event. To be able to communicate credibly, they must occasionally underpin their words with concrete measures, even if they have limited material impact. Federal Reserve Banks act as storm whisperers, even if in truth they are just Riders on the Storm .

Central bankers as storm understanding

"Navigating through the stormy waters of the economy requires a good understanding of the current trends as well as the deeper but powerful global disruptions," economists Taylor and Jordà point out in their aforementioned paper. This underlying dynamic is largely independent of the central banks.

For decades, growth rates have declined in the major economies; at the same time, long-term interest rates are falling. Inflation rates are low as well. The reasons for these synchronous developments may lie in the interaction of demography, globalization and digitization. And because the big economies are tightly intertwined about financial and product markets, no single central bank can operate independently of the others, which is why the Western monetary authorities all steer a similar course. There is little left for them, as Taylor and Jordà show.

Of course, central banks have not become irrelevant. But they are no longer virtually all-powerful institutions. In the years of the acute financial crisis their instruments have become dull. This also means that you can no longer hold them responsible for everything - neither for the sluggish economy, nor for low inflation rates, nor for the extremely low interest rates.

The main economic events of the upcoming week

Monday

London - Take a break - Prime Minister and Queen send the British House of Commons in the midst of Brexit chaos in a forced break.

Wiesbaden - German strength, German weakness - The Federal Statistical Office presents new figures on exports in July.

Tuesday

Berlin - The color of money - The Bundestag starts its debate on the draft budget 2020 with a debate on general fiscal policy.

Frankfurt - After the Diesel - Start of the International Motor Show (IAA). On the first day, the big manufacturers present themselves to representatives of the press.

Beijing - Chinese Prices - The Chinese Bureau of Statistics reports inflation in August.

Wednesday

Berlin - What now, Ms Merkel? - In the budget debate, the Bundestag moves to general criticism of the Federal Chancellor in the course of the debate on the budget of the Chancellery.

Thursday

Frankfurt - Relaxation exercises - The Council of the European Central Bank decides on the further course of monetary policy. Afterwards President Draghi declares the decisions before the press.

Washington - US inflation - New figures on consumer price inflation . The stock markets will look closely because it depends on how quickly the Fed lowers interest rates.

Münster - Cologne, car-free? - The Higher Administrative Court of North Rhine-Westphalia is hearing a lawsuit from the German Environmental Aid for a diesel driving ban in Cologne.

Friday

Helsinki - Euro in Finland - By way of exception, the Eurogroup, the economic governing body of the currency area, is meeting outside Brussels.

Houston - Joe and the others - Pre-election campaign: US Democrats celebrate the third round of TV debates. The field has shrunk to ten applicants. Surveys include: ex-US Vice President Joe Biden, Senators Bernie Sanders, Elizabeth Warren and Kamala Harris (the only one who is not yet of retirement age).

How does the Civey method work?

The opinion research institute Civey works with a multi-level fully automated procedure. All representative real-time surveys are played in a Germany-wide network of more than 20,000 websites ("Riversampling"), so it is not only users of SPIEGEL ONLINE interviewed. Anyone can participate in the surveys online and will be included in the representative result with their answers if they have registered. From these users, Civey draws a quoted sample that ensures that it matches the population, for example, in terms of age, gender and population density. Finally, in a third step, the results are weighted by other attendees' socio-demographic factors and attitudes to correct distortions and prevent manipulation. More information can be found in the Civey FAQ.

Why is a registration necessary?

The registration helps to weigh the answers, thus allowing a result for the surveys, which is representative of the voting population in Germany. Each participant is asked for their gender, year of birth and place of residence. After that everyone can give their opinion in further surveys on different topics.

How do the results become representative?

The answer of each participant is weighted so that the result of a survey is representative of the population. For the Sunday question and the government monitor, this population comprises the population entitled to vote in Germany. The weighting is done fully automatically on the basis of the personal details at the registration as well as the history of earlier answers of a user. More methodological details can be found in the Civey whitepaper.

Will you reach enough participants online?

Opinion polls are usually conducted by phone or online. The significance of the results depends on how many people can be reached and how many actually participate in a survey when they are approached. Internet connections and landline connections are currently about equally widespread in Germany - with about 90 percent of households, mobile phones even 95 percent. The willingness to participate in all methods in the single-digit percentage range, especially experts estimate it for telephone surveys.
Thus, in both methods there is a group of people that can not be reached because they either have no connection to the respective network or do not want to participate in the survey. Therefore, a significant number of people must always be approached for a meaningful result. Civey surveys are currently in addition to SPIEGEL ONLINE in more than 20,000 other websites involved, including various media. This ensures that as many populations as possible can be reached.

How do I recognize the quality of a result?

Until the result of a survey becomes representative, enough different people have to participate. Whether this is already successful, makes Civey transparent, in that for each survey result a statistical error probability is specified. The number of participants and the interview time are also published for each survey.

What does it mean when the colored areas in the graphics overlap?

In our graphs, the statistical error is shown as a colored interval. This interval shows the uncertainty associated with a poll score. For example, on the Sunday question, one can not say exactly how many percent a party would get in a poll, but specify an interval where the outcome is likely to be. If the intervals of two survey values ​​overlap, then strictly speaking no statements about the difference can be made. For the Sunday question this means: If the poll numbers of two parties are so close together that overlap their error intervals, it can not be derived from which would currently perform better in the election.

What happens with my data?

The personal data of the users are stored encrypted on German servers and remain secret. Civey employees use only user IDs for reporting and can not associate users with their votes. The main purpose of the users' personal information is to weigh the answers and to ensure that the surveys are not manipulated. To prevent this, Civey uses both statistical and technical methods. In addition, Civey works with external partners who create audiences. Only when users have accepted the privacy policy of both Civey and an external partner, may your responses be used by the Partner to model those audiences. However, a partner does not receive information about your political and religious attitudes as well as those with which you can be identified. Civey users are also not ads based on their answers. You may object to the distribution to partners at any time here as a logged in user. More information about privacy at Civey can be found here.

Who is behind Civey surveys?

At this point, readers in the app and on the mobile / stationary website have the opportunity to participate in a representative Civey survey. Civey is an online opinion research institute based in Berlin. To compile its representative surveys, the software of the company, founded in 2015, merges websites into a nationwide survey network. In addition to SPIEGEL ONLINE include, among other things, the "Tagesspiegel", "World", "Wirtschaftswoche" and "Rheinische Post". Civey was funded by the ProFit funding program of Investitionsbank Berlin and the European Regional Development Fund.

Source: spiegel

All business articles on 2019-09-08

You may like

Life/Entertain 2024-02-24T08:41:58.470Z
News/Politics 2024-01-30T06:09:56.320Z
News/Politics 2024-02-22T19:02:23.940Z

Trends 24h

Latest

© Communities 2019 - Privacy

The information on this site is from external sources that are not under our control.
The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.