ECB – Use Your Powers!

David McWilliams latest article Memo to ECB: print money is right if a little simplistic.  The ECB has been crediting banks in exchange for rubbish assets- their version of Quantative Easing –  which is almost like printing money but that is not what we need.  What we need is for the ECB to credit Member States Governments accounts with 10% of the Eurozone GDP annually on a per capita basis.  Still, any press for this MMT tinged thinking is good.  David goes on to explain why there should be no panic about Greece given a competent central bank..

…So, let’s play out a scenario. The Greeks default. This means that the ECB has to take a loss on its ‘balance sheet’ of €50 billion. For a normal bank, this would mean the bank would be bust. But the ECB’s balance sheet is a strange beast. The ECB makes its balance sheet balance, not the other way round.

By this, I mean the ECB looks at its liabilities and creates assets to match. It really is that simple. So if the ECB finds itself taking a €50 billion loss, it can go to its member central banks and ask them to get the money from their governments. Or it can write €50 billion into the assets side of its balance sheet and bother nobody about the loss.

This is what Ben Bernanke, chairman of the Federal Reserve, has done in the US – and the world hasn’t ended there. It is what the ECB should do here, and you can bet that the world won’t end here either.

But the really worrying thing is that you have central bankers who don’t seem to understand central banking – now that is a problem.

When you print the cash, you are the boss, you can do whatever you like to solve a crisis.

For example, our central bank in the 1980s continued to accept government debt for cash, even when the government was issuing debt as if it was going out of fashion. The ECB can do the same thing.

The issue is not about rules and regulations any more, it is about a mindset shift. The ECB top brass has to understand that the world has changed.

They have to see the world not as they would like it to be, but as it is. Then once they have done this they need to stop panicking and appreciate that the solution is in their hands.

The ECB should stop shouting stupidly at politicians and begin to behave like the true, credible institution it so desperately craves to be.  (link to full article)

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