The European Central Bank has to deal with the details of the financial markets in such a way that it has become a daytrader and organizes a planned economy. That said Econopolis economist Geert Noels yesterday.
The banks are still ‘too big to fail’, but much worse is that the central banks are ‘too big to fight’, said Danielle DiMartino Booth yesterday. The writer of the book ‘Fed Up’ was in Brussels for the third edition of Leergeld.eu, a debate series organized by the N-VA on the free money policy of the European Central Bank.
The Texan worked from 2008 to 2015 for the US central bank (Federal Reserve, abbreviated Fed) in Texan Dallas. When she left, she wrote the book and since then she has not received any postcards from her former colleagues during the holidays, she said. In ‘Fed Up’ she argues that the Fed has become an overly powerful institution that directs the economy without contradiction.
In central banks, there is an army of PhD economists working who share the same haughty belief in economic models and are too often disconnected from reality, said DiMartino Booth. According to her, since the arrival of Alan Greenspan in 1987, the Federal Reserve has been trying to disrupt the classic cycle of the economy by smoothing out the buisiness cycle, so nothing still works as it should.
The disadvantages are numerous. The free money does not go to expenses or investments, but to overpriced real estate. Companies that are ill do not go bankrupt because are kept alive with cheap money. Pensioners see the income from their savings shrink. Pension funds are forced to take greater risks than they want to reach a minimum return. In the US there are again more people who can not pay off their student loan, credit card or car loan, DiMartino Booth enumerated. And that while the economy is growing.
Geert Noels of asset manager Econopolis also attacked the ECB policy. According to him, the central bank has interpreted its mandate – price stability – in an idiosyncratic way to ‘inflation close to but below 2 per cent’, which then allows it to proceed without democratic control.
Noels is annoyed by the statement by ECB chairman Mario Draghi four years ago that he will undertake ‘whatever it takes’. “To do what?” Noels asked. “Save the euro? Save the Italian banks? Southern European government bonds? ‘
He alluded to Draghi implementing a hidden Italian agenda. At a time when the Five Star Movement and the Lega in Rome are playing with the idea of the ECB having to cancel 250 billion euros in Italian government debt, that is an uncomfortable idea.
Noel was contradicted by Stéphane Rottier, who for five years was the assistant of chief economist Peter Praet at the ECB, but spoke in his own name in the debate. He stressed that ECB decisions were taken by 25 people and that there was no hidden Italian majority at that meeting.
But the chairman chooses his staff, Noels threw it. DiMartino Booth also said that at the time none of the 800 doctoral chairman Alan Greenspan contradicted the Fed. ‘At the ECB, 19 of the 25 directors do not work in Frankfurt and they have their own staff’, Rottier remarked.
He explained that the strong drug that the ECB was administering was indeed necessary because the crisis was so severe. And that it is not the fault of the ECB that governments in Europe have not implemented the reforms that are needed.
Noel insisted that this situation led to the central banks having started to deal with too many things. ” Whatever it takes ‘meant that you went all in, in an ultimate gamble to stear the markets’, Noels said. ‘Markets are very complex and by intervening they become even more complex. The central banks are now buying bonds from real estate companies, are then they worry that real estate is becoming too expensive and try to fight that with other policies. There is a planned economy emerging before our eyes. ”
DiMartino Booth nodded in agreement, but is convinced that there is already some improvement in the United States. According to her, the new Fed Chairman Jerome Powell will abandon the legacy of Greenspan and no longer put a floor under the losses of investors.
If the stock market crashes, he will crash them, she predicted. ‘Finally, a ray of light is falling into this building of darkness.’