The financial crisis for more than ten years in the past. The Central banks continue a policy of low interest rates, and their balance sheets are still much larger than before the crisis. What's going on here?
I don't understand is the monetary policy of the major Central banks, especially the European Central Bank. The ECB still runs the monetary policy, which it introduced during the financial crisis. We had in the last few years in the Eurozone, a reasonable growth. This would have allowed the ECB to normalise its policy. You didn't do it.
This is likely to have political reasons.
Yes. The ECB is the Central Bank of a very colorful composite currency Union, which also includes a number of crisis States, which have large problems with your debt, their labour markets and their banks. The ECB with their policy of these countries under the arms, of course. By keeping interest rates low and government bonds of these countries buys, she does it anyway.
The Swiss national Bank is only a little better.
For the SNB do I make an extenuating circumstance. You would prefer to pursue a different monetary policy, but it is integrated in an international monetary system. You want to prevent an overly strong appreciation of the Swiss franc. This could easily be the case, when about the negative interest rates would be suddenly lifted. A small correction could the SNB. However, the question of what it would bring.
How big is your game room?
The SNB may not act as if you were on a desert island. No one, not even the American Federal Reserve can, by the way. This does not mean, however, that we would have no game room. We have had many years of on average 1 to 2 per cent lower rate of Inflation than Europe. This would not have been the case for a fixed link to another currency.
The expansionary monetary policy and the Zero or negative interest rates are likely to persist for longer. What would that mean?
The current policy leads to distortions that are harmful for the economy. To a rain the low interest rates to other debt of the States, as well as the Private. High debt are always risky. It investments are not made, which would be at a normal level of interest rates profitable. Companies don't adhere to the activities that actually pay off. The can revenge.
sovereign debt of European countries in the comparison
image to enlarge
Because it has to eventually be corrected. Then jobs are up for grabs.
How would you normalize the monetary policy?
There are two possibilities: on the one Hand, one could raise the base rate to go from the negative interest rate is first, again in the direction of the zero interest rate and then a normal interest rate level. On the other hand, the Central banks could shrink their balance sheets, so investment in transferable securities of any kind, and currency to sell. This would cause the prices of these assets fall. No one would have pleasure from it. It is a lot of return more difficult to a normal monetary policy as an expansionary monetary policy.
The economic Outlook currently is not particularly good. So a normalization is not in the foreground, but rather the prevention of a possible next crisis.
The Central banks have failed in the last five years, the room for manoeuvre to regain the pre-crisis. This is a big mistake. In the event of a crisis, you would be in today with empty hands. Interest rates are already at zero or below. You could inflate the balance sheets even more. But the credibility and impact of large securities-purchase programs are likely to be in view of the already enormous Central Bank balance sheets increasingly weaker. The economic effect of the previous purchase program of the ECB is clearly not clear.
But it has given the States concerned money.
of Course. It has relieved the crisis countries the financial budget. But at the same time this has the incentive for reform is weakened, which would be urgently needed.
This means that the next crisis could be worse, because the Central banks can't intervene.
This is in fact a cause for concern. The Central banks have earned their high Reputation, because you have to fight the last crisis, decided. They were able to reduce interest rates strongly, and have high levels of assets to buy. Now that would be in the Form of not possible.
Is the reason in the claims of the policy of the Central banks, which go much further than their job?
Yes. And some Central banks gave in to these demands too strong. The classic job of the Central banks price stability is, in addition, to stabilize the economy. But the policy is expected today, often much more. This leads to an excessive demand.
Then is likely to be the next crisis in a very much more drastic.
It may mean that banks are insolvent, and credit will be lost. Politically, it could mean that the state wants to intervene more into the financial system and the capital flows control, price barriers, maybe cash prohibits.
How to prepare for it?
This is difficult for the Individual. The classic response to such dangers is that you will be careful and that is why a lot of liquidity. This is true not only for Private but also for the banks that store their reserves at the Central banks, even if they have to pay negative interest rates. Actually, the Central banks would want their money policy is the opposite: that money is invested. But the confidence is missing.
"The Central banks have failed to the game room to win back the one they had before the crisis."
Why is there no trust?
The uncertainty has to part for good reasons. Some banks, for example, in Italy or in Spain are actually very reliable. Since the crisis is still not overcome.
we Would have had to let go bankrupt?
The Americans did better than Europeans. After the financial crisis, they have reformed the banking system consistently. In Europe, it has structures preserved, rehabilitated instead. This has to do with the Eurozone. The banking systems are still regulated largely on a national, and each country has protected its banks.
How it looks in Switzerland?
Our banks are much better. The big banks have changed in the Wake of the "Too-big-to-fail"regulation is strong and their balance sheets virtually halved.
Has been forgotten in Europe, that a market economy is the Failure?
you could say so, but banks are specifically. The insolvency of a large Bank can shake the financial system and cause a financial crisis. But this should not mean that one holds a bad structure. The policy tends to take place in the financial system and in the case of large corporations, too, directly influence.
Speaking of political influence on banks: What do you think of a merger of Commerzbank and the German Bank?
This Fusion would result in a large Bank out of two very strong previous banks. Size is overrated in my opinion. For me, that doesn't sound promising. I wouldn't invest.
Created: 31.03.2019, 17:32 PM