Heinz Blasts Pimco's McCulley
McCulley:
Old Europe, does not have the right stuff. It's got many of the same demographic challenges as Japan, as well as the anti-demand pain of falling real wages for the young, as cradle-to-grave socialist policies, including employment policies, give way to the reality of global capitalist competition.
What is more, Europe is shackled with decidedly un-Keynesian aggregate demand policies, led by inflation nuttery at the ECB. In this regard, Japan is a lot better off than Euroland, in that the BOJ is an enlightened reflationist, committed to printing Yen - including for the purpose of buying dollars - with no limit until the inflation dog finally comes home. In contrast, the ECB specializes in preaching the joys of deflationary pain and regrettably practices what it preaches, on its own score by refusing to print up Euros to sell against dollars, so as to temper deflationary appreciation in the Euro and one-step removed, in advocating that fiscal policymakers pursue pro-cyclical tightening in a deflationary lacuna.
And if it weren't so sad, I would laugh at the ECB's latest self-tied knot in its Calvinist shorts: Headline inflation is above the ECB's 2% target, rendering the ECB unwilling to ease (intervening against the appreciating Euro and/or cutting short rates), but the primary reason headline inflation is above the ECB's target is administrated price hikes, as fiscal authorities put up taxes to try to appease the ECB's call for fealty to the Growth and Stability Pact, which is fundamentally flawed in that it does not cyclically-adjust deficit structures.
pimco.com
r_2004.htm
Heinz:
there's nothing 'enlightened' about 'reflationist' policies or Keynesian 'aggregate demand' policies. these are the very same policies that have never worked before (first famous failure: FDR's 'new deal'), and only serve to lengthen downturns unnecessarily by preventing the necessary liquidation of malinvestments. why does McCulley think have Japan's 'reflation' and Keynesian deficit spending policies failed to deliver any tangible results for 15 years running?? shouldn't it be clear by now that these policies do NOT work? in this case, the ECB has it exactly right: better to allow a lot of short term pain, than endless, never-ending sickness. and if Europe's politicians don't find it in themselves to implement economic reform, well it isn't the ECB's job to do that. its job is only to provide a sound currency (inasmuch as that's possible in a fiat money system). McCulley (and many others) believe the bank should proceed to make the currency unsound on top of all the other ! problems Europe has - that's insane. |
