In response to an FT blog by Gavyn Davies on 13th March 2016, entitled 'The end of negative rates but not central bank alchemy'
The purchase of corporate bonds is designed for two purposes:
1. Having consulted Professor Dumbledore, Mario Potter believes the banks will be willing to lend to anyone with a pulse if they know they can turn around and hand-off the position to the ECB.
N.B. According to geniuses like Professors Dumbledore, Summers, Krugman and Rogoff, when the pulses run out, people with negative life expectancy should be considered, although issuing loans to people with a life expectancy of less than -0.5% of a tax year may turn out to be counterproductive. Effectively this rules out organisations that have been bankrupt or individuals that have been dead for longer than 2 days. This policy is known as TWIRP - Try Whatever Idiocy Rogoff Produces.
2. Pre-positioning for when the next shoe drops - when it does they plan to expand that strategy as a way to dance around the bailout/bail in politics to buy the balance sheets of banks, and avoid a systemic collapse
It won't work. Aggregate demand is low because the economy is saturated with debt, and you don't need to be a genius to realise that businesses are reluctant to invest and people are reluctant to consume for one very good reason - because they are not as dumb as central bankers.
Helicopter money is next. That won't work long term either, although it may cheer people up for a while.
You don't solve a debt problem with more debt, and unless they confront the nature of this problem head on, the eurozone will be toast.
A fellow reader commented:
"Households seem to believe very strongly that the natural state of affairs is for nominal interest rates to stay positive"
What a bunch of weirdos non-economists are! Perhaps households may have noticed that interests rates have never before in human history been negative, Given that the article goes on to say that it is impossible to charge negative rates to households it seems that they have a far better appreciation of the time value of money than central bankers.
It seems that studying economics is a form of anti-education. The student's critical faculties are progressively destroyed in the process"
To which I replied:
You've hit the nail on the head...with a hammer no less.
If you ever decide to become a neo-Keynesian central banker, with Friedman rising and your moon in Krugman...or indeed if you desire tenure in an institution that the Fed will fund - you'll need to use a saw.
The greater surface area of the saw gives a far higher mathematical likelihood of making contact with the nail (in the aggregate). The lack of penetration of the nail into the wood, when it occurs (though this is not proven) is due to the molecular density of certain woods which fail to appreciate they must speed up the frequency of their vibration to facilitate greater velocity in the transference of the force of the blow.
Until the natural state of affairs is discredited for the intuitive nonsense that it is, society will never progress to the centrist nirvana that it is destined to be (Marx: Chapter V, Verse XII).