Banks

ECB RATES INCREASE
What lies behind this absurd interest rates increase of the European Central Bank is the deliberate intention to kill growth in Europe so that petrol demand falls and, consequently, imported inflation is reduced (in short, sheer fanaticism : they shoot the citizens, companies, and states in the foot – precisely those they are supposed to serve!). Our smart economists are playing multimove poker: if European growth drops, Europe will import fewer products, leading to reduced external deficit and reduced imported inflation. In addition, Chinese growth, partly driven by its exports to Europe (but mainly to the US), could also drop.
Then, Chinese demand for petrol will be reduced, which, they hope, will bring about a drop in petrol prices, which would benefit Europeans, particularly through the drop in petrol-imported inflation, because there won’t be any industries left! But what are our ECB eggheads doing with American, Indian, Brazilian and even Chinese economies? Does our neurotic Trichet really believe that he is going to impose a worldwide recession without provoking any reaction from the political, economic, industrial and banking leaders who are legitimately defending their own interests and who simply do not want Dr Strangelove-type solutions?

TRICHET
Dr Strangelove is at it again. J.C. Trichet means to fight inflation through increased interest rates, whereas this inflation is currently imported via increased petrol prices and commodities. How ridiculous! Who does he think he’s kidding? Either he found his economics degree in a Kinder Surprise, or he’s plotting against European growth: in this Pyrrhic victory, there won’t be any inflation if …. the economy goes into recession !

THE EUROPEAN CENTRAL BANK’S MISSION
Part of the ECB’s mission is to ensure price stability. But is the figure of a 2% inflation rate within its statutes? Why not 4%? Isn’t the real dilemma to be in harmony with the other big competitor zones such as those of the dollar, sterling, yen, yuan, etc.?

CREDIT
In the event of a credit crisis, there’s a simple and cheap way of restoring the trust of lending banks, and that is via state-granted surety for realistic and relevant projects from SMEs and VSBs. Projects to be guaranteed should be evaluated by expert and competent officials so as to avoid any budget excesses. Overall, a few noted failures will be overcompensated by fiscal revenue (corporate taxes, income taxes, financing of the social system) and by the savings on unemployment insurance, and all this in a well-supported economy!

LEVERAGE
The state’s guarantee, as opposed to the direct granting of funds, enables a multiplier leverage effect. This can be applied to the guarantee of interbank loans by central banks or the IMF. It’s also applicable to the guarantee of loans to the VSBs/SMEs by the national state, the EBRD, or the national central bank. Indeed, this type of security rebuilds the trust of the banking organizations that are then encouraged to get back to their real job which is to finance the real economy. The risk, borne by the states and hence the taxpayers, is a good deal lower than that caused by a spate of corporate bankruptcies bringing unemployment and the citizens’, not to mention the state’s, poverty.

A NEW INTERNATIONAL FINANCIAL SYSTEM
Within the framework of something similar to Bretton-Woods, it would be worth thinking about holding both regular and special meetings of the main central banks (currently the United States, Europe, Japan, China, India, Russia, Brazil), chaired by the International Monetary Fund (because, ultimately, it is responsible for the refinancing of the central banks), in order to: 1. Develop crisis toolkits from which central banks may choose what appears to suit their influence zone best;
2. Gather information and discuss the key interest rates of their respective currencies and inter-zone exchange rates, so as to learn to cooperate to promote simultaneous and harmonious growth of the various zones; in this domain, cooperation has been shown to be more successful than competition, in the long run.

Similarly, it would be good to bring together for discussions the development aid banks such as the World Bank, the European Development Bank, the Asian Development Bank, Grameen Bank (microcredit), etc. so as to compare methods and identify the best practices in terms of the intervention zone, the development goals as shared by the moneylenders, the donors, and the beneficiaries.

A PUBLIC CENTER FOR CREDIT INSURANCE
One should consider seriously the constitution of a public center for credit insurance benefiting the consumers and the social welfare-oriented SMEs. With a relatively small fund effectively mobilized in case of failure, we could, via this system, encourage banks to lend to consumers and private investors, which would maximize leverage for the whole economy. This public insurance mechanism was successfully granted to the banks to fend off complete collapse; the citizens will not tolerate for long that they don’t benefit from it as well!

PUBLIC CREDIT INSURANCE
Dear President Obama, I invite you to think about a public credit insurance, such as those built up in Germany and Great-Britain, to face the crisis, especially the lack of bank loans to the small businesses. The money given to this public institution might not be fully spend, since it is spend only if the small business cannot repay the loan. Such credits help the businesses to invest, hence it is a kind of private Keynesian start. Besides, investments are targeted to a better future, nothing to do with consumer spendings that flow to other countries that design your consumer goods.

OUTSTANDING BANK LOANS
Bank loans to companies are showing stable. The problem is that since large companies can no longer finance their operations through the stock exchange, they turn to the banks; it’s those bank loans that are increasing to the detriment of loans to SMEs, even though the total is stable.
Each bank needs to be forced to publish the evolution of loans in absolute and in relative terms, broken down by size (large, medium, small enterprises) and region.

THE EUROPEAN GUARANTEE PLAN
The European plan has the wrong objective: to reassure bankers (and markets) regarding credit worthiness, it’s the repayment capacity that matters, not the capacity to incur additional debt; otherwise, one falls into the revolving credit system with credit institutions like Cofinoga or Cetelem. Sadly, we know what happens to households that sink in this type of operation.
In other words, as long as the markets are not absolutely CERTAIN that governments are capable of getting their people to accept significant financial (read lifestyle) efforts, the kind of efforts necessary to reach the avowed objective of zero accumulated debt, the common currency will be under attack.
Our restored debt capacity will enable us to face the numerous 21st century challenges: possible world war, petrol crisis, ecology crisis, climate crisis, demographic crisis, migratory crisis, food crisis, water crisis, and other crises not yet apparent. All these crises are considerably more serious than the retirement age or the full reimbursement of healthcare issues.
The point is that governments need to be frank about these issues: voters need to modify their mental representations of the present time and of the future!