The European Central Bank (ECB) has asked for public comments on its economic policy in a strategic review to last until August 2020.
“The ECB is listening,” they say. “As part of the strategy review, we want to hear opinions from across Europe, including those from citizens, academics, Members of the European Parliament and civil society organisations.”
This comes at a most challenging time for the central bank as it was grappling with an apparent disproval of some economic theory even before the new flu.
“The strategy was last revised in 2003. Since then, the economy has changed fundamentally,” they say. “The purpose of the review is to ensure that the ECB’s monetary policy strategy continues to serve its purpose in the coming years.”
Meaning this is the first time in a generation that Europeans get to discuss fundamentally the matter of money and how to handle it in order to keep prices stable, which is ECB’s mandate, but also presumably on how to facilitate growth, to prevent spiraling inequality and how overall the ‘block reward’ that comes from ECB through a fairly complex system can best be used.
“We will publish summaries of the feedback on our digital channels,” they say, making this a public debate on the role and the work of a most powerful institution.
“The information we gather at the listening events, the ideas you submit to this website and the work carried out by central bank members of staff will feed into the Governing Council’s deliberations,” they say.
Meaning for those with ideas, now is the time as ECB looks to see how their approach can change.
One somewhat old idea might be Friedman’s k-percent rule, which is described as “a monetary policy rule that the money supply should be increased by the central bank by a constant percentage rate every year, irrespective of business cycles.”
Monetarists argue inflation or deflation is due to central banks printing too much or too little money as they have imperfect information.
However, as there is general population growth and productivity growth, the supply needs to increase but instead of haphazardly, it should increase at a fixed rate.
Another theory is that money increases and decreases not just through interest rates funneled by banks, but also through the government which takes money out of the economy though taxation, fines, and licenses, and decides how to send it back into the economy.
A more recent suggestion has been that interest rates themselves cause economic productivity or loss of productivity in a very complex balance between the need for banks to make profit – thus requiring some interest rates rather than 0% – and the need for the borrowers to also make profit by not having to pay to the banks all the new value they’ve created in interest rates plus of course the capital.
Our potential explanation for why most feel chained even as so much money is printed is that the cycle of how loans are potential value creators is probably not appreciated to the right extent.
There’s a catch 22 in that a smart guy or girl for example who thinks they could turn say $10,000 into $100,000 by building whatever, first needs to show they already own a value worth $10,000.
Not cash in hand, but if we take a mortgage for example you need to be earning $50,000 to buy a house worth $200,000. At the same time, you’re probably paying $2,000 in monthly rent when for a mortgage you’d be paying $500.
It’s a bit like in DeFi where you need to put down eth to ‘print’ dai. Likewise with a loan, you get it usually only if you don’t really need it, rather than based on the chances you can turn the loan into 10x more valuable because the capital allows you to have the resources to create something of value.
Another way of saying that is the lending policy has become far too strict to the point arguably commercial banks are not doing their job in an equitable way because as a policy – and perhaps under orders by our own governments – they take almost no risk by exercising judgment as arguably they don’t need to because they’re just given state money.
So the best explanation for why ECB and other central banks have effectively been taken out of the picture is that old incentives problems in as far as commercial banks have pretty much been nationalized, though not in day to day management.
Thus in our view the problem is lack of sufficient capitalism created by what in this space they call technical debt in regards to old code that sets a system or a way of doing something towards a certain way and takes far too much time to re-write, hence you build ‘hacks’ around it, creating even more technical debt.
Likewise there is too much rigidity in lending with strict rules and almost iron like processes that leads to a situation where these rule writers claim no one wants to borrow, when of course it is more the case banks don’t lend to anyone but the rich, even though banks are guaranteed and still don’t take risk.
That lack of ground capital feeds into lack of competition, giving very few giant corporations practically law making powers, so risking the capture of the government and basically a collapse into communism in all but name.
Arguably we are currently very close to that because in the civil service especially there appears to be a lack of willingness to think or re-think.
With that comment we have in mind SEC whose arrogance has reached the point they tell those that pay their wages “we won’t innovate for you.”
But as in most professions, in the civil service too there are idiots, cheaters, bots, as there are smart people, thinkers, and individuals that actually care.
So we hope they look seriously at this problem of far too little competition which can begin at the ECB itself because they give this block reward to a handful of commercial banks who are cushioned and thus have no profit incentive to distribute it where it is needed, and have no incentive because they keep getting pumped with block rewards which they mainly keep for themselves with just 4 banks and just in US making $120 billion in profits last year.
That’s a huge amount of money taken from potential innovators and value creators and sent to those that have far too much money already to the point they don’t even know what to do with it.
Meaning regardless of whether the bailout was right or wrong, what is indisputable is the communistic effects of it, and thus the solution is not less capitalism, but more capitalism for all, not just for the rich.