• ECB Wants Next Stimulus To Be Judged On Quality, Not Quantity

    (Bloomberg) -- European Central Bank policy makers are trying to persuade investors not to focus too much on the size of their next dose of monetary stimulus, hoping they will instead look at its design.


    President Christine Lagarde and colleagues have used a run of public comments to stress that December’s much-anticipated policy decision will aim to cement cheap money for the duration of the economic crisis, achieved through both asset purchases and more loans to banks.

    “What is really important is that we make sure that the financing conditions are stable, are conducive to economic recovery as it comes,” she said at Bloomberg’s New Economy Forum on Tuesday. Economic operators must “not only know that the level of financing is going to be there but that it will be available for a period of time that will last long enough.”

    The emphasis might be an attempt to contain expectations for an out-sized increase in bond purchases beyond the additional 500 billion euros ($594 billion) anticipated by some economists, now that another contraction is materializing with resurgent coronavirus infections and new lockdowns. © Bloomberg Purchase Pace

    Whatever the motivation, Lagarde and her colleagues face a challenge in convincing observers conditioned by the ECB’s regular appetite for unveiling largescale government-debt purchases as a centerpiece of stimulus.

    “They are clearly shooting for a package, and maybe worry that the market will focus on one number,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “They want to be explicit and targeted, and thinking specifically: ‘what you are trying to do?’”

    Policy makers’ broad message is that what is most important about the ECB’s bond purchases are their timespan and deployment, and how they fit into a broader toolkit whose other elements can be even more potent.

    “It’s not so much the overall number that matters,” Philip Lane, the ECB’s chief economist, told Portuguese television this week.

    Recent ECB Remarks “The context for the forthcoming decision in December is not whether we will decide on further additional accommodation in monetary policy, it is rather which instruments, in which scale and duration, will best serve the purpose.” Olli Rehn, Nov. 13“It’s important that we maintain the flexibility in the execution of our program during this longer time frame to avoid problems of financial fragmentation.” Pablo Hernandez de Cos, Nov. 13“We will continue in the same spirit to try to live up to our responsibilities and in the present crisis don’t forget that the toolbox that we have extended was the PEPP and the TLTRO-III.” Yves Mersch, Nov. 16.

    Lane and his colleagues are confronting the limits of their tools. Policy makers have just about ruled out more interest-rate cuts, and while they insist they can always pump more liquidity into markets via asset purchases and bank lending, they’ve also warned such measures risk losing effectiveness.

    In shifting investors’ attention from size to duration, officials might also be trying to avoid past mistakes. In 2015, then-President Mario Draghi fueled hopes before unveiling a package that underwhelmed markets, forcing him to act again just three months later.

    A slow drip-feed for financial markets has already been working. Last week, in the midst of renewed lockdowns, policy makers bought 20 billion euros in bonds without causing alarm. At that pace, the program currently totaling 1.35 trillion euros would require just 500 billion euros more -- almost exactly matching estimates -- to extend it through the end of next year.

    Against the backdrop of an ongoing economic crisis, and memories of the ECB’s initial reticence to calm government bond markets, officials are aware a low-ball approach could incite panic, tightening the very financial conditions they want to keep loose.

    What Bloomberg’s Economics Says...

    “We expect the envelope for the Pandemic Emergency Purchase Program to be expanded by a 450 billion euros, and to run through 2021.”

    -Jamie Rush, Maeva Cousin and David Powell.

    To read the full report, click here.

    While the Governing Council broadly agrees on which tools to use, recent comments suggest a range of views on the most efficient policy mix.

    Executive Board member Isabel Schnabel told CNBC that the potential side effects of ever-longer asset purchases warrant a discussion about their intensity. Estonia’s Madis Muller has argued companies and households would benefit most from another lending initiative, while France’s Francois Villeroy de Galhau said he sees “strong logic” to making support measures last longer.

    Their judgment on the amount of stimulus needed will chiefly depend on the evolution of the pandemic. Stricter lockdowns, as currently discussed in many countries, will likely trigger more debt issuance by governments to finance support measures such as furloughs, which the ECB can hoover up.

    “There are a number of issues they’ll have to bear in mind when deciding the amount of additional purchase, and one is how much issuance you can expect from governments,” said Anatoli Annenkov, economist at Societe Generale SA in London. “They probably want to be close to that number to signal to markets they will be there to absorb extra supply.”

    ECB officials have another two weeks to fine-tune expectations before their traditional quiet period in the run-up to their Dec. 10 decision.

    For more articles like this, please visit us at bloomberg.Com

    ©2020 Bloomberg L.P.

    The Quality Of Polling Is A Symptom Of A Democracy’s Health

    After the opposition instead won by 14, Nicaraguans explained the discrepancy to foreign journalists (I was one). “We acted like El Güegüense,” they said, an allusion to a comical national folk hero known for concealing his true intentions from powerful people through double entrendres and disguises.

    Conditioned by Sandinista surveillance to distrust inquisitive visitors, they had avoided pollsters or given them the government line — then cast secret ballots according to their true wishes.

    Polling did not misfire that badly in the Nov. 3 U.S. Election, but the discrepancies here still may teach an uncomfortably similar lesson.

    Reliable public opinion polling is necessary to, and characteristic of, a healthy democracy. Accurate information about voter sentiment renders society intelligible to elected leaders, and leaders responsive to society.

    When citizens trust one another, and institutions, they feel safe answering questions about politics, even from people they do not know personally — and even when it offers them no tangible personal benefit.

    In the 16th-century Spanish colony that produced the legend of El Güegüense, or the war-torn Marxist-ruled state of 30 years ago, such trust did not exist.

    Social trust, once high, may be breaking down in the United States as polarization grows. Majorities tell pollsters they do not trust fellow citizens to cast informed votes or behave civilly toward those with whom they disagree. Most also do not feel comfortable expressing their opinions about sensitive subjects such as race or Islam except among “people who are like me.”

    Admittedly, these findings are the products of polls! They seem plausible, though, given that the Nov. 3 polling errors were not random, but rather all in the same direction: underestimating support for President Trump and Republican Senate and House candidates.

    A likely explanation for this is that Trump’s voters have lost so much faith in the “system” that they refuse to speak openly about politics with anyone they perceive as its representative, even when assured anonymity. Certainly, the president’s campaign against election “fraud” — both before and after the vote — exploits and magnifies this loss of faith.

    As polling expert David Shor has argued, respondents to live telephone interviews — still a main method for political polls — are significantly likelier than the average American to say that people in general can be trusted.

    Low-trust Americans still vote even if they don’t interact with pollsters; it’s just difficult to predict whether they are “likely” voters, so pollsters cannot “weight” their samples to correct for their reluctance to answer surveys.

    The polls were not completely wrong on Nov. 3. On average, they predicted the national winner — President-elect Joe Biden — as well as the winner of 48 states. Yet polls overstated Biden’s popular-vote margin, and wildly overstated his margin in some states, such as Wisconsin, while substantially understating Trump’s margin in Ohio and Iowa. Polls were even less reliable for Senate and House races.

    All of this, after the polling industry made changes to avoid a repeat of a similar misestimation of Trump’s strength among non-college-educated White voters in 2016.

    The challenge now is to reach people who don’t want to be reached. An intriguing hint may come from the world of online marketing, where New York-based Flatiron Media slipped a Trump vs. Biden question into a late-October unsolicited email survey that asked 35,000 respondents whether they wanted to receive coupons from certain retailers, and offered a chance to win $500 if they participated.

    Company co-founder Sujay Jhaveri supplied the results of this experiment to his friends via an Oct. 30 Facebook post, only to find the next week that they had been remarkably accurate about Trump’s support, anticipating, for example, that he would win Florida and North Carolina.

    Jhaveri’s anecdote raises many methodological questions, but the implication is that low-trust voters might be more forthcoming if approached on nonpolitical terms.

    “It’s probably important,” Jhaveri told me, “that the content of the site is appealing to a mass audience to get a good cross-section of the voting public. What percent of the population doesn’t want to win money today?”

    In the end, restoring the accuracy of polling probably depends on restoring the social basis of open political discourse. And there’s no quick technical fix for that.

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