The 4% Non-Solution

Kenneth Rogoff

JUN 5, 2014
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Newsart for The 4% Non-Solution


PARISFor some time now, there has been concern that central bankers have “run out of bullets.” Having lowered their policy rates to near zero, they have engaged in increasingly extravagant measures such as “quantitative easing” and “forward guidance.” Given the fog cast over real economic activity by the financial crisis, it is difficult to offer a definitive assessment of just how well or badly those measures have worked. But it is clear that there must be a better way to do things.

There is no longer any reason to let the zero bound on nominal interest rates continue to hamper monetary policy. A simple and elegant solution is to phase in a switchover to a fully electronic currency, where paying interest, positive or negative, requires only the push of a button. And with paper money particularly large-denomination notesarguably doing more harm than good, currency modernization is long overdue. Using an electronic currency, central banks could continue to stabilize inflation exactly as they do now. (Citigroup’s chief economist, Willem Buiter, has suggested numerous ways to address the constraint of paper currency, but eliminating it is the easiest.)

A second, less elegant idea is to have central banks simply raise their target inflation rates from today’s norm of 2% to a higher but still moderate level of 4%. The idea of permanently raising inflation targets to 4% was first proposed in an interesting and insightful paper led by IMF chief economist Olivier Blanchard, and has been endorsed by a number of other academics, including, most recently, Paul Krugman. Unfortunately, the problem of making a smooth and convincing transition to the new target is perhaps insurmountable.

When Blanchard first proposed his idea, I was intrigued but skeptical. Mind you, two years previously, at the outset of the financial crisis, I suggested raising inflation to 4% or more for a period of a few years to deflate the debt overhang and accelerate wage adjustment. But there is a world of difference between temporarily raising inflation to address a crisis and unhinging long-term expectations.

After two decades of telling the public that 2% inflation is Nirvana, central bankers would baffle people were they to announce that they had changed their minds – and not in some minor way, but completely. Just recall the market’staper tantrums” in May 2013, when then-Fed Chairman Ben Bernanke suggested a far more modest turn in monetary policy. People might well ask why, if central bankers can change their long-term target from 2% to 4%, they could not later decide that it should be 5% or 6%?

Given the likelihood of a confused, mistrustful public, it is hard to find any deep rationale for a 4% target. At least the existing 2% inflation target stands for something, because central bankers can portray it as the moral equivalent of zero. (Most experts believe that a true welfare-based price index would show significantly lower inflation than government inflation statistics indicate, because official data fail to capture the benefits of the constant flow of new goods into the economy.)

There is an analogy to the problems countries faced when they tried to re-establish the gold standard after World War I. Until the war, money was backed by gold and could be redeemed at a fixed rate. Though the system was highly vulnerable to bank runs and there was little scope for a monetary stabilization policy, people’s confidence in the system enabled it to anchor expectations.

Unfortunately, the system completely collapsed after the war broke out in August 1914. Revenue-desperate combatants were forced to turn to inflation finance. They could not simultaneously debase the currency and back it with gold at a fixed rate.

After the war, as things settled down, governments tried to return to gold, partly as a symbol of a return to normalcy. But the revived inter-war gold standard ultimately fell apart, in no small part because it was impossible to rebuild public trust. A move by central banks to a long-term 4% inflation target risks triggering the same dynamic.

Fortunately, there is a much better way. Moving to an electronic government currency would not require a destabilizing change in the inflation target. Minor technical issues could easily be ironed out. For example, ordinary citizens could be allowed zero-interest-transactions balances (up to a limit). Presumably, nominal interest rates would move into negative territory only in response to a deep deflationary crisis.

But when such a crisis does occur, central banks could power out of it far more quickly than is possible today. And, as I have argued elsewhere, governments have long been penny-wise and pound-foolish to provide large-denomination notes, given that a large share are used in the underground economy and to finance illegal activities. Moving to a twenty-first-century currency system would make it far simpler to move to a twenty-first-century central-banking regime as well.


Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. His most recent book, co-authored with Carmen M. Reinhart, is This Time is Different: Eight Centuries of Financial Folly.


Draghi has yet to banish the threat of deflation

Stephen King

June 5, 2014


He gave the markets what they wanted but did the markets want enough? Mario Draghi has already succeeded in rescuing the euro from imminent collapse by promising to dowhatever it takes”. Will the latest set of monetary measures be enough, however, to rescue the eurozone from imminent deflation?


Thursday’s announcements, while welcome, suggest the European Central Bank may not yet be fully engaged with the fight against the possibility of falling prices. Long-term refinancing operations (LTROs) were first introduced in 2008 and extended considerably in 2011. They’ve now been extended again, with a particular emphasis on kick-starting lending to companies. So far, however, LTROs have done nothing to prevent a seemingly relentless deflationary process. More of the same doesn’t sound like a recipe for success.

Cutting interest rates was a no-brainer – and the (possibly ineffective) introduction of a negative deposit rate was widely expected – but, as Mr Draghi indicated, the ECB has, to all intents and purposes, now reached the zero rate bound. Purchases of asset-backed securities remain in the planning stages while the really big bazookaoutright purchases of government bonds through quantitative easing – is still waiting in the wings.
Mr Draghi is relying on his reputation as the man who willdo whatever it takes” to lift market sentiment.

There is a risky Wizard of Oz quality to this approach. It works so long as we believe it works. If we stop believing, it fails. The acid test will not be Toto the dog but, instead, the path for inflation in coming months.

The ECB has revised down its inflation forecast for the next three years but is still persuaded that inflation will rise from current rates to an average of 1.4 per cent in 2016. That’s not exactly high. It is, however, a lot higher than the current 0.5 per cent rate. If, instead, inflation continues to fall, the ECB will be in trouble.

That possibility cannot be ruled out. After all, the ECB’s recent forecasting record has not been particularly wonderful, partly as a consequence of a stronger than expected currency (itself a result of Mr Draghi’s earlierwhatever it takescommitment). So one test of success lies with the performance of the euro in coming months.

First signs were encouraging, to the extent that the euro initially dropped sharply following Thursday’s announcements (although it ended up on the day in Europe). We already know from the UK experience in 2008/09 and Japan’s in 2012/13 that the expectation of imminent quantitative easing can drive the currency lower, push up import prices and trigger an increase in headline inflation. Mr Draghi will presumably be hoping that the hint of more actions to come will be enough to drive down the euro, setting in train a similar process.

While the approach has its attractions, there are also considerable risks. A big drop in the euro may only serve to export the eurozone’s deflation to other parts of the world in a monetary version of “beggar-thy-neighbour”. While higher import prices may lead to higher headline inflation, there is no guarantee that growth will pick up: both the UK and Japan discovered that higher inflation simply eroded real household incomes.

And even early enthusiasts for quantitative easing (the US and UK) have more recently ended up with much lower-than-expected rates of inflation. In a world where companies, households and governments are engaged in deleveraging, and where banks are in some cases short of capital, monetary policyconventional or otherwise – has its limits.

Stating that deflation will be avoided is one thing, making sure it will be avoided is another thing altogether. It’s too easy to forget that, in the mid-1990s, most economists thought Japan was about to embark on a modest but sustained economic recovery consistent with growth of around 3 per cent per year and inflation at around 2 per cent. They were totally wrong. They failed to understand that, at the zero rate bound, persistent declines in inflation have costly economic consequences: higher real interest rates, higher real debt levels, more aggressive deleveraging and more and more non-performing loans. Under those circumstances, the credit system freezes, bond yields drop and the economy stagnates. Conditions in the Eurozone are eerily similar. As with 1990s Japan, deflation remains a big risk partly because no one is prepared to admit it could really happen.


4 June 2014, 19:05

Bilderbergers aim for the end game in Russia - expert


Bilderbergers aim for the end game in Russia - expert


Yet, the real decision makers were discussing the issue several days back at the 60th Bilderberg conference – a media-shy annual event, held in Copenhagen last weekend. So what are the plans, carved out by the Bilderbergers? The Voice of Russia is getting an insight into the discussion at one of most secretive gatherings in the world, together with Daniel Estulin, political analyst and journalist with a special focus on Bilderberg policies.

I think their position is very clear from their final objective and, their final objective, obviously, is the end game in Russia. Until Russia can be subjugated, you will not be able to have one world government, one world order, one World Company Ltd call it whatever you want.

So, what we are seeing right now it is not only in Ukraine, but all around the world. We see it in Detroit how not only the city itself, but the USA is being deindustrialized on purpose. We see it in Karakas in Venezuela. We see it in Thailand. We saw it in the Soviet Union back in the 1990’es. We saw it in Yugoslavia back in the 1990’es.

It is the idea of destruction, deindustrialization, zero growth. Again, the end game is Russia and until you can subjugate Russia, one way or another, you are not going to have your one World Company Ltd, one world government. And this is basically what is behind all of these attempts.

And this actually goes back even before the WWII, except for that the Soviet Union won that war and didn’t allow the Nazi and consequently the elite take over the territory and the natural resources, something that they tried to do very-very hard during the dark period in the 1990’es with Yeltsin in power. And they almost succeeded until Putin came into power and made a very strong push back and put things at place.

Why are they talking about Russia? China seems to be a more likely enemy in the long run.


One of the key issues discussed this year at the Bilderberg conference is the fact that the European and American Bilderbergers for the first time in many years, since 2002 were actually in disagreement and were somewhat at each other’s throat. The European Bilderbergers were saying to the American delegation – you wanted us to impose sanctions, we did and now the Russians made a deal with the Chinese.

Somebody has forgot to lock the back door and now we have the Chinese and the Russians signing this enormous gas deal worth about $400 billion knowing that the nightmare scenario for the Bilderbergers, for the Western elite, is the fact that the Chinese, the Russians and now the Iranians are working closely together, and will be working closely together. This deal that the Russians signed with the Chinese will help Kremlin reduce Russia’s reliance on gas exports to Europe. And it’s proved that Putin has allies when he seeks to blunt these Western sanctions over Ukraine.

Some of the other things discussed as far as Russia and China are concerned is that both Russia and China want to assert themselves as regional powers. Both have increasingly strained relations with America, which helped them to join forces this particular way.

That said, as the American Bilderbergers reminded the rest at this year’s conference in Copenhagen, for 40 years Richard Nixon, Kissinger persuaded China to turn against the Soviet Union and ally with America. And so, there are a lot of questions asked, rhetorical questions at the Bilderberg conferences, that today’s collaboration between Russia and China amounts to a new alliance against America.

And to a certain degree they agreed that it does, but then, they also said that a silver line that they can actually see is the fact that the Russian elites can be split as a force. For example, one of the things that the Bilderbergers agreed on is that the Western banks become more reluctant to extend loans to Russia. Russia will get loans from the Chinese banks and there will show the gap.

There is another important element to keep in mind, that despite all of this Russia and China will struggle to overcome some fundamental differences. And we can see the fact that the gas deal itself, as Bilderbergers said at the conference, it took ten years to make and the deal was announced the last minute. So, how hard it was to reach an agreement?

And the European Bilderbergers from their sources were saying that the Chinese basically drove a hard bargain and got an upper hand in the deal, because Putin was desperate to reach this agreement.

There is also another element, as far as the Chinese-Russian relations where China has the upper hand, the Chinese are not only getting gas from Russia, they are getting it now from Australia and Central Asia. And when the China’s global power is growing, the Bilderbergers agreed that Russia is decline corroded by corruption and also unable to diversify its economy away from the natural resources.

These are some of the conclusions at the Bilderberg conference.

Another thing that the Bilderbergers are willing to do is actually play the Chinese against the Russians. They said that the Chinese Government will expect the Kremlin to recognize this historic shift in power, which is a recipe for Chinese impatience and also Russia’s resentment.

And while the two countries are untied against America, they also need a stabilizing influence. Needless to say, the Russians and the Chinese are tussling for an important Central Asia. You know, they have this enormous border. On the one side it is heavily populated by the Chinese who have no natural resources. And on the other side you have partially populated Russian part of the border with enormous quantity of commodities.

That is something that the Russians obviously need to keep in mind. And as one American at the Bilderberg saiddespite the fact that the Russians and the Chinese have made this agreement, it will be very easy to sabotage the actual outflow of gas.

He reminded Bilderbergers that many of Russia’s tactical nuclear weapons are still pointed at China. And in the long run, the Russians and the Chinese are just as likely to fallout, according to Bilderberger, as to form an alliance.

So, expect in the near future the American and the European oligarchies and governments firmly stand behind the Chinese against the Russians.

So, what is your forecast? What kind of tactics will the Bilderbergers chose vis-à-vis Russia? Is it going to be military tactics? Is it going to be financial tactics, economic or what? And the second question is – do you think that they will succeed in breaking the cooperation between Russia and China?

It will be difficult to do that, because both understand that the common enemy is the US, the common enemy if the Western oligarchy. And even if the Chinese decide to join the Americans temporarily, they understand that these are marriages of convenience and in the long run they will lose.

So, I don’t think so. I think the Chinese and the Russians, these are the civilizations on the ground for too long and they have a very strong historical tradition in diplomacy. So, to think that the Americans can actually convince the Russians or the Chinese to break this alliance in favour of something ephemeral, I think it is going to be very-very difficult to do.

I have a very difficult time believing that the Russians or the Chinese are going to jump the gun as far as military actions are concerned. They understand what the stakes are, because the next war, if there is a war, is not going to be fought with tactical weapons, it is going to be a thermonuclear war, which very well could be the end of civilization.

But what is absolutely true, is what we are seeing today (and this is, again, part of a very important element discussed at the Bilderberger conference), not only Russia-China alliance, the Ukraine’s situation, but the fact that we are seeing this rise of nationalism. Some mainstream media calls it extremism.

Marine Le Pen in France and Nigel Farage from the UKIP in England, they are not extremists at all. But we are looking at actually, and this is one of the reasons why the EU and the oligarchs on the world stage are very concerned, because we are looking at two different systems in place. One is a monetary system and the other one is a national credit system.

And whichever system wins or gets the upper hand, is the way the world is going to be run. Today the world is run by monetary system. If you are smart, you don’t want the monetary system to run the world, you want sovereign nation states to have their own credit system, which is in their currency.

And above all, it is the possibility of productive noninflationary credit creation by the state, which was stated in the American constitution and was exactly for that reason excluded by Maastricht, as a method of determining economic and financial policies.

In Europe this can’t be done, because in Europe the governments are subjected to control of private banking interests called independent banking system. And these institutions, they literally have the power to regulate governments and to dictate terms to governments. So, if you actually think about it, you are looking at the European Central Bank and the people at the Central Bank unelected by anyone in the world dictating terms to governments.

But there is no government, there is no nation, it is a group of nations run by a private bank. And it is insanity to belong to this system. And the idea is, what we are seeing right now with these particular private financial interests, basically, it grew up historically in Europe, it’s been installed this system as an authoritative instrument of Western economic policy of sovereign governments oriented towards the general welfare.

The European banking is a remnant of this feudal society in which private interests are still fought by the ancient Venetian cartels or by the Lombard League, which went down in the Dark Ages, in the 14th century when we had the first big financial collapse in 1345.

The bubble which is about to burst is much bigger than the 1345 bubble, which destroyed most of Europe, killed half of the population as a result of the bubonic plague. And what we are seeing right now is something far worse.

And needless to say that monetary crisis we are seeing right now on the world stage, it is the reflection of the insanity imposed upon a process of destroying the physical economy of the world, because, again, the idea is that progress and development is directly proportional to population density.

So, you have technology, you have progress, you have wealth and you are going to have more people on the planet. And if you are the elite, you don’t need more people, you don’t need 10-20 or 30 billion people, because there is not enough food and water for everybody.

If you are the elite, the 1% of the world, you need to destroy the population or reduce it. And the way to do it is destroying the world’s economy. And Detroit is a great example of this destruction. This is the poster child for the world economy.

We are seeing the same in Latin America, we are seeing the same in Ukraine, we are seeing the same in Thailand, and we saw the same back in the 1990’es when they split up the Soviet Union and Yugoslavia. So, again, what we are seeing right now in the world stage, and Ukraine is just a symptom of this, is just another piece, it is not the end game, the end game is Russia and until you destroy all the systems around it and you can actually send Russia to hell in handbasket, in order to be able to control the nation.

And until they do that, they will keep pushing any way they can, which is why it is so important that the Russian and the Chinese keep their alliance strong and understand that their common interests are far greater than anything else they can get temporarily from the Western powers.


Daniel Estulin (Vilna, Lituania, ex Unión Soviética; 29 de agosto de 1966) es escritor, investigador y orador ruso. Hijo de padre científico y madre pianista, trabajó como agente de contraespionaje del Servicio Federal de Seguridad (FSB), la agencia de inteligencia rusa. Habla ruso, inglés y español. Como investigador ha centrado sus estudios en torno al Club BilderbergAfirma ser «un ruso expatriado, expulsado de la URSS en 1980», y que su padre fue un disidente que luchó por la libertad de expresión. Reside en Madrid, la capital de España.
Tiene su propio espacio televisivo en la cadena de televisión RT, dirigido en español a todo el mercado hispanoamericano.