Draghi on the Firewall

A couple of days ago, Mario Draghi welcomed the mooted increase in the Eurozone’s firewall. He said that “no single institution can carry the burden of addressing a set of challenges that are simultaneously economic, financial and fiscal,” and that “the current stabilisation should not make us pause in our responses;” i.e. governments: don’t think you can rely on the ECB now that things have quietened down. This is not a change, but it is an important reminder that, despite its change of president, the ECB will still only act if it things that governments are moving towards fiscal responses to Europe’s problems. I think it would be prepared, if necessary, to assume the whole liability side of the balance sheet of the European banking system, and that it would continue to fund balance-of-payments imbalances indefinitely; but it does not want to do those things. That is why it held off from its latest crisis response until the fiscal authorities had moved. As I have said before, one thing that could therefore kick off another crisis episode in the Eurozone would be some lapse in the fiscal authorities’ commitment to fiscal solutions, because that might cause the ECB to hold off from further crisis-fighting measures until the fiscal authorities came back into line.

The Wrong Motivation

Bloomberg has a story (http://bloom.bg/Hi4lob) about a successful hedge-fund manager. In it, the manager explains his motivation: “As a 10-year-old boy, [the manager] got advice after his father’s death from cancer that drives him to this day. “My mother told me then, ‘Don’t let anyone look down on you just because your father died,’” he said in an interview in his office in Singapore, where he was born and raised. “Her words spurred me on and made me determined not to give anyone a reason to pity me for having lost my dad at a young age.””

This is a dreadful reason for doing anything, for two reasons.

  1. It provides no downside protection. Half of everything is luck. What if this manager had failed to make money? He would feel a failure, and think that everyone did “pity him” for his father’s death. This manager has gambled his happiness on something beyond his control. A much better approach is to rest your happiness on things that you can control. Marcus Aurelius (http://amzn.to/GXtnwR) and Seneca (http://amzn.to/GXtoku), I think, provide the best introduction to how to do this. Incidentally, the manager’s attitude is an example of a tendency in modern culture to take one’s emotions as primary and to live one’s life in an attempt to satisfy them. The idea that emotions can be changed seems astonishing to many people. This attitude is nothing more or less than a rejection of the idea that it is possible, through work and thought, to become a better person, and I thoroughly dislike it.
  2. It is selfish. The article suggests that the manager’s whole life has been devoted to a self-centred (and childish) desire not to be “pitied”. The way to live a good life is to focus on trying to help other people, not yourself.


  • UK CBI realised sales 0 b.e. Mar.
  • Case-Shiller -3.8% a.e.
  • CB consumer confidence 70.2 a.e. and fell.
  • Eurozone M3 2.8% YOY b.e. Feb. On the high side post-crisis but still very low.
  • Eurozone private loans 0.7% YOY d.e. Feb. Falling trend, and this number is very weak.
  • UK current account -8.5bn a.e. Q4.
  • UK final GDP -0.3% Q4 vs. -0.2%e.
  • UK revised business investment -3.3% Q4 vs. -5.4%e.
  • China industrial profits -5.2% YTD/Y d.e. Further evidence of the reality of the Chinese slowdown.

Coming Up

  • Durable goods orders
  • Crude inventories
  • Japan retail sales
  • German employment data
  • BoE credit conditinos and lending