The Basis Behind The Forming ECB ‘Pause’

Persistently negative money rates are an enormously bad signal; there is no stimulus indicated here, and the last thing anyone should associate this stuff with is money printing. It’s all a third-rate magic trick designed purposefully to get you (you as in Europeans) to believe that something positive had happened. Because it is so complex and (purposefully) convoluted, you shouldn’t ask any questions about exactly what this positive things was, so just take Draghi’s word for it.

Economists put this all together in a statistical model and it works great. Expectations policy is supremely effective in academia when the variable it is assigned on the spreadsheet comes prefilled with a big positive number. Banks operating in the actual economy periodically reminded of their own survival instincts, not so much.

In the real world you actually have to fix what’s wrong; trying to convince the world nothing is wrong can’t possibly succeed. Unsurprisingly, it hasn’t.

Milton Friedman had it exactly right. What we are seeing with so much uncertainty and Germany’s (or Japan, China, and around the edges of the US’s) stumbling economy is what I wrote a couple days ago:

It isn’t that the economy can’t manage slightly higher rates, rather the economy represented by low rates is prone to falling back again long before policy rates can get very far.

In Europe’s case, it is increasingly likely the ECB isn’t even going to get them off zero. QE was a failure but more than that it wasted so many years of everyone’s time, time that Europe more than anywhere could ill-afford. Populists in Italy, Brexiters in England, Yellow Vests in France, and Merkel on the ropes. This is QE’s real European legacy.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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