What The Hell Is The ECB Doing?

Danielle DiMartino poses an interesting question regarding the ECB. I have a set of answers.

What is the ECB Doing?

I started thinking about that question weeks ago.

I have a set of answers and even started writing this post before DiMartino brought it to the forefront.

There are only two answers. One of them is very unsettling.

  1. Ignorance
  2. On Purpose

Occam's Razor

Occam's razor is a principle from philosophy. Suppose there exists two explanations for an occurrence. In this case the one that requires the least amount of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation.

Occam's Razor typically eliminates most conspiracy theories. It's not that conspiracies don't happen, but that simpler solutions are far more likely.

My corollary to the theory is very easy to understand: If stupidity is one of the possible answers, it is the most likely answer.

I am normally a big fan of Occam's Razor.

But this is so bizarre that I have my doubts.

Importantly, this may not be a conspiracy at all. Mario Draghi can easily be acting alone.

My Lead Question

How stupid can things get before one starts believing something else is in play?

I had already been thinking about that question when not only did ECB president Mario Draghi further push interest rates into negative territory but he also said it was a good idea for the ECB to think about MMT.

Shocking ECB Dissent

Dissent at the Fed happens all the time. It is rare at the ECB. The ECB builds a consensus and it is typically unanimous.

Question on Deutsche Bank and Commerzbank

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Gary Anderson 1 year ago Contributor's comment

This is the old Kocherlakota plan. Do #MMT. Draghi wants to make Germany invincible and do #MMT. I wrote about the plan. Germany has such a surplus it may not fear its bad banks. Therefore it gives the ECB a long leash. talkmarkets.com/.../draghi-and-germany-have-a-secret-plan-to-save-the-eurozone

Black Widow 1 year ago Member's comment

That's from 3.5 years ago Gary. Is there anything you'd change about what you wrote between then and now?

Gary Anderson 1 year ago Contributor's comment

Absolutely. The article contains a mistake. Kocherlakota wanted a decline in rates, using the windfall from negative rates to fund #MMT! I implied that he wanted an increase in rates. I don't believe I was correct. Notice that Trump wants negative rates, wanting China to pay interest to us! Draghi seems to be doing this for Germany. So, I believe Germany is strong enough to bail out German banks. German banks put up with negative rates. American banks seemed opposed to negative rates. Perhaps they don't completely believe that America has their backs!

Bill Johnson 1 year ago Member's comment

Great article as always, Mish. Not sure what Draghi is thinking.