Saving Jobs Won’t Save Us From Jaws

Mario Draghi’s sunset retirement festivities weren’t supposed to have gone off this way. Celebrated for his July 2012 “promise” to save the euro, he instead spent the entirety of his eight years as President of the ECB chasing inflation and recovery, the very things meant to accomplish the euro’s saving, without success. By the end, his final act in September 2019 was to restart QE all over again, putting him like Europe right back at the start.

It’s why, when it comes to “stimulus” like QE, the goalposts must always be moved. Such “massive” monetary “accommodation” in theory produced so little in economic reality it’s judged mostly by the jobs the program allegedly “saves”. This is true everywhere it’s ever been tried, which is pretty much the entire planet. In other words, Economists think it worked, but because it didn’t, they suspiciously carve out a slice just underneath and claim that surely without QE or its ilk, as bad as things are, they would’ve been even worse.

So when the ECB went back to QE in September last year with the whole global economy facing another “unexpected” downturn, it was a ridiculous proposition. Europe as a whole had been shuffled in the recessionary direction the entire time QE had been in place during 2018. What real difference would restarting it make?

As I wrote at the time, the Jaws analogy seemed appropriate:

What must the angry class of Europeans think? This is “their” big solution, the establishment will reward and promote the person who has been the face of the biggest financial disaster in the IMF’s history. And her first semi-official act is to, channeling fictional Amity Island’s fictional police chief Martin Brody, recoil in horror at the size and danger of the economic shark circling their shared vessel and plead with European authorities for a bigger boat.

Always more. Why? Because it never works, Europe’s pre-COVID slide right into recession another proof for this fact. September 2019’s QE restart did nothing to prevent the ultimate contraction.

Having suffered amplified pressures from shutdowns related to overreacting to COVID, things are, obviously, materially worse now than last year around this same time. And yet, what are European officials offering in the wake of even more devastating economic losses? Not even a bigger boat.

That’s the thing about QE’s; they are supposed to dazzle you with particularly their size. But if you shift your viewpoint sideways just a little, you witness how from any other perspective the boat’s not any bigger at all. It’s all an illusion.

Christine Lagarde’s ECB, the face of the IMF’s biggest financial disaster (Argentina 2018), has put the central bank’s figurative foot to the even more figurative pedal. As of the latest weekly figures, Europe’s central bank has created €2.91 trillion in bank reserves posted to the official “current” account in addition to the €594 billion stuck in the “deposit” account punishing (NIRP) banks doing QE business with it.

Those bank reserve balances derive from the purchase activity (asset swap, not money printing) of the ECB’s two major QE-type programs, the PSPP (the original QE begun in April 2015) and the new-ish PEPP (the pandemic response version begun earlier this year). The first has purchased a net €2.3 trillion in bonds while the latter has bumped just shy of €700 billion.

No matter what size, doing more QE or the like is the same boat too small to successfully wrestle Bruce from eating the vessel’s human contents. The ECB, like Chief Brody, is hoping for a one-in-a-billion deus ex machina to save Europe; only there aren’t any volatile oxygen containers conveniently placed perfect so as to drop right in and stick within the shark’s gaping mouth-hole. Until its stumbling, bumbling policymakers discover this, well, there’ll be plenty of jobs to save in the meantime.

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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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