Is 1.2 Trillion Euros The Right Answer To The Wrong Question?
London, UK - 23rd January 2015, 12:25 GMT
Good News Or Bad News?
Once upon a time something good happened for Europe. The price of oil went down dramatically. When the oil price halved in the last months of 2014, there was no way for the European Central Bank (ECB) to fulfill its mandate of keeping price growth close to 2 percent a year. The ECB painted itself into a corner by targeting headline inflation, not core inflation, which excludes food and energy. Left with no choice, the ECB announced on 22nd January 2015 that it would begin printing digital money in large quantities, ie, start Quantitative Easing or QE in the near future. Contrary to popular myth, QE doesn't fight 'deflation', it rather causes it by keeping zombie banks alive. Why? Quantitative easing simply buries money in commercial bank vaults, by bolstering their balance sheets, when it is cash in circulation that is desperately needed.
What Can QE Achieve?
What does the ECB's 60 billion euros per month of bond buying, or 1.2 trillion euros in total between March 2015 and September 2016, hope to achieve? QE from the ECB won't accelerate the euro zone economy in any significant way. The ECB initiative risks delivering too little, too late, leaving the bloc struggling to grow and afflicted by deflation. Euro zone QE has already come too late to lift the region off the reefs on its own. The most dangerous challenge for the euro and the European project is not deflation but the policy of 'real', as opposed to 'perceived' austerity, which is killing growth and employment. Further, this spawns fringe political parties and movements that seek to exit from Europe altogether.
Right Answer, Wrong Question?
So, why is euro QE the right answer to the wrong question?
Read the full briefing at ATCA 5000.com
What are your thoughts, observations and views? We are keen to listen and to learn.
D K Matai
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