A Bloomberg editorial on what the ECB needs to do is rather amusing. The article headline, albeit true in and of itself, contradicts the body of the article. Let's take a look.
ECB Cannot Save Europe
The Bloomberg editorial board says Not Even Mario Draghi Can Save Europe Now.
I certainly agree with that title. Had that been the entire article in and of itself, I would have said "the Bloomberg editorial board gets it".
Unfortunately, the editors didn't stop with the headline. Instead the editors proposed "The ECB needs to surprise financial markets with a bigger-than-expected announcement."
It gets better ...
The board says Draghi should go for outright shock and awe. .... He could say that monetary policy, as he understands it, includes the option of "helicopter money" -- and that the bank would shortly begin sending out checks to every EU citizen.
Such a scheme would be illegal of course. But hey, that's no problem.
Legal or not, helicopter money would be a frontal repudiation of the monetary conservatism that Germany's government and others have sought to impose on the bank.
Not even Draghi can save Europe, but let's do illegal things anyway to prove it. Wow.
Eurozone Structural Problems
The problems in Europe are insurmountable, and well understood by many.
- No fiscal union
- Wildly differing social agendas of member states
- Wide variances in productivity
- Wage discrepancies
- Retirement benefit discrepancies
- One size fits all monetary policy
- To make treaty changes every eurozone country must agree
- Target2 imbalances
What the hell good would even €5 trillion in QE do to fix those?
What good would it do if the ECB bought every bond from every country and pushed rates to zero across the board? How would it fix any structural problem?
More QE Will Not Help the World, says Mervyn King
I seldom agree with central bankers, especially when they hold that position. On occasion, however, once outside their official role, they regain some sense of sanity.
For example, More QE will not help the world, says Mervyn King.
More monetary stimulus will not help the world economy return to strong growth, former Bank of England governor Mervyn King said, days before the European Central Bank is expected to decide whether to embark on a massive bond-buying programme.
"We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years ... is the answer doesn't seem (right) to me," he added.
Pettis, Jakobsen Chime In
Saxo Bank chief economist Steen Jakobsen made the claim the other day that QE was actually counterproductive.
Here is Steen's actual statement: "Lower Interest Rates May Reduce Consumption".
That may sound shocking, but his rationale is sound. Michael Pettis at China Financial Markets and Lacy Hunt at Hoisington Management both agreed.
Grand Experiment Failure
I wrote Steen's theory in Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph, a rebuttal to Bloomberg author Barry Ritholtz, also in favor of massive QE.
Instead of repeating myself again, I simply ask the editorial board and Ritholtz to "Read, Then Think!"
Deflation fighting efforts ruined Japan, but somehow deflation fighting is supposed to cure Europe?! It makes no sense. Nonetheless, people believe central bank parroting instead of thinking on their own.
Deflation Fighting Silliness
Let's once again review my Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit"
I also strongly suggest the editorial board review Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices.
For a third take on the insanity of fighting consumer price deflation, please see Deflation Bonanza! (And the Fool's Mission to Stop It).
Problem is Debt
The problem with the global economy in general is debt. You cannot cure a debt-deflation problem via attempts to force more debt into the system. It is axiomatic the cure cannot be the same as the disease.
Bloomberg, please go back to the drawing board.
Next Time .... Think!
The ECB, central bankers in general, the Bloomberg editorial board, Monetarists, and Keynesians, all need to step back and "Think!" about what they are trying to do (and why it cannot possibly work).