• 17 hours Is This The Big Biotech Bust?
  • 23 hours Funding Is The Biggest Hurdle For Clean Energy
  • 2 days Walmart Reaches Out To Chilean Government For Protection
  • 2 days The Most Exciting Gold Find Of The Decade
  • 2 days Mining Boom Sparks Deforestation Concerns
  • 3 days The Cannabis Culling Has Wall Street Disappointed
  • 3 days Vigilante Offers $100,000 Bounty To Hack Banks
  • 4 days The Dairy Industry Is Dying
  • 4 days The Most Impressive Electric Vehicle Of The Year
  • 5 days Gold Miners Are Having A Stellar Second Half
  • 6 days How 3D Printing Is Turning Each And Every Industry On Its Head
  • 6 days Is The $3.5 Trillion Healthcare Industry About To Get Much More Transparent?
  • 7 days Gamblers Are Betting Big On Trump’s Impeachment
  • 7 days Even Banks Can't Answer Aramco's Trillion Dollar Question
  • 8 days Will Bezos Buy The Seattle Seahawks?
  • 8 days 6 Tech Trends Transforming The Travel Industry
  • 9 days Ousted Uber CEO Cashes Out $500 Million In Stock
  • 9 days Trump Prepares For Another Key Tariff Decision
  • 9 days The Free Money Bubble Is About To Burst
  • 10 days The Crushing Reality Of Poverty In America
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

John Rubino

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners…

Contact Author

  1. Home
  2. Markets
  3. Other

Europe Admits QE Has Failed, Promises More Of It

New Age monetary policy has begun to resemble the form of insanity in which a patient repeats the same behavior while expecting a different outcome.

Throughout the developed world, interest rates are at record lows and central banks continue to pump out newly-created currency. Yet growth remains tepid, inflation is nonexistent and debt of every type continues to mount. And instead of recognizing that somewhere in their guiding theory lurks a fatal flaw, governments and central banks just keep upping the ante. Today it was Europe, where central banks have been expanding their balance sheets (i.e. running the printing presses) aggressively...

EU Central Bank Balance Sheet

...and forcing down interest rates...

German 2-Year

...to no avail. Europe's inflation rate has been falling all year...

EU Inflation Rate

... and GDP growth remains below 1% annualized. That's nowhere near fast enough to keep up with the accumulation of government debt and unfunded liabilities. The hole in which the EU found itself during the Great Recession keeps getting deeper despite ZIRP and QE.

EU GDP Growth Rate

So what does the European Central Bank do? It promises even easier money:

Mario Draghi: ECB prepared to cut interest rates and expand QE

(Guardian) - Mario Draghi, the president of the European Central Bank, has stunned markets by signalling that he is prepared to cut interest rates and step up quantitative easing to stave off the risk of a renewed economic slump in the eurozone.

The value of the single currency dropped sharply on foreign exchanges on Thursday as Draghi announced that the ECB's governing council had discussed expanding its €1.1tn (£795bn) bond-buying programme and cutting the rate on reserves held at the central bank.

This "discount rate" is already negative, at -0.2%, meaning banks effectively have to pay the ECB for holding their reserves - a measure aimed at keeping money flowing around the economy.

Speaking after the ECB's latest policy meeting in Malta, Draghi revealed that some members of the governing council had favoured taking more action to stimulate the economy immediately. He blamed the slowdown in emerging markets, including China, for renewed weakness in the eurozone.

"While euro area domestic demand remains resilient, concerns over growth prospects in emerging markets and possible repercussions for the economy from developments in financial and commodity markets continue to signal downside risks to the outlook for growth and inflation," he said in his opening statement.

Draghi said the ECB could also step up the scale of QE. A decision is likely to be made at the December meeting of its governing council, when its latest economic forecasts will be available. As Draghi spoke, the euro dropped by 1.5 cents against the dollar, to $1.117.

"The governing council is willing and able to act by using all the instruments available within its mandate, if warranted, in order to maintain an appropriate degree of monetary accommodation," Draghi said.

The dollar spiked as the euro tanked, of course, adding to the headwinds that have caused a brutal corporate earnings season -- and the emerging market/commodities complex turmoil Draghi blamed for tepid European growth. For those seeking QE's fatal flaw, that would be a good place to start.

 

Back to homepage

Leave a comment

Leave a comment