Alan C. Posted January 22, 2015 Posted January 22, 2015 Open-ended European QE starts 'with a bang' European Central Bank (ECB) President Mario Draghi announced the launch of an open-ended, expanded monthly 60 billion euro ($70 billion) private and public bond-buying program on Thursday. The long-anticipated introduction of euro zone government bond purchases, which could amount to as much as a trillion euros, will mean the ECB will join the U.S. Federal Reserve, Bank of England and Bank of Japan in launching a quantitative easing (QE) scheme. The program will be open-ended, lasting until at least 2016, Draghi told reporters at his regular media conference on Thursday, and will start in March this year. The hope is that it will boost the region's painfully low inflation rate, which came in at an annual minus 0.2 percent in December. Since when is inflation painfully low? 1
shirgall Posted January 22, 2015 Posted January 22, 2015 Open-ended European QE starts 'with a bang' Since when is inflation painfully low? Since the assertion that 2% inflation is ideal. Ideal for countries that want to diminish the value of their long-term debt, at least.
J. D. Stembal Posted January 22, 2015 Posted January 22, 2015 I find it refreshing that Peter Schiff was wrong about something for once. (He claimed last month that the EU was unlikely to start buying bonds.) In another recent video, he suggests that Canada will be next to join the QE game. Then that leaves the United States in the hotseat for QE4 and who knows when China will unpeg their currency to the dollar.
DaviesMa Posted January 22, 2015 Posted January 22, 2015 I was reading about QE today, very interesting and depressing. Basically it appears to be a tool for economies that can't reduce interest rate anymore and instead pump money in to provide economic growth. I am not a whizz on economics but it seems to be that this will just provide economic growth with a commensurate rate of inflation, meaning that people overall are no better than they were before. It would be interesting if anyone else had a more informed view on this.
Sal9000 Posted January 23, 2015 Posted January 23, 2015 Peter Schiff is the Charlie Brown of Economics and his stance of inflation is the football. Gold is the redheaded girl.
Alan C. Posted January 23, 2015 Author Posted January 23, 2015 It's not real economic growth. It creates the illusion of economic growth by increasing consumption. However, it does this by siphoning wealth surreptitiously from everyone so it's not obvious. Society, in aggregate, becomes poorer. 1
RandR10 Posted January 23, 2015 Posted January 23, 2015 I'm not an economist by training, but from my understanding, QE is a move to buy bonds from private financial institutions in addition to the government bond purchases that the central banks were already doing. It's an effective way of "temporarily" printing new money and using it to buy assets (and keeping interest rates low). They get the funds by electronically creating new dollars that before didn't exist. This in turn causes the money supply to grow. More dollars chasing the same number of assets causes prices to increase and everybody's dollars become worth a little less. QE like the Fed's other bond purchasing programs is sold with the intent to eventually retire the created money as the debt is paid back. People like Peter Schiff question the validity of whether QE could ever be stopped without the government defaulting. I tend to agree with his skepticism. If the government retires those dollars as they're paid back, deflation of the money supply will be occuring, and I believe price deflation will occur as well (we're actually already seeing that in the commodities markets since the Fed began phasing QE out). If that continues to happen, tax receipts will go down. As it sits, the government already needs to keep borrowing to meet its current obligations, and would need to borrow even more just to maintain current levels of spending if deflation were occuring. Considering that they're (the US government that is) on the hook for $100 trillion+ over the coming years due to entitlements in addition to the $18 trillion in debt, they won't be able to handle a reduction in tax revenues any time soon, as that is many multiples of current GDP. So to say the least, they have a huge incentive to keep going, and Europe is now following suit.
Anuojat Posted January 27, 2015 Posted January 27, 2015 So in other words: PANIC! Deflation! and ANYHTING BUT SPENDING CUTS! Dramaaa! *yawn*
Recommended Posts