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Disasters Can Happen

Experience the Magic of Unconventional Instruments

LiesBy MN Gordon

Economic Prism

One of the pleasures of living in a postmodern world is witnessing the incoherent monetary policy efforts of central bankers. It’s like watching a child chase seagulls at the beach. There’s a lot of movement with no purpose or accomplishment.

Nonetheless, observing the central bankers of the world go about their business makes one unsettling thing clear. They are making it up as they go. They have no intelligible principle…except to recklessly inflate the money supply to fight off the economic boogeymen of unemployment, deflation, and falling asset prices.

Just think of all the fun you’d be missing out on if you were born at practically any other period of human history? Zero interest rate policy. Operation twist. Quantitative easing – the equivalent of using adhesive tape to control diarrhea.

Certainly, these frauds are galling. Yet they are also instructive. They serve as examples that our leaders are liars and grifters.

You should never trust them. Especially, with your money. They’ll promise a bouquet of fresh roses and leave you with a box of rotten eggs. As for the world’s monetary policy wizards, here’s the latest act…

Believing in the Efficacy of a Fraud

The Federal Reserve just finished tapering back its quantitative easing. The Bank of Japan just doubled down on its own money creation efforts. Now it’s the European Central Bank’s turn to trip all over itself.

What follows is an objective appraisal of the current crossroads the ECB stands at. Though it is of honest intention, it is clearly lacking in proper perspective. The Financial Times writer believes central bankers can somehow make things better by printing money and buying government debt. In other words, they believe in the efficacy of a fraud.

“Last week, only days after the US Federal Reserve called time on its version of quantitative easing, the BoJ sent a stunning reminder to investors that other central banks remain in easing mode.

“The Fed’s decision to deviate from its counterparts in Japan and the Eurozone after years of aggressive monetary easing has already helped the ECB’s policy makers, weakening the euro to a fresh two-year low of $1.25 on Monday.

“But an unexpected fall in Eurozone core inflation, a measure which excludes more volatile items such as food and energy prices, has bolstered calls for the ECB to follow Tokyo’s lead and act boldly by buying long-term government bonds.”

Experience the Magic of Unconventional Instruments

Yesterday the brain trust at the ECB heeded the call and prevaricated. The governing council gazed upon the world around them. Would they follow their counterparts in Washington or Tokyo? In the end, they did neither…

“The governing council is unanimous in its commitment to using additional unconventional instruments within its mandate,” said ECB President Mario Draghi.

However, Draghi didn’t say what these unconventional instruments would be. Perhaps it’s because he doesn’t know. Or perhaps it’s because unconventional instruments is code for the only possible option…

The magic of printing money and buying government debt.

At some point Draghi will be forced to make good on his governing council’s unanimous commitment. Before long, the Federal Reserve will be back at it too.

[MN Gordon (send him email) is the editor of the Economic Prism. Visit Economic Prism. The Economic Prism is published by Direct Expressions LLC. Subscribe Today to the Economic Prism E-Newsletter at http://www.economicprismletter.com]

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