Central Bank Policy: "It's not working, but it works"
Mario Draghi is the latest central banker to express the policy of, "It's not working, but it works." In the face of slowing Euro economies and increasing deflationary pressure, yesterday Draghi held court:
But getting back to "It's not working, but it works," we should remember that these "stimulus" programs - the latest being QE - do have some impact at first. The question remains whether that initial impact leads to anything permanent. So far, the answer has to be, "No." You and I might take a lesson from this sort of experience and conclude that what hasn't worked - consistently, time and again, over a considerable period of time - likely isn't worth repeating. We might either abandon the effort or try another approach. But rest assured, the continuing results of "no permanent impact" will not dissuade the Draghis of the world. They will continue their same tinkering, over and over again, assuring us that they've got everything under control - until something snaps.
FRANKFURT—European Central Bank President Mario Draghi reasserted the ECB’s readiness to expand its bond purchase program and perhaps enact other measures to combat weak inflation in the eurozone.If you remember, Draghi was the guy who said he would do "whatever it takes" when it came to explaining his policy on bond purchases a/k/a "quantitative easing." That pronouncement sent world stock markets into a jump for joy that lasted more or less until this past August when things became unhinged. After a sharp rally into October, things now look shaky again (although nothing as drastic as the plunge at the end of August). And with economic activity continuing a distinct slowdown, it seems Mr. Draghi is back to his old sleight of hand with these remarks. The question now is whether European (and possibly other) markets will react positively to the "good news" of more of the ECB's asset purchases - a form of QE - and stop recent down days in the stock market. We'll have to wait and see.
Mr. Draghi also said in remarks at the European Parliament in Brussels that the ECB’s asset purchase program “is considered to be a particularly powerful and flexible instrument.”
He stressed subdued inflationary pressure and said that economic weakness is still weighing on wage growth “and this could moderate price pressures as we move forward.”
“From today’s perspective, this suggests that a sustained normalization of inflation could take longer than we anticipated in March when we first appraised the overall impact of our measures,” he said.
But getting back to "It's not working, but it works," we should remember that these "stimulus" programs - the latest being QE - do have some impact at first. The question remains whether that initial impact leads to anything permanent. So far, the answer has to be, "No." You and I might take a lesson from this sort of experience and conclude that what hasn't worked - consistently, time and again, over a considerable period of time - likely isn't worth repeating. We might either abandon the effort or try another approach. But rest assured, the continuing results of "no permanent impact" will not dissuade the Draghis of the world. They will continue their same tinkering, over and over again, assuring us that they've got everything under control - until something snaps.
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