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The ECB is finally beginning to perform miracles. The
money-printing orgy has arrived. ECB President Mario Draghi had promised it
since the steamy debt-crisis days of the summer of 2012. He’d do “whatever it
takes,” he’d said. And Eurozone assets began soaring from that moment on.
Not because he’d single-handedly keep the Eurozone duct-taped together,
but because he’d start printing money – at any moment, really. Simply the
idea of it had the markets salivating at the mouth, and they – along with the
IMF, the French government, numerous other over-indebted governments, hedge
funds, etc. – had been clamoring for it ever since. He’d monetize government
deficits and debts, no matter what worrywarts in Germany might be saying.
That’s how Draghi’s “whatever it takes” had been interpreted. A promise to
inflate asset prices into the absurdosphere. For two-and-a-half years, it had
been dangled in front of everyone’s nose as inducement to buy, buy, buy.
Over those two-and-a-half years, his hedge-fund buddies and Eurozone banks
made out like bandits from his promise, buying sovereign bonds of Spain,
Italy, and even Greece, and watch them defy gravity. The banks could even do
so with the money the ECB was shoving down their throats to do just this sort
of thing.
Now the pre-orgy is over, and the actual €60-billion-a-month
money-printing orgy has started. It will amount to over €1 trillion. Or a lot
more, sort of like the Fed’s QE Infinity – that’s how hype mongers are
already reading the various statements. It will hopefully
enrich Draghi’s hedge fund buddies and financial elite; “hopefully”
because that’s the only thing QE might at best accomplish. One thing is
already certain: it won’t do anything for the real economy.
The euro plunged to $1.136, the lowest in over a decade.
As I wrote a week ago in my article, Without
QE, “Eurozone Financial Markets Would Collapse”, the ECB already
imposes negative deposit rates on Eurozone banks to flog savers until their
mood improves. Excess liquidity is sloshing audibly through the system.
Yields are getting close to zero even for bonds with longer maturities. Since
2011, the Eurozone’s current-account surpluses with the rest of the world
have risen sharply, even while the euro was very strong. The last thing
the Eurozone economy needs? Even more negative yields and an even weaker
euro.
Now there are a lot of ruffled feathers in Germany, though Germany could
have stopped the insanity if it had had the balls to do so and accept
whatever the outcome might have been. But it didn’t have the balls.
Instead, words are flying. Even the German Banking Association vituperated
the ECB’s orgy, calling it “ineffective
and harmful.” The ECB was “unnecessarily dramatizing price and
economic developments” in the Eurozone, it wrote.
It would increase the “danger of asset bubbles, misassessment of risk, and
malinvestment.”
Anti-money-printing prophet Hans-Werner Sinn, president of the Ifo Institute,
which issues the closely watched Ifo
Business Climate Index, called the scheme of creating money and monetizing
government debt “illegal” under the treaties that tie the monetary union
together. The German Constitutional Court will eventually render its own
ruling, likely calling it “legal,” but with the usual laundry list of
limitations and caveats. It doesn’t have balls either.
Chancellor Merkel, the consummate politician, the one person who could
have stopped it, is beyond it all. She claimed that the ECB is independent,
and that its decisions are made independently – though the ECB is completely
controlled by the largest financial players and by the expectations of the
financial markets in general. However, the orgy “should not obscure,” she
said, the need for struggling countries to reform their economies and budgets
– and that would have to come from politicians in these countries, and not
from the printing press at the ECB.
So Germany was having a self-inflicted bad-hair day, you’d think.
But what really happened was that German government bonds rose, with the
10-year yield dropping to 0.398%. And stocks blew out the top, with the DAX
jumping to a new all-time high. This performance was duplicated around much
of the Eurozone. And that conservative financial elite in Germany was glad
that Sinn and others were out there lambasting the ECB, while they themselves
were busy skimming off the cream.
It all makes sense. In the end, no one, not even the holier-than-though
German anti-money-printers want to walk away from printed money, when it’s
there to be taken. They too enjoy getting their hands on these artificial
riches created out of nothing, no matter what the consequences for the real
economy and the ultimate costs.
So, for your amusement, and for mine too, here is a cartoon by Merk Investments that reflects
better than anything else Germany’s official mood:
And what has QE actually accomplished around the world so far? We
just got numerical confirmation. Read… Look
Who’s Dragging Down the Global Economy Though No One Is Allowed to Say it
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