I was blown away by the following two charts from Jeffrey Snider’s article
titled “The European Basis For New Monetary Science“.
As most of you probably know, the Mario Draghi-led ECB embarked on a
‘suped-up’ QE program in March of 2015. The idea behind this program was that
by monetising 60B euros of bonds per month the ECB would promote faster
credit expansion throughout Europe. The two charts from the aforelinked
Snider article show the results to April-2016.
The first chart shows that as at April-2016, 727 billion euros of ECB
asset monetisation had been accompanied by an increase in total lending of
only 71 billion euros. As neatly summarised by Snider, this means that there
was less than one euro in additional lending for every ten in ECB
foolishness.
The second chart shows loans to European non-financial corporations, which
actually contracted slightly during the first 13 months of the ECB’s suped-up
credit-expansion program.
The QE program was therefore a total failure even by the jaundiced
standards of the central-banking world, that is, it failed even ignoring the
reality that faster credit expansion cannot possibly be good for an economy
labouring under the weight of excessive debt. The weirdest thing is, the
obvious failure is not viewed by Draghi as evidence that QE doesn’t do what
it is supposed to do. Instead, it is viewed as evidence that more of the same
is needed. Hence the increase in the pace of asset monetisation from 60B to
80B euros per month announced in March-2016 and implemented this month.
I shudder to think how Draghi’s monetary experiment will end.
