Do you care about economic & financial stability … ?
If so, you should always shudder in horror & disbelief when central bankers use words like “unlimited” or “do whatever is necessary” … !
Should you be worried about economic & financial stability … ?
Well, the unconventional monetary policy pursued by the European Central Bank (ECB) is a cause for deep concern. For its part, the ECB has expanded monthly asset purchases to amount to €60 billion worth of bonds issued by euro area central governments, agencies and European institutions & plans to continue until at least September 2016.
Ignoring the failure of similar steps taken in the UK, Japan & the USA, the ECB added sovereign bonds to its existing private sector asset purchase program in hopes that its actions will stimulate economic growth where it failed elsewhere.
The ECB is purchasing bonds issued by euro-area governments as well as those of agencies & institutions of the EU in the secondary market using central bank money.
Although key ECB interest rates are at their lower bound, artificially-cheap credit has not induced more borrowing to expand economic activity in manufacturing or small businesses.
An underlying purpose of the ECBs asset-backed securities purchase program (ABSPP) & the covered bond purchase program (CBPP3) is to lessen the likelihood of “contagion” effects of a Grexit.
But note how these steps play out. The ECB is essentially trading pieces of paper called euros for pieces of paper called bonds. Or it is trading pieces of paper called short-term bonds for pieces of paper called long-term bonds.
You are right to be worried that Mario Draghi believes that ex nihlio creation of bit of colorful paper will be a substitute for the actions of entrepreneurs to engage in sustainable investments based on economic fundamentals.
Be afraid; be very afraid. Our economic & financial future is in the hands of MadMen.