Wednesday, February 27, 2013

ECB's Praet Says Stimulus Losing Effectiveness

It has never been a question of whether or not the stimulus from the ECB has ever been effective, because it hasn't been.

ECB Executive Board member Peter Praet confirms this over the long term, as he said the longer the European Central Bank attempts to stimulate by throwing money at banks, and keeps interest rates at below-market levels, the less effective the measures become.
The longer we carry on with a highly accommodative monetary policy, characterized by extremely low interest rates and excess liquidity in the banking system, the more we will see a phenomenon manifesting itself with greater and greater evidence.
I am referring to what used to be known as 'instrument instability' in policymaking: the need to apply larger and larger doses of the same policy interventions only to see their macroeconomic influence becoming more and more tenuous.

Praet added the low interest rates also removes the incentive of governments to lower their deficits.

It's interesting to see Praet take on the role of the minutes read from the latest Federal Reserve meeting, where the markets were rocked after it was revealed that some of those in attendance questioned the stimulus policy of the Federal Reserve, just as Praet appears to be in Europe.

That was undoubtedly orchestrated, as are these statements by Praet. What appears to be happening is the central banks of the U.S. and Europe are using the media to manage the movement of various markets in response to the unrestricted quantitative easing.

More than likely it's an attempt to keep commodity prices in line, and inflation down. This is why the illusion of economic recovery and reporting continues to be asserted, even though there is almost nothing to reinforce the wishful thinking of those trying to blur the terrible global economy we still face.

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