In response to an FT article by James Shotter and Claire Jones, entitled 'Mario Draghi defends ECB's monetary easing policy'
QE will not create Mr. Draghi's sacred cow of price inflation, because the 'money' enters the system as reserves. Price inflation comes from the lending activities of individual banks. European banks are increasingly cautious about consumer lending because of the scale of Non-Performing Loans (NPLs) in the EU. This from the European Banking Authority in an end of November report:
"The scale of bad loans held by banks in the European Union is "a major concern" and more than double the level in the United States"
The total of NPLs across Europe is about 1 trillion euros, equivalent to 7.3 percent of the EU's GDP. Some 16.7 percent of loans at banks in Italy were designated as NPLs, equivalent to 17.1 percent of the country's GDP. Spain's banks had an average NPL ratio of 7.1 percent, or 15.8 percent of its GDP.
In other words, the zombies that have been kept alive by 7 years of relentless easy money policies are beginning to drop. This story is just starting and it has a long way to run.
The ECB will not create price inflation with more QE, but they will continue to create something they clearly don't understand, probably because they can't find any mention of it in their textbooks and it doesn't appear on a spreadsheet - capital misallocation, AKA mal-investment. I.E. money that sloshes around in speculative activities, pushing up equity and bond prices, and propping up the balance sheet of banks that would be considered insolvent if 'mark-to-market' were not the 'mark-to-fantasy' joke that central planners like Mr. Draghi have made it.
The point is this - those who want interest rates to be continually suppressed so that economic activity is encouraged, don’t realize that QE produces bubbles and debt – not productive economic activity. It is the 'medicine' that is making the patient sick.
Mr. Draghi is pushing on a string. The longer these fools keep doing this, the worse it will get. They are literally sucking the life out of the real economy in order to prop up zombies. They will fail, even at that.