In response to an FT article by Claire Jones on 21st April 2016, entitled 'Mario Draghi defends ECB independence and ultra-low interest rates'
The ECB's buying of the rubbish that banks want to get off their books will not boost the money supply or the economy. It will help the banks repair their still poisonous balance sheets, and make a nice profit on an increased spread. Mr Draghi is monetising bad debt, and the banks are front-running the process.
NIRP will prove to be deflationary. This will be ‘revealed’ when the neo-Keynesian geniuses who still think the economy is a maths problem, finally recognise that when rates are negative, the people with money that they could spend, will not be spending it: For example:
1. Older boomers and retirees are getting next to nothing on their savings, so will be more prudent
2. SMEs can see that nothing is getting better on the ground, so won’t be hiring that new person
3. The corporates will be looking at this environment and asking themselves ‘why should I invest in capital intensive projects when I can buy back my own shares, boost the EPS and make a nice bonus?’
Mario Draghi is not the ‘wizard’ he’s cracked up to be. He’s a member of a central banking ‘club’ marked out by groupthink, ignorance of the real world, and hubris. As challenges to his policies increase, his arrogance is becoming increasingly apparent on the surface. This is a man who will never admit that he’s made a mistake - Europe will suffer for that.