€urosclerosis: not taking the easy way out

From


Draghi Plays Down Hopes for Quantitative Easing


By TOM FAIRLESS And MARGIT FEHER

FRANKFURT—European Central Bank President Mario Draghi Thursday rejected suggestions that the ECB should embark on quantitative easing as a means to boost the euro zone’s economic performance, which has been dragged down by the region’s sovereign debt crisis.

“I don’t think quantitative easing leads to stellar economic performance. I see no evidence that quantitative easing greatly boosts the U.K. and U.S. economies,” Mr. Draghi said in response to a question after giving a speech in Berlin.

Mr. Draghi reiterated that the ECB’s purchases of government bonds, which many market participants and politicians said should be stepped up, are “neither eternal, nor infinite.”

He said it takes more than monetary policy measures to restore market confidence and that European governments must immediately announce clear steps toward fiscal consolidation.

Much more at the link.

“Quantitative easing.” It sounds so much more technical, so much more exotic and informed than “printing money,” doesn’t it? Of course, one definition of quantitative easing says it is sometimes “dubbed incorrectly ‘printing money,’ a central bank simply creates new money at the stroke of a computer key, in effect increasing the credit in its own bank account.” Yet, if you read the whole definition article, you’ll note that the risks of quantitative easing are just the same as the risks of simply printing money to get a country out of a recession.

What I find interesting about all of this is that the United States has engaged in some quantitative easing measures during the current economic slow-growth doldrums, and the United States has engaged it exactly what President Obama has told the Europeans they shouldn’t do, borrow large sums, much of it from foreign investors, to stimulate the economy, and these tactics still haven;t worked. As Signore Draghi noted, he saw “no evidence that quantitative easing greatly boost(ed) the U.K. and U.S. economies.”

Our economy is slowly improving; we’ve been out of the recession, technically, since the end of the second quarter of 2009, but growth has been slow. As was noted here, there are some signs that things are improving, but we don’t know yet if those encouraging signs will pan out, or we’ll be disappointed again.

The best thing we can do is to simply do nothing, and let the economy work itself out. That’s unsatisfying, and goes against the grain: people expect our leaders to “do something” when times are bad. But sometimes doing nothing is better than anything else.

4 Comments

  1. Quantitative easing is only a computer driven way of accomplishing the same thing printing presses once did and it’s the same thing that coin makers did when they reduced the gold or silver content of coins. It’s called debasing the currency. It’s inherently inflationary and it’s one of the major ways governments pick the pockets of the people.

  2. “But sometimes doing nothing is better than anything else.”

    Boy, that’s a tough one Editor. I completely understand what you mean but it is really not in our nature to do nothing. As Americans we tend to prefer to drive the events rather than let the events drive us. That said, in economics sometimes we must let nature take it’s course, even when it hurts.

  3. Hoagie wrote:

    “But sometimes doing nothing is better than anything else.”

    Boy, that’s a tough one Editor. I completely understand what you mean but it is really not in our nature to do nothing. As Americans we tend to prefer to drive the events rather than let the events drive us. That said, in economics sometimes we must let nature take it’s course, even when it hurts.

    Perhaps you’ll prefer it if I put it like this: Dr Vincent Davis, then Chairman of the Patterson School of Diplomacy and International Commerce, once said in a class of his I took a lesson which has stuck with me for 35 years: if you have the power to take an action, but choose not to take it, you have still taken an affirmative decision, to let things proceed as they will.

    I agree: it is in our nature to want to do something, but if the history of government interference in the economy has one lesson, it’s that government is simply not smart enough to outsmart the economy. The Soviets thought they could plan their economy; after seventy years, the USSR finally disintegrated. The Europeans believed that they could impose a form of soft socialism on a harsh capitalist system; they’ve gone broke over the effort.

    The economy is nothing but the aggregate of literally billions of economic decisions taken by hundreds of millions of people; government can’t anticipate them all.

  4. “The economy is nothing but the aggregate of literally billions of economic decisions taken by hundreds of millions of people; government can’t anticipate them all.”

    Oh, I agree whole heartedly and further when it tries generally bad things happen.

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