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Friday, May 15, 2015 12:17 AM

Draghi Warns ECB Economic Policies May Lead to Financial Instability and Worsen Income Inequality; Stupidity Index at New High

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Here's a new one. ECB president Mario Draghi cautions that ECB policies may "lead to financial instability and worsen income inequality."

Place that warning in the "duh" category.

For duh details, please consider Draghi Warns Central Banks Against ‘Blind’ Risk-Taking.

Mario Draghi has warned central banks to beware of the risk that aggressive monetary easing, including mass bond buying, could lead to financial instability and worsen income inequality.

The European Central Bank president said the apparent success of policies such as the ECB’s landmark €1.1trn quantitative easing package should not “blind” policy makers to the potential consequences of their actions on risk-taking in financial markets and in exacerbating wealth disparities.

“Because the use of these new instruments can have different consequences than conventional monetary policy, in particular with respect to the distribution of wealth and the allocation of resources, it has become more important that those consequences are identified, weighed and where necessary mitigated,” Mr Draghi said at the International Monetary Fund.

Central banks around the world have faced criticism that their response to the financial crisis is stoking asset-price bubbles and increasing inequality.
In Spite of "Duh"

In spite of the blatantly obvious, and in an attempt to play down talk that the ECB could slow the pace of its €60bn per month asset purchase plan before the planned cut-off point of September 2016, Mr Draghi said: “To that effect, we will implement in full our purchase programme as announced and, in any case, until we see a sustained adjustment in the path of inflation.”

Reader Mailbag

The above article is all the more amusing because Thursday morning I received this email from "PW" who said:
Hello Mish

One of my finance colleagues who is quite respected says "QE is working in Europe - as I’ve repeatedly said QE makes rates go up not down, despite what most in the market think"

This seems quite counter-intuitive and different to understood based on your blog.
Is QE Working?

If QE made rates go up why have rates in Japan been near zero for decades? Why did rates fall in the US?

And as for the ridiculousness of "QE is working" I responded ...

  • Working how?
  • And at whose expense?
  • And what about asset bubbles?
  • Negative bonds?
  • What about Spanish and French Unemployment?

To top it off, even Mario Draghi has concerns, so much so he warns banks not to take risks.

Apparently Draghi wants banks to lend without taking risks, in spite of the obvious asset bubbles and in spite of central bank sponsored income inequality.

New High in Stupidity Index

Pursuing policies that self-admittedly may "lead to financial instability and worsen income inequality" is a new high in stupidity.

Yet, I am confident this high will be broken many times.

Mike "Mish" Shedlock

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