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Saturday, December 05, 2015 8:58 PM

"No Limit" to Economic Madness

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Last week the markets were upset because ECB president Mario Draghi did not do enough to combat deflation.

Draghi Recap

  1. ECB would continue its €60bn-a-month bond buying program for another 6 months until March 2017 “or beyond”.
  2. ECB reduced key interest rate to a historic low of minus 0.3 percent.
  3. ECB pledged to buy more assets with the proceeds of its existing bond purchases.
  4. ECB announced it would buy municipal bonds in addition to standard government debt.

That Japanesque set of actions seems like one hell of a package but the market expected far more.

I commented on the package in Euro Surges, Bonds Sink as ECB's Rate Cut to -0.3% and Pledge of More QE Until March 2017 "or Beyond" Not Dovish Enough.

Offending Markets

Heaven forbid a central banker offends the market with an undesired announcement. Not upsetting the markets is the only "tool" central bankers have left.

So Mario Draghi followed up with a new pledge ‘No limit’ to ECB Action to Hit Targets.
The ECB pledged on Thursday to continue its €60bn-a-month bond buying quantitative easing plan until March 2017 and cut a key interest rate to a fresh record low of minus 0.3 per cent. But the measures disappointed investors that have come to rely on Mr Draghi to smash expectations, with a broad market sell-off after the ECB failed to deliver deeper cuts and an increase in the pace of QE.

In an attempt to reassure markets that the ECB has more firepower should inflation remain low, Mr Draghi said in New York on Friday that the central bank had “the power to act, the determination to act and the commitment to act”.

He added: “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate.” He said there was “no doubt that if we had to intensify the use of our instruments to ensure we achieve our price stability mandate, then we would.”

The central bank’s mandate is for inflation of just below 2 per cent, a goal that it has missed substantially for the past two years when prices have risen by less than 1 per cent annually.
ZeroHedge has an interesting take on The Inside Story Why The ECB Decided "The Markets Needed To Be Disappointed" And How It All Fell Apart.

Here is an amusing video of a Draghi lie corrected on the spot.

The key moment is right at the end when Draghi corrects an obvious lie that the audience laughs at. Rest assured there is no limit to Draghi's madness.

Mike Mish Shedlock

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