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Mario Draghi to the Rescue?

Interest-Rates / Euro-Zone Jan 31, 2015 - 11:29 AM GMT

By: Submissions


Antonius Aquinas writes: As expected, the European Central Bank (ECB) headed by former Goldman Sachs executive, Mario Draghi, announced a massive bond-buying program of more than one trillion Euros in the hope of improving a stagnate European economy and to combat “deflation.”

“What monetary policy can do,” Draghi declared, “is create the basis for growth.” The ECB President added that “structural reforms” by the various Euro member states need to accompany the monetary stimulus if it is to succeed: “But for growth to pick up you need investment; for investment, you need confidence; and for confidence, you need structural reform.”*

Sadly, the ECB’s monetary initiative will not pan out, but instead will lead to further stagnation, less investment and eventually considerably higher price inflation. Instead of praise from the European financial community, Draghi and his fellow ECB banksters should be condemned for the quackery that the plan is as every previous money printing scheme, such as the “quantitative easing” policy in the United States, has failed abysmally.

Draghi, as do all central banksters, mistakenly believes that growth can come about through the creation of money and credit via the printing press or, in this modern age, through a stroke of a computer key. In more rational times, such a notion would be considered absurd, however, in the modern age, such thinking is lauded.

Draghi says that for “growth to pick up” there must be “investment,” but he does not mention the crucial element necessary for genuine investment to take place – savings. Savings – the abstention from consumption – must first occur prior to any investment for savings provide the means (capital) for the production process.

Yet, under the crazed interest rate policy of the ECB and that of the Federal Reserve over the past decade, real rates have been suppressed which makes saving unattractive. If Draghi understood basic economics and wanted to increase investment, he would reverse the “zero” interest rate policy and allow rates to rise to their natural levels.

Another irrational fear that the ECB’s monetary stimulus is supposed to alleviate is that of “deflation.” Not only is deflation nothing to be worried over, but the understanding of it by the likes of Draghi is mistaken. The traditional meaning of deflation is a decrease in the money supply as its polar opposite, “inflation,” is defined as an increase in the money supply. Most today, however, see deflation as a fall in prices.

The only group that fears lower prices are banksters and the politically-connected financial elites who do not want to see their artificially inflated portfolios (from previous money printing) fall in value while they are able to pay off their debts with inflated currency. Yet, for the 99% of the population, lower prices are a godsend.

In an honest and sound monetary system based on a commodity (gold and/or silver), “deflation” would be the norm with prices and costs falling across the board year after year. Money’s purchasing power would constantly increase which would benefit wage earners, those on a fixed income (pensioners, retirees), and savers. Yet, for the banksters, such a scenario is a nightmare and is to be opposed which is what Draghi is doing with his latest round of money printing.

Draghi scoffed at the idea that the ECB’s easy-money policies would lead to higher prices in the future: “There must be a statute of limitations for those who say there will be [price] inflation.” In fact, the ECB President wants an annual increase of prices of just under 2% as a goal of the central bank’s monetary policy. Draghi thus wants Europeans to be spending 2% more each year for goods and services. Thanks a lot, Mario!

Ostensibly, one of the reasons that the Euro and the ECB were created was to impose monetary discipline on those nations who had profligate inflationary histories. Yet, with Draghi’s latest move, the ECB has joined the ranks of the egregious money printers of the past.

Since the ECB can no longer be trusted to carry out its constituted purpose, Europeans, if they want to stave off future financial disaster and revive their moribund economies, need to end the “Euro experiment” and return to a monetary system based on “hard money.” Once Mario Draghi is unceremoniously deposed of his money printing duties and the organization he heads abolished, will the chance of sustainable European prosperity become a reality.

(*) “Bond Buys Usher in New Era: Europeans Central Bank Launches $1 Trillion-Plus Plan; Focus Shifts to Governments.” The Wall Street Journal. Friday, January 23, 2015, A1, A11.

Antonius Aquinas@AntoniusAquinas

    © 2015 Copyright Antonius Aquinas - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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