Europe Goes Negative to Fight Deflation

[Ad Orientem]

http://www.nytimes.com/2014/06/06/busin ... te.html?hp

And...

http://www.nytimes.com/2014/06/05/upsho ... -mean.html

[Kshartle]

They are also proposing (threatening) soverign bond purchases a la QE style and possibly mortgage-back securities. The goal is alegedly to push up inflation. The whisper number is one trillion Euro for the first round.

Perhaps the ECB doesn't understand that asset swaps can't push up inflation. Or is it different here from there? 

[MachineGhost]

They are also proposing (threatening) soverign bond purchases a la QE style and possibly mortgage-back securities. The goal is alegedly to push up inflation. The whisper number is one trillion Euro for the first round.

Perhaps the ECB doesn't understand that asset swaps can't push up inflation. Or is it different here from there? 

I don't think they care about inflation, just lowering the cost of money so it juices the economy through borrowing.  I mean, what else tool does central banks have?  They're relatively powerless compared to fiscal policies.

But, it will certainly juice up paper asset prices such as stocks and bonds for a few years.  It's a no brainer trade just like 2009-2013 here.

[Kshartle]

They are also proposing (threatening) soverign bond purchases a la QE style and possibly mortgage-back securities. The goal is alegedly to push up inflation. The whisper number is one trillion Euro for the first round.

Perhaps the ECB doesn't understand that asset swaps can't push up inflation. Or is it different here from there? 

I don't think they care about inflation, just lowering the cost of money so it juices the economy through borrowing.  I mean, what else tool does central banks have?  They're relatively powerless compared to fiscal policies.

But, it will certainly juice up paper asset prices such as stocks and bonds for a few years.  It's a no brainer trade just like 2009-2013 here.

Straight from a translator's mouth:

"If required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation," Draghi told a news conference.

They most certainly want inflation, or at least they are going to pretned up front like it's a good thing to prepare the people for what the ECB is going to give them.....rising prices to benefit the indebted governments.

[craigr]

You can't make people spend money if they don't want to. You also can't make them spend money if they are already in debt up to their eyeballs.

[Kshartle]

You can't make people spend money if they don't want to. You also can't make them spend money if they are already in debt up to their eyeballs.

Perhaps not any individual but as interest rates are lowered the cost to increase your debt becomes smaller so you will get more borrowing across a population. If you increase the rate at which paper money is losing value you will get more of the population wanting to get rid of it.

Most importantly, if they go the QE route they will basically just be transferring purchasing power from the people to the governments through inflation. Show me a politician, European or otherwise who doesn't want to spend other people's money and put them in debt. That is their Nirvana.

I agree with MG that this will serve to push up European equites and possibly bonds. Italien, Greek and Spanish bonds in particular might be attractive as I expect they would be the target of the purchases.

[Xan]

Perhaps not any individual but as interest rates are lowered the cost to increase your debt becomes smaller so you will get more borrowing across a population. If you increase the rate at which paper money is losing value you will get more of the population wanting to get rid of it.

I'm sorry, there's no such thing as a "population".  "Populations" don't borrow money, individual people do.

[MachineGhost]

I agree with MG that this will serve to push up European equites and possibly bonds. Italien, Greek and Spanish bonds in particular might be attractive as I expect they would be the target of the purchases.

I'm already onboard the frontier markets.  Juice me up, baby!

Now, if only Russia and commodities would follow suit.