ECB Goes All In with QE

On 5 March 2015, European Central Bank President Mario Draghi announced a €1 trillion quantitative easing program, allocating €60 billion in monthly security purchases until September 2016.
On 5 March 2015, European Central Bank President Mario Draghi announced a €1 trillion quantitative easing program, allocating €60 billion in monthly security purchases until September 2016.

After deciding earlier this morning to keep the discount rate at a record low 0.05%, Mario Draghi, the President of the European Central Bank, announced a quantitative easing programs of sovereign treasury notes, mortgage-backed securities, and covered bonds. The QE program will begin on 9 March with €60 billion of asset purchases until September 2016, totaling €1 trillion ($1.1 trillion). The program will purchase bonds with a negative coupon as long as the rate is not below the ECB’s deposit rate, which is -0.2%, but will not buy more than a 25% share of a bond issue to prevent the ECB from having a blocking majority in case of debt restructuring.

While this sort of economic stimulus failed in the United States with the Federal Reserve’s $3.5 trillion program, the ECB believes that expanding the money supply to increase the Harmonised Index of Consumer Prices, the Eurozone’s inflation indicator, will spur economic growth to a “prosperous level”, which Draghi describes as 1.5% annual GDP growth.

Even though the new 1.5% growth projection for 2015 is abysmal at best, it isn’t certain that the European Union will even achieve that. China, the EU’s largest trading partner, has lowered its GDP growth forecast to 7% for 2015 amid fears of a real estate bubble burst. Additionally, the possibility of a “Grexit”, or Greek exit from the Eurozone, would send Europe into an economic spiral, undermining the viability of the Euro. As stated in previous articles, none of the major problems facing the EU, such as inefficient state-owned enterprises, high tax rates, excessive regulation, and insolvent pension systems, are being rectified by national governments or the EU at-large. As a result, it should not surprise many that the region has difficulty achieving 1.5% growth despite €60 billion a month of asset purchases.

Perhaps the most depressing part of the ECB meeting earlier today were the HICP projections. While the 2015 inflation forecast was lowered to 0% from 0.7% in the December 2014 report, the 2016 forecast was raised from 1.3% to 1.5%. Why did these trends so in opposite directions? Draghi and other members of the ECB’s Executive Board are hoping that “an increase in oil prices will raise inflation to a sustainable level”. The ECB is betting the entire QE program on the prediction that OPEC’s hesitance to cut production will collapse the US shale industry, which can avoid default and liquidation despite a negative cash flow due to extra liquidity in global markets due to QE.

This leaves the question: has the European Central Bank turned into a complete joke? In the same QE announcement, the central bank said that its intention is to be market-neutral, with the hope of creating as little “distortion” as possible. If the ECB would abide by their own claims, the state of the European economy would be nearing a “prosperous level”.


17 thoughts on “ECB Goes All In with QE

  1. Jellin' with Yellen March 5, 2015 / 1:22 pm

    OK Mario..I guess you have to at least state some projected progress when you commit €60 billion per month in QE.

    WOW – growth from 1% to 1.5% is surely worth spending greater than a half TRILLION dollars..

  2. Free Market Fighter March 5, 2015 / 1:26 pm

    60bn is 180€ per eurozone inhabitant.

    That means every working European will be forking out ~250€ a month directly to the banks.

  3. Calculus89 March 5, 2015 / 4:32 pm

    Mario looked a bit beaten up in his press conference. Normally he’s Mr Smooth/Cool.

    Looks like it’s all getting to him, he knows all the CBs are effecticly caught in a trap but nobody knows when the jaws will clamp shut. Could be tomorrow, could be this time next year, whatever the case the trap is there and it’s very real.

    • NoDebt March 5, 2015 / 4:38 pm

      Agreed. Even way up in the ivory tower they have to be hearing the footsteps coming up behind them.

  4. YoungMan March 5, 2015 / 4:39 pm

    The Euro is dropping so all those Chinese imports are more expensive..equals inflation baby…

  5. CheckReality March 5, 2015 / 4:48 pm

    Hooray for adults and rational thinking.

    When, and I mean WHEN (as it is inevitable), this bullshit is over: these CB motherfuckers better be building their secure compounds on the fucking moon. ‘Cos there’s nowhere on earth they’ll be able to call safe once the secret about what they’ve really done is out.

    If there’s no food left in the world, I’ll start by eating the fucking bankers.

  6. Rick McPherson March 5, 2015 / 4:52 pm

    What moron doesn’t get it. ZERO rates cause deflation….not prevent it!

    • QHX March 5, 2015 / 4:54 pm

      Yup, bcs economic deflation and monetary inflation are both occurring at the same time.

      • Village 88 March 5, 2015 / 4:57 pm

        There are also other Components:

        Wages are Deflating,
        Labor Force is Inflating,
        Monetary Policy is Inflating,
        Fiscal Policy is Inflating,
        Welfare both Corporate & Social are Inflating,
        Median Household Wealth is deflating,
        Median Retirement Savings are Deflating,
        MIC Spending is Inflating after adjusting for the end of Iraqi War,
        Federal Police Powers are Inflating,
        State & County Powers are deflating,
        and looks like Local funding ability is Deflating as mixed financing becomes the norm and VICHY DC & VICHY Wall Street assume greater Roles in Financing.

  7. The Angry Commoner March 5, 2015 / 4:58 pm

    Draghi is the biggest “regulatory capture” (don’t you love it when they create cute names to describe criminal activity…”high frequency trading”, “algorithm trading”, “quantitative easing”…) in the history of banksters…or at least since, Dudley (and certainly king Paulson before him).

    oh to be goldman in the sachs

    • Calculus89 March 5, 2015 / 4:58 pm

      Yep. I admire the Americans, nobody is better than them in creating cute words and phrases with the English language to camoflage the truth.

      Obvioulsy the big one recently is torture so it become enhanced interrigation techniques. They’ll then camogflage that to become EIT.

      • speakerdown March 5, 2015 / 5:00 pm

        We didn’t invent the English language, but we perfected its use in mendacious, deceitful, perfidious obfuscation. No, wait, we didn’t invent those words either.

        We misremembered some stuff and then, naturally, misreported it. We regret any confusion (which is not to be confused with being sorry).

  8. MG Siegel March 5, 2015 / 5:01 pm

    am i the only one who is having a hard time looking at market data and seeing manipulation everywhere…like the DAX miraculously recovering and exploding to highs of days based on some knife catching activity from whoever is not concerned about risk or losses…who could that be?

  9. fackwolfe190 March 5, 2015 / 5:01 pm

    Can´t wait for my Dragi bux to come in the mail so I can go out, do my part, and buy buy buy! What was that? No, I´m not an EU government. No, I´m not a bank! Fuck no, I´m not a club member! Waddaya mean I´m not getting any of the loot? Your going to devalue my hard earned euros with this BS plan and I´m getting nothing?!? But I´m a socialist! Give me more socialism!!

  10. Dragon Hawk March 5, 2015 / 5:02 pm

    Derivatives cause the opposite of what you expect to occur to happen.. until they blow up.

    • madbux March 5, 2015 / 5:02 pm

      Roger that. No matter how good the set-up, fundamentals, and technicals, once everybody and their cousin is long or short, the market is forced the other way and they get creamed… These “markets” have become a complete joke… trade against a CB that can ALWAYS double down their bet, and along with them the TBTFs that know their every move…

  11. Yavslav March 6, 2015 / 8:14 am

    Criminals. Weimar Republic all over again. Then the parasites will all scream “holocaust” when they are arrested and sentenced for their crimes.

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