European Central Bank Announces Quantitative Easing Program

European Central Bank Announces Quantitative Easing Program.

ECB acts in part on advice from U.S. Federal Reserve Vice Chairman.

Will Buy Bonds with a Negative Yield.

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The European Central Bank Set to Start its own Quantitative Easing Program.

European union flag

European Union surrenders to QE

European Quantitative Easing Plan to top €1.1 trillion.

Quantitative easing has gone transcontiental, now reaching continental Europe. Soon after the United States wound down its six year $4 trillion quantitative easing program, Europe is set to start its own. With a struggling European economy, Mario Draghi came through on his promise to “do what ever it takes” to revive the flagging Euro Zone economy in announcing a wide ranging asset purchase program of sixty billion euros a month to last until at least the end of September 2016.

In a widely anticipated move, the ECB announced that it would launched an asset buying program to help boost inflation.

Monkey See, Monkey Do?

Fed Vice Chairman Stanley Fischer to European Central Bank President Mario Draghi: Try Some QE, it Works

Fed Vice Chairman Stanley Fischer, who last year argued that the United States to set up a bank-bail in regime, argued that the ECB should start its own QE program because of the salubrious impact it has had on the United States economy.

“The same arguments in favor of quantitative easing that demonstrated their effectiveness for the U.S. economy are valid for Europe too. If the ECB moves in that direction, it will have positive effects,” said Stanley Fisher in an interview with Italian newspaper La Repubblica.

“The U.S. economy would not be where it is today without the speedy implementation of stress tests at the beginning of 2009 by the Fed, which then forced banks to recapitalize. The Europeans still need to do what we have done,” Mr. Fischer added

Impact on the Global Economy

QE is now no longer a one-off experiment but is deeply engrained as a policy tool at the United States Federal Reserve, the Bank of Japan (BOJ), the Bank of England and now the European Central Bank. The concept of printing currency to solve structural economic problems has taken root at the world’s central banks but not borne much fruit.

A European Central Bank QE program will probably cause the Euro to weaken against the United States Dollar.

A strengthening dollar would be deflationary and run counter to achieving the Fed’s 2% inflation target.

Two Out of Three Ain’t Bad, But We May Soon Have a Trifecta

With the BOJ and ECB printing their currencies to stimulate their economies, the dollar will continue to strengthen. If that happens, we may see a reversal of recent Fed projections that an interest rate hike is coming in 2015 and an announcement that the Fed is joining its central bank brethern in a global currency printing festival as it launches QE4.

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Further Reading:

European Central Bank May Buy Gold

The Danger of Artificially Low Interest Rates

Janet Yellen and Negative Interest Rates

Janet Yellen and The Precious Printing Press

Bank Bail-Ins Coming to the U.S.

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