European Central Bank Discusses its own Quantitative Easing ProgramWill the ECB do QE?
ECB President Mario Draghi hints at asset purchases early next year
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The European Central Bank Set to Start its own Quantitative Easing Program?
Quantitative may soon go transcontiental, reaching continental Europe early next year. Just as the United States winds down its six year $4 trillion quantitative easing program, Europe is perhaps set to start its own. With a struggling European economy, President of the European Central Bank (ECB) Mario Draghi announced today to that the ECB is considering its own asset buying program perhaps starting “early next year”.
When pressed by a reporter what “early next year” meant, Mr. Draghi was elusive and refused to say whether it meant at the first ECB meeting of 2015 or later. In Fed speak, we will probably have to wait a “considerable period of time” to find out what “early next year” means.
ECB Says No to Gold Purchases
Earlier this month the ECB hinted at perhaps buying gold and other assets as part of any proposed European QE program. At today’s press conference a reporter asked Mr. Draghi what assets were under consideration for the ECB to buy. Mr. Draghi responded “all assets but gold“. Theoretically (but more than unlikely) that leaves silver and bitcoin on the table to be considered for purchase by the ECB as part of their QE program early next year.
Impact of QE 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 coming soon to the European Central Bank. The concept of printing currency to solve structural economic problems has taken root at the world’s central banks but has not borne much fruit.
A European Central Bank printing Euros out of thin air to buy assets will weaken the Euro and cause the Swiss National Bank to print Francs to support the 1.2:1 (the Swiss may regret their failure to adopt the Save our Swiss Gold referendum earlier this week that would have prevented such Franc printing).
A European Central Bank QE program will also 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.
Since the ECB has delayed its own QE program for now, the Euro is rising and the dollar falling. A too early start to ECB QE would have meant a too strong dollar too soon.
If the ECB starts QE early next year, it won’t be long before the dollar strengthens again causing the Fed to reverse its recent projections that an interest rate hike is coming in 2015 and announce that the Fed is joining its central bank brethern in a massive global currency printing festival as it launches QE4.
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Further Reading:
European Central Bank May Buy Gold
Mario Draghi’s press conference
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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