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ECB unleashes its most aggressive effort to revive economy

15 Comments
By DAVID McHUGH

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“A weaker euro should help exports a little, but it won’t suddenly make European economies much more competitive. That urgently requires structural reforms, which European leaders seem unwilling to push through. “

One could say the same things about Japan.

Angela Merkel said before the announcement that “whatever decision the ECB makes, it must not distract from the fact that the actual impulses for growth from sensible conditions must be created, and can be created, by politicians.”

History will look favourably upon Angela. She has it absolutely right. If only there was a Japanese version of her.

German Bundesbank head Jens Weidmann ... complained that the new stimulus would take pressure off governments, such as those of France and Italy, to ease regulations on hiring and firing and make their economies more business- and growth-friendly.

Indeed this is exactly how things have played out in Japan. The Germans are right.

Italy’s minister of economy and finance, said of the ECB’s program: “Families and companies that are now trying to reduce their debts can have more confidence and spend more. Companies can invest more.”

This is just wishful thinking.

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Currency wars continue. I guess next Kuroda will again announce some measure to further weaken the yen.......

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The reported news is that The European Central Bank will pump Euro into market periodically till about September 2016 to prevent the fragile eurozone economy from grinding to a halt. What is significant here is that the ECB expects that there may not be a need to pump Euro beyond September 2016. In other words, the assessment or view of ECB seems to be that period between now and September 2016 is likely to be fragile, unless circumstances change otherwise, for Eurozone economy. This is approximately what this writer had predicted as early as May 2014 published on 2 June 2014 in article - Stressful times ahead for world economy in 2015 and 2016 - at www.astrologyweekly.com. It was identified by this writer that a turmoil in , among others, "EU" economy was likely to come up from November 2014 and on due to, among other factors, oil and gas. Readers may perhaps find these predictions interesting. Having said that, there is another aspect to the issue. It may be emphasised that these predictions of likely trends are indicative and not deterministic meaning thereby that , in view of natural scheme of happenings in human life, there is always room for reform, salvaging and improvemt through a renewed, sufficient and appropriate strategy. This writer hopes that the ECB seems to have taken recourse to said strategy. Good luck.

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Giving money to the institutions that got us where we are just doesn't seem... sensible. Want to kick start the economy? Give everyone a percentage equivalent of the 60 billion Euros a month that's going to be given out til next September... I think you'll find growth goes up.

OR invest it in a green revolution. Green engineering, technology, energy production, green manufacturing. Just, for the love of it, DON'T give it all to the banks.

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ECB President Mario Draghi pledged Thursday to extend the bond buying if needed until the bank saw a significant upturn in the eurozone’s excessively low inflation, which threatens to become a downward spiral.............famous last words.....

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The US economy finally bounced back after 3 rounds of QE. And Japan was doing it when its economy started to recover (before the consumption tax hike ruined everything), so why not? It won't hurt.

It's going to be a lot more complicated for the Euopeans, though owing to the complex nature of their monetary system.

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Call it a "Hail Mary" pass.

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I don't see how buying bonds from governments, and wealthy corporations will lead to higher wages, more investment, and more discretionary income. Bond buying benefits only those who have a large number to sell. The average European citizen will not be much better off in the long term, if at all.

Politicians and governments have done more to hinder growth than spur it. Out of control spending, reckless taxation, incompetence, and corruption-these are what governments have given us.

The economic recovery has to be market driven. Allow working people to keep more of their income, and businesses their profits (especially small business), and hold the line on spending.

Bond buying, quantitative easing, deficit spending = economic malaise.

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"I don't see how buying bonds from governments, and wealthy corporations will lead to higher wages, more investment, and more discretionary income."

Then you don'T understand how QE works. The purchases keep the interest rates low, which lowers companies' capital costs and entices institutions to put their newly acquired money into forms of investment other than safe bonds, like stocks, making it easier for listed companies to expand and invest, thereby creating more jobs. The low interest rates also lower the cost of mortgages for regular folk.

"Politicians and governments have done more to hinder growth than spur it."

The private sector, usually the banks, have created all the financial crises in recent times and the massive wealth destruction. They then turn to the government and central banks, which then must issue corporate bailouts and stimulus to fix the mess.

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Then you don'T understand how QE works. The purchases keep the interest rates low, which lowers companies' capital costs and entices institutions to put their newly acquired money into forms of investment other than safe bonds, like stocks, making it easier for listed companies to expand and invest, thereby creating more jobs. The low interest rates also lower the cost of mortgages for regular folk.

Well, thanks for the insightful, albeit condescending response. However, that's how QE is intended to work, but, not necessarily what happens.

http://ieconomics.com/japan-economic-growth

The Japanese economy is still in the dumps, despite three years of QE. The BOJs bond purchases have not achieved the kind of growth needed to revive the Japanese economy. The country slid into a recession last year, and shows no signs of any meaningful recovery.

It may well may well benefit listed companies, but, what about small business, and start-ups-firms that don't necessarily have a huge number of bonds? What about working people who struggle to meet rising costs with stagnant salaries, low pay increments, and excessive taxes on their income?

Printing money just devalues the currency, and makes imported goods more expensive. Japan is fortunate that oil prices have gone down by %50. Buying bonds is favouritism and benefits a select few, it uses taxpayer money to fill the coffers of private companies, and doesn't guarantee the funds are invested in new ventures, or people.

If the government wants to facilitate growth and investment, it can cut taxes on business and income, sign free trade agreements, liberalize their markets, reduce waste and spending. It's better to apply free market solutions to economic problems than to use the kind of financial voodoo the BOJ practices.

The private sector, usually the banks, have created all the financial crises in recent times and the massive wealth destruction. They then turn to the government and central banks, which then must issue corporate bailouts and stimulus to fix the mess

No one denies that banks, especially in America, have done their fair share of economic damage. However, politicians had choices in how to respond to financial crises. Tighter regulations that protect consumers' money from being used in risky financial instruments, indictments of reckless decision makers, etc. Instead, they just bailed them out, and allowed business as usual to go on.

However, let's look at the larger picture. Government does hinder growth through unfair tax regimes, raising taxes needlessly (like Japan), runaway spending, protectionism, and over-regulation of the market. The decision to raise the consumption tax in Japan is a perfect example of government impeding growth, and hurting consumers.

It's all well and good to point out questionable business decisions in the private sector, but, giving government a pass for bad policy making just glosses over the main problem.

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"The Japanese economy is still in the dumps, despite three years of QE."

That's because of the consumption tax hike, a separate policy. The economy started to recovery by 2013. In the US, three rounds of QE helped the American economy to bounce back and grow again.

but, what about small business, and start-ups-firms that don't necessarily have a huge number of bonds?

Their cost of borrowing is lowered, a crucial factor, especially for start-ups.

"What about working people who struggle to meet rising costs with stagnant salaries, low pay increments, and excessive taxes on their income?"

The cost of their mortgages - typically the highest financial burden for middle class households -- is lowered thanks to low int. rates.

"Printing money just devalues the currency"

QE is not "printing money." Japan has engaged in QE for 15 years, and the yen has gone up, down and sideways, and even high a record-all time high.

"It's better to apply free market solutions to economic problems than to use the kind of financial voodoo the BOJ practices."

Japan has been engaged in free market reforms ever since the bubble burst. Guess what -- they haven't worked.Labor reforms created the "working poor" underclass, to site one of many examples.

"Government does hinder growth through....protectionism,"

When protectionism was in vogue, Japan's economy was a stellar performer and the envy of the world. The rot set in after the free-market reforms got under way.

Any more questions? Ask the doc!

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That's because of the consumption tax hike, a separate policy.

As you yourself recognise, Japan has engaged in QE for 15 years. Turning around and saying that a consumption tax hike (which brought forward spending, giving a temporary boost to growth) is at fault for derailing a ghost "recovery" due to QE is just fanciful thinking. Japan's overall experience is clearly that QE failed to boost real growth.

In the US, three rounds of QE helped the American economy to bounce back and grow again.

The fact that QE was rolled out 3 times in the USA before they observed any decent growth suggests that it is a failure there too. There isn't a correlation between decent growth and QE. Once out of 3 times is no proof of anything. It's probably hard to find a 6 year period in recent American history when there wasn't any decent growth, so putting it down to QE is ridiculous.

Their cost of borrowing is lowered, a crucial factor, especially for start-ups.

As you yourself complain about, some businesses have lots of cash. The problem is not a lack of funds to borrow, but a lack of attractive investments to make with them. With interest rates as low as they are, if investments are still not attractive a sane person would conclude that something else was preventing it.

Japan has been engaged in free market reforms ever since the bubble burst. Guess what -- they haven't worked.

In Japan they have but tinkered around the edges.

The fact that there is a butter shortage in Japan at a time when global dairy prices have plunged is an example fresh in the memory.

When protectionism was in vogue, Japan's economy was a stellar performer and the envy of the world. The rot set in after the free-market reforms got under way.

Backwards as usual. The rot set in, then the free-market reforms got under way, but nowhere near enough has been done.

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"The fact that QE was rolled out 3 times in the USA before they observed any decent growth....

If a policy is going to help fix the worst economic disaster in living memory, it better do it damn quickly!!!, Like a few weeks, eh? LOL. Also note the lack of any repercussions, like hyperinflation or currency depreciation, like your ilk (the "e-wrongimists") told us would happen. And the policiy DID succeed, with the USA now pulling ahead and decoupling from the other economic powers. Much to the disgust of US conservatives and Obama-Yellen haters.

Just look at the Europeans, who haven't had any QE in that time.They're still living in 2008. LOL.

"There isn't a correlation between decent growth and QE."

For developed countries "decent growth" is history. We can thank globalization, and free trade and free market policies, which put growth in China and other emergers first. Here's your "correlation" -- Ever since the above trends became a part of our economic life, our own countries have slowed, stagnated, declined and managed only modest pick ups. Oh, and our real wages have fallen. Yep, a winning strategy.

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If a policy is going to help fix the worst economic disaster in living memory, it better do it damn quickly!!!, Like a few weeks, eh? LOL.

If we care to be serious, the fact is they tried QE 3 times over multiple years, not weeks.

That they tried it twice was evidence it didn't work the first time. I don't see any consumption tax hikes in the US for you to blame it on. That they tried it thrice was evidence it didn't work the second time either. Any other excuses? So that the US economy is growing now cannot be put down to "third time lucky", it's just pathetic.

Just look at the Europeans, who

... have imposed a currency peg regime upon their member nations, which works for some like Germany and not for others like Greece. If you are trying to make a point by comparing the Eurozone with the US, UK or Japan you had better think again (or for the first time), "doc".

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That's because of the consumption tax hike, a separate policy. The economy started to recovery by 2013. In the US, three rounds of QE helped the American economy to bounce back and grow again.

The consumption tax made a bad situation worse, yes, but, the economy was still in a sorry state even before the consumption tax was needlessly increased.

QE is not "printing money." Japan has engaged in QE for 15 years, and the yen has gone up, down and sideways, and even high a record-all time high.

The yen has also tanked since 2013. It is way too low right now. Fair enough, the world views the yen as a stable currency, so its value doesn't necessarily reflect the Japanese economy, or government finances.

apan has been engaged in free market reforms ever since the bubble burst. Guess what -- they haven't worked.Labor reforms created the "working poor" underclass, to site one of many examples.

Free market principles don't work? How do explain the success of the US, Britian, Canada, and many western economies over the years. Look at some African countries whose growth has been, in large part, the result of hard work, and entrepreneurial endeavors.

http://www.economist.com/news/21631956-entrepreneurs-will-transform-africa-says-tony-elumelu-chairman-heirs-holdings-and

From your comments, you seem to tack left on economic issues. While socialism has some merits, it hasn't brought about full employment, or ended income inequality. The bankers of the US aren't the representatives of free market reforms, their just glorified gamblers who place bets with other people's money.

When I say free market reforms, I mean reducing red-tape, and needless government intervention. A liberalized economy enables the poor to get out of poverty.

When protectionism was in vogue, Japan's economy was a stellar performer and the envy of the world. The rot set in after the free-market reforms got under way.

Yes, but, consumers were shafted with needlessly high prices, and lack of choice. Entrepreneurship was discouraged, and what Japan had, and still has, are near-oligarchies with near exclusive access to the Japanese economy.

Free trade not only helps business, but, keeps international relations at an even keel. Japan and China, for example, are in conflict over a bunch of islets in the South China Sea. However, that conflict has remained political, non-violent, because both sides understand an armed conflict wouldn't produce any winners.

Free trade also brings with it jobs, and competition. Competition fuels innovation, and improvement. The "rot" set in when a collection of elitist politicians tried to control the economy, implementing tax policies that hurt small business, families, and start ups. Worse, their deficit spending engulfed the country in debt that will take thousands of years to pay off.

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