Share on Google Plus Share on Twitter 2 Share on Facebook 1 Share on LinkedIn Share on PInterest Share on Fark! Share on Reddit Share on StumbleUpon Tell A Friend (3 Shares)  
Printer Friendly Page Save As Favorite View Favorites View Stats   3 comments

OpEdNews Op Eds

Irrational Draghi Exuberance

      (Page 1 of 4 pages)
Related Topic(s): ; ; ; ; , Add Tags Add to My Group(s)

Must Read 1   Supported 1   Valuable 1  
View Ratings | Rate It Headlined to H3 9/8/12

Author 194
Become a Fan
  (191 fans)
- Advertisement -

Irrational Draghi Exuberance

Draghi's plan doomed to fail.

by Stephen Lendman

Thursday was Draghi day. He explained what ECB watchers knew. At his Frankfort press conference, he said Governing Council members agreed to unlimited bond buying. It's called Outright Monetary Transactions (OMT).

Bundesbank President Jens Weidmann alone dissented. He called Draghi's plan "tantamount to financing governments by printing banknotes." Doing so creates more problems than solutions.

In late August, Weidmann said bond purchases were "too close to state financial via the money press for me. The central bank cannot fundamentally solve the problems this way. It runs the risk of creating new problems."

OMT will target government bonds with one - three year maturities. Longer-dated debt with residual maturities of that duration will be included. Purchases ostensibly will be sterilized to keep money supply neutral. Don't bet on it. Earlier ECB promises fell short.

Draghi hopes to contain borrowing costs. Expect short-term success only. At best he'll buy time. Since crisis conditions emerged in fall 2007, every plan tried failed. They bought time, but little else.

- Advertisement -

Is this time different? Don't bet on it. More on that below.

Draghi's plan involves conditionality. One analyst calls it "Eurocrat-speak for debtor countries to agree to wear the particular austerity hair shirt we have designed for them before they get any dough."

Countries needing help must request it. Spain and Italy haven't asked. Rome wants Madrid to go first. Spain wants some conditions waived. They involve strict austerity. Doing so assures greater trouble, not less. 

ECB rules prohibit direct state financing. As a result, secondary market purchases are planned.

ECB's preferred creditor status was waived. Doing so removes the requirement for central bank repayments ahead of private ones.

- Advertisement -

Draghi's plan solves nothing. He kicked the can down the road. He left many questions unanswered. One analyst called his scheme fantasy land. A chasm remains between promise and fulfillment. The ECB is notoriously unsuccessful in soaking up excess liquidity. Keeping inflation in check won't be easy.

Deep-seated problems are worsening. Bond-buying can't substitute for sound policies. Markets Thursday paid no attention. 

Short-term fixes mean higher valuations. Push eventually comes to shove. Reckoning day can be delayed but not denied.

Next Page  1  |  2  |  3  |  4


I was born in 1934, am a retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon

Go To Commenting

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
- Advertisement -
Google Content Matches:

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The McCain-Lieberman Police State Act

Daniel Estulin's "True Story of the Bilderberg Group" and What They May Be Planning Now

Continuity of Government: Coup d'Etat Authority in America

America Facing Depression and Bankruptcy

Lies, Damn Lies and the Murdoch Empire

Mandatory Swine Flu Vaccine Alert


The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
2 people are discussing this page, with 3 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)

Since money is an abstract symbol representing val... by Theresa Paulfranz on Sunday, Sep 9, 2012 at 5:36:10 AM
My God, Theresa, this is powerful.  Burl... by Burl Hall on Sunday, Sep 9, 2012 at 8:40:49 AM
  I do get readers on this site but you ... by Theresa Paulfranz on Sunday, Sep 9, 2012 at 12:14:06 PM