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.