Thursday, January 22, 2015

A New Round of Bad Policy

Today, the ECB (European Central Bank) will pursue its own version of QE (Quantitative Easing).  For those who might have been living in a cave the last few years, QE is simply printing money.  What happens is the government sells bonds to the public and then buys them back.  That, of course, represents two transactions that really amount to only one transaction -- the government spends money it doesn't have -- it prints it.

Of course, the modern printing press is digital. Central banks can simply credit your account with money and you have money -- voila!  But the underlying economics is exactly the same as running the printing presses.

For Europe, the purpose of QE is clearly to accomplish currency devaluation for the purpose of making their exports cheaper to foreign buyers.

Such policies, like America's earlier version of QE, are mostly designed to change the subject.  Real economic growth can never come from policies like QE.  What is needed is less government, more of the private sector and truly free markets.  None of this is in the cards for Europe, so expect further stagnation.

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