QE3 is coming folks. Maybe not quite yet, but soon and when it does, it will be a coordinated blitz between the Fed, the ECB, the BoE and the PBOC with the BoJ tagging along because… well, why not? Not only will it be coordinated, but it will be gigantic. It’s really all they have left now.
The fear of falling that surrounds deflation has paralyzed the world for the last four years and drastic measures have been taken to stave off that which central planners fear the most.
Lately, the big problem the world has faced has been Europe’s unwillingness to
get its head out of its a** come to a collective decision about how to tackle the suffocating debt, but in recent weeks Mario Draghi has seemingly lost patience with political leaders and has begun to force the issue.
Coincidentally, this week, as he opted not to attend Jackson Hole, in an op-ed published, importantly, in Germany’s Die Zeit, Draghi signaled just how Europe was going to finally turn on the printing presses:
“The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within its mandate.
Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools. When markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area. We have to fix such blockages to ensure a single monetary policy, and therefore price stability for all euro-area citizens.
This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole.”
In essence? “In order to uphold the law, Your Honour, sometimes we have to break the law”
Draghi has promised to always act within his mandate—except when circumstances dictate that he go outside it. Temporarily of course.
That sound you heard? That was the dust-covered tarp being hauled off the printing press in the ECB basement.
After four years of aggressive, yet ultimately futile stimulus by the Federal Reserve, BoE and PBOC, the ECB is about to join the printing party and when that happens, the inflation/deflation debate is basically over.
Don’t believe me? Ask gold which broke out this week in the wake of Bernanke’s speech after staunchly (and somewhat surprisingly) refusing to wilt in the face of a lot of commentary in the run-up to Jackson Hole that had suggested there would be no QE3.
Normally that talk alone would have been enough to send gold scampering lower but not this time.. It’s almost as if someone knew something? But that would be crazy talk.
So… will the combined might of the
Avengers world’s central bankers be enough to quell the fear of falling that all of us are born with? Well, one thing is for certain, it will not be for the want of trying and in the next few months they seem likely to unleash the quantitative Kraaken once and for all.
By lining up the kind of unlimited stimulus measures that the likes of Draghi and the Fed’s Eric Rosengren have been advocating, the deflation trade will be over and we can all go about our lives safe from our fear of falling.
Continue reading the latest edition or subscribe for free to the weekly edition of Things That Make You Go Hmmm by Grant Williams