The only immediate silver lining may be in the end the most fruitful of long-term prospects. Central bankers have done us a profound favor by overplaying their hand time and again. The catalog of false statements and expectations is long and getting longer. The ECB then assured ‘us’ that this was different and that the LTRO’s, massive as they were, did not work because they weren’t QE. Seeing it described then in countless articles and interviews as something like magic, the speed with which it has unraveled leaves little doubt.
Still less than a year later, it is comical to see what a fuss was made back then when the ECB did nothing more than switch the method. To some economists, there might be a practical distinction between the LTRO’s and the technically named PSPP, but in the end those don’t matter because the true purpose is not now nor has it ever been about how any central bank will interfere, rather the intent is whether that interference further transmits into productive economic catalysts. Who really cares that Portugal’s borrowing costs are record lows if youth unemployment in Portugal is still 30% and general economic prospects are no different than they were four and five years ago? The byproducts of both the LTRO’s and QE has been inert, useless bank reserves whose only real effects have been to completely obliterate the function of ‘money’ markets. The real economy remains undisturbed, unimpressed and still hugely underperforming.
To review the commentary about QE last year in light of today’s events is still, however, enlightening. On March 5, 2015, for example, Mario Draghi was already claiming that QE had worked even though he had to yet purchase a single bond under its gaping auspices.
This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ March 10, 2016.
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