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A critique of the ECB's liquidity policies | 66 comments (66 topical, editorial, 0 hidden)
I've got a feeling I haven't understood a thing (none / 0)
So I'll commit a post to remove all doubt.

Bullet points :

  • The ECB is buying sovereign bonds, to help out EU nations who are running a deficit they are having trouble financing at market rates.
  • By doing so, all else being equal, they are creating money out of nothing.
  • Creating money out of nothing, according to the operating doctrine of the ECB, is inflationary and therefore a Bad Thing.
  • In order to cancel out the inflationary effect, the ECB soaks up the same amount of money they created, by borrowing it from banks.
  • The ECB is having trouble doing this, needing to increase its offer (interest rate) and still coming up short.
  • By competing for apparently scarce money, the ECB would appear to be freezing out other potential users, thereby stifling economic activity, and driving up inflation...

Completely wrong?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Fri Feb 25th, 2011 at 10:53:30 AM EST

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A critique of the ECB's liquidity policies | 66 comments (66 topical, 0 editorial, 0 hidden)
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