Forex Marketz Daily Forex News – Fully Markets Update
There is a lot hinging on today’s monetary policy decision from the European Central Bank (ECB). Will they finally implement an American style quantitative easing program (QE)? Probably but one former central bank president, Ben Bernanke, thinks they will not have an easy time with it.
Ben Bernanke spoke last night at the Schwab IMPACT conference. He thinks, correctly so, that there are many political barriers the ECB will face should they try and start an aggressive QE program later today. He feels many of these barriers are “not economic” in nature and are more “political” and legal. This means the ECB will have a tough time with any QE program.
He also took pot shots at critics over the Fed’s QE program. He accused them of “bad economics” for claiming the Fed’s program caused the Fed’s balance sheet to bloat and soar past $4.5 trillion. They claim, in our opinion correctly, will eventually cause inflation. The Fed’s easing program began in 2009, went through two different versions, and finally ended last week under new Fed Chair Janet Yellen.
He feels that there was never any inflation risk due to a lot of slack in the economy. He was more worried about deflation. This was the Fed’s view of the U.S. economy when they launched the first of the massive QE programs. Right now, he is right as there are no signs of inflation. The Dollar is gaining strength and it could be another five years before we see strong inflation in the world’s largest economy.
He says that QE was enacted after the economy was in a recession during the 2009 global financial crisis. His team, which included Secretary of the Treasury Hank Paulson, and his would be successor, NY Fed President Timothy Geithner, came up with a plan of alphabet soup programs. These were designed to bring back economic stability within a financial system in turmoil and near utter shambles. Since they enacted their QE, the stock market is up 200 percent from its March 2009 low. In other words, QE has formed one gigantic bubble in equities. This will be a discussion for another day…
Overall, Bernanke feels “very satisfied” with the results from his QE program. They were extreme but they did rescue a financial system on the brink of collapse. Lehman Brothers had closed, Bear Sterns went belly up and Citigroup (C: NYSE) was in dire straits. Will this work for Europe? Will the ECB be able to enact something as intensive and aggressive to save their stagnating economy, banks failing to meet the ECB stress test and a euro currency that is losing value? They have too many political and legal hurdles in the way. It will not be an easy process and it could hinder the success the European Union desperately needs to survive.
