During this morning’s ECB press conference, Super Mario sent a clear message to the markets: the ECB’s printing press, QE, is a permanent fixture in the central bank’s arsenal or “toolbox.” If you’re not inferring from his words that inflation is the end game, what are you thinking?
Why isn’t QE effective in Venezuela or Argentina?
Maybe because the countries’ central banks went to to the well (printed money) too many times in the past wrecking confidence and demand for the local currency.
The reserve status of a currency, which, by itself, generates intrinsic demand, does not last forever and demand is not infinite.
Inflation The End Game
That is why, listening to Mario and other central bankers, we believe inflation is the end game, folks. Not yet, and maybe not the next crisis.
There will be, most certainly, a few big deflation scares in the interim, which will sow the seeds of the big inflation as the central bankers fire up the printing presses again and again. Probably in the form of some kind of “People’s QE” monetizing unfunded pension liabilities and a universal basic income (UBI).
We are not taking a political position for or against the pension fix or UBI, but are fairly certain it won’t accomplish what policymakers think if funded by QE.
The advanced economies need structural fixes starting with dealing with the huge and growing disparity of wealth and income.
No more cyclical tools to fix structural problems. Let’s get it on with it.