Mario Draghi’s nonsense is a compost heap as he tries to continue his efforts to build the ECB‘s balance sheet to the point of no escape. The ECB president danced around inflation questions by generally holding to the view that inflation across the entire euro zone would have to rise to the 2% level for the central bank’s mandate to be met. Currently, Draghi holds to the view that the recent elevated levels of inflation are transitory due to higher energy costs. It was noted that there has been a decline in service sector costs, which could put downward pressure on inflation once the energy prices pass through the data. Draghi also emphasized that with the current unemployment levels in some EU countries there was far too much slack which keeps wages from rising. A positive point for the ECB is that it does not follow NAIRU as a major gatekeeper of wage levels. In his typical effort to elevate his position, Draghi applauded the ECB for saving the EU financial system and economy, but until the politicians make the needed structural changes there will be continued “substantial monetary accommodation” so the ECB can meet its inflation mandate.
In an Oscar-worthy performance, Draghi proclaimed that the ECB does not make its decisions based on any country’s domestic situation (ha ha). Also, Draghi maintained that the need for substantial QE is because of the risks to growth. (I always thought the ECB mandate was inflation but, you see Yossarian, too little growth leads to low inflation thus we have to fight low growth in order to meet our inflation mandate.) So Mario Draghi has performed a coup by capturing the ultimate lever of power: the printing press. The only hint at honesty was when reporters questioned about any conflicts with German Finance Minister Wolfgang Schaeuble over the ECB’s aggressive QE program.
President Draghi politely informed listeners that the original proposition for the ECB was for it to be INDEPENDENT. This was mandatory for the Bundesbank as the Germans did not want the ECB to serve the monetary interests of the inflation-prone Southern European nations. Draghi subtly informed the press that in acting against recent German concerns over the ECB monetary accommodation he was acting independent of Schaeuble and pursuing what was best for all of Europe. This will be the key issue once the French political situation has been resolved. Bottom line is that Mario Draghi laid a great deal of boogie woogie on us all.
***More confusion: All the news about the Trump tax program is noise because what sounds too good to be true will certainly prove to be so as the one-page plan winds its way through the legislative process. Today, former Treasury Secretary Larry Summers appeared on CNBC to discuss the op-ed he wrote for the Washington Post. He maintained that the basis of the plan was more VOODOO economics based on supply theory. The former Treasury Secretary under Bill Clinton pontificated that if he were asked to present a plan like Mnuchin he would resign. Summers ripped Mnuchin for being party to an economic plan based on tax policy that has been discredited by most experts.
It seems that Summers fails to conceptualize this fact: Trump was elected because many of non-Davos elite have grown tired of the wisdom of experts. Summers would never have tolerated being used to promote some ridiculous policy such as the Trump tax plan. Oh yes, that’s correct. It was Secretary Summers who presided over the Wall Street-designed repeal of Glass-Steagall. Again, please don’t lay no boogie woogie on the king of rock ‘n’ roll.
***Tomorrow is month-end so be careful as the window dressers will be out in force. The stock market is up more than 1% and the shorts have been abused for the past four weeks as politics, war and whatever method of apocalypse have been laid out by the power of global liquidity and the promise of low taxes. The fundamental of QE continues to provide the mainstay of investing, so go with the flow.
If there is a change we will discuss it but that time has not arrived. The yield curves will probably be the key indicator but for now even that signal is dazed and confused by central bank policy. As usual, we strive to stay alive to fight another day, week,month, year … whatever. While profits are the objective good risk management is the key. We’re waiting on the May flowers.
Tags: ECB, inflation, Larry Summers, Mario Draghi, QE, Treasury Secretary Mnuchin, Trump tax plan
April 27, 2017 at 8:52 pm |
Yra-An attempt to do an exegesis on your amusing title, Laying Boogie Woogie on the King of R’and R, raises the following question and comment.
Were you alluding to Draghi playing Chuck Prince who had to keep dancing as long as the music was playing? That raises the question of Prince being just one of the dancers while Draghi is supplying the music. Mario’s keeps giving a hat tip to King Elvis, twerking his QE for all to see, keeps the party going.Will the dancers get tired at some point or the musicians yield to exhaustion, and how will all the participants in this very long party feel?
Would Larry Summers, another dancer Boogie Woogieing across the dance floor with Paul Krugman as his dance partner, have resigned if he was Treasury Secretary under JFK or Reagan?
When the music does stop as it ultimately will, will everyone who is going with the flow be able to walk off the dance floor to the exit sign at the same time, intact?
April 27, 2017 at 10:47 pm |
Fred–this wisecracking side I have never seen—I will think it through but Draghi never fails to prove that he is indeed the ultimate music man,Professor Harold Hill
April 29, 2017 at 12:37 pm |
Long John Baldry RIP
April 30, 2017 at 5:13 pm |
Y’all are too kind. These EU guys and gals will flounder along, thinking they have the answers, at least for the next paycheck or bonus, until a true blue Leninist can grab the helm. Then they will be asking the U.S. to somehow intervene. It will be too late, the EU will be the EUSR. Likely to make a broad statement of Alliance with the Russian republic, and/or China, while leading an always obedient Euro Elite into the socialist disaster and Kafka like “Castle”. Bernie, ex-prez OB and Injun-Liz can only dream of such a future – thank Heaven.
May 4, 2017 at 3:24 pm |
French debate was a hoot! 🙂