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ECB Draghi's Leslie Nielsen Act

Straight from the files of Police Squad with straight-faced Mario...
 
THIS YEAR is going to be a hoot, writes Bill Bonner in this entry to his  Diary of a Rogue Economist.
 
Boom, bust, lies and claptrap – we're going to have it all!
 
What accounts for Thursday's big bullish surge? From Bloomberg:
"The MSCI Emerging Markets Index added 0.8% to 983.53. Russia's Dollar-denominated RTS Index rose the most in the world and the Ruble strengthened as the ECB's move encouraged investors to buy riskier assets.
 
"Gauges in Poland, Hungary and the Czech Republic increased at least 0.9%. Oil producer Petroleo Brasileiro led gains in Brazil. Asian stocks jumped as China pumped funds into the financial system.
 
"ECB President Mario Draghi unveiled a quantitative easing plan of 60 billion Euros a month until at least the end of September 2016. The move, which is intended to counter slowing growth and the threat of deflation, may spur capital inflows into developing countries. China's monetary authority used open-market operations to add cash to the financial system for the first time in a year and spurred loans amid a fund shortage."
Will this bold move help the Euro-zone economy? Will it make Europeans richer, happier, better lovers or better sportsmen?
 
Not if it works like the US version.
 
The funniest part of this story is that Draghi made his announcement with a straight face. What a comic – a real Leslie Nielsen. As we saw yesterday, the average American is poorer than he was before the QE programs began.
 
But all over the world, speculators are running wild. In a single day, following Draghi's big news, they made a cool $1 trillion.
 
Where does this money come from?
 
Corporations are not worth a penny more than they were on Wednesday. Why would they be? All that has happened is that the European Central Bank has pledged to use money it doesn't have to buy assets that are already extraordinarily expensive.
 
Bonds from Italy, Spain and France are already priced at levels never before seen in human history. On the evidence, never have investors had more faith in European governments' ability to service their debt...or more faith in the currency in which their obligations will be honored.
 
This alone makes our mouth drop in awe and wonder. Never before in history have these very same governments been so deep in debt with so little prospect of ever paying that debt back. And never before have their central bankers been so openly committed to devaluing the money they are supposed to be protecting.
 
All of which is mind-boggling...extremely funny...or both.
 
Europe's QE program is supposed to "counter slowing growth and the threat of deflation."
 
But how does Mario Draghi know how fast an economy should grow? How does he know what prices should be?
 
Oh, we are being mean-spirited to ask. It's like asking an aging prizefighter if he really needs another blow to the head; we're just making fun of him.
 
Yes, another giant money-printing scam is under way – this time in Europe. This will put two of the world's biggest economies – Japan and Europe – in full liquidity-pumping mode.
 
The Dollar goes higher. American chests fill with pride – apparently unaware that they are losing the "race to the bottom."
 
Their exporters will find their sleds rubbing up against hard stone and soft mud. Especially their oil exporters! For the price of oil has dropped in half in the last six months.
 
According to TV's Larry Kudlow, the US enjoys the equivalent of a "giant tax cut" thanks to low oil prices.
 
Nine months ago, he said it was enjoying an "economic renaissance" thanks to high oil prices (which brought a boom in the fracking states).
 
What a great time to be an investor. Silver linings everywhere – with no clouds. And when you are riding your bike, all roads are downhill.
 
Remember, America's middle classes have lost ground. It barely seems possible. America is the crown of capitalism, isn't it? And doesn't the 21st century – which we live and breathe every day – carry in its balmy air the elixir of growth, progress and riches beyond our imagination?
 
How is it possible...with so many more lawyers...so many more economists...so many more public servants – all striving, sweating, straining to make life better for us all – that we have less real, spendable wealth than we had before the century began?
 
We are staggered by the question.
 
And once we recover our footing, we will come up with an answer. It is too big a subject to tack onto this Diary entry, but we will give a hint by asking another question:
Who makes life better? Who actually adds to humans' wealth, happiness and the quality of their lives?
  • Politicians?
  • Government employees?
  • Economists?
  • Lawyers?
Or is it the people who say they are working to create a better world – like President Obama in his State of the Union address:
"...helping working families feel more secure in a world of constant change...That means helping folks afford child care, college, health care, a home, retirement – and my budget will address each of these issues, lowering the taxes of working families and putting thousands of Dollars back into their pockets each year."
Or is it another class of people altogether – people who are too busy turning out products and services to feed you a line of B.S.?
 
You can guess. But you may not know that those people are disappearing.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

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