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ECB poised for some mid to late year QE?
We've made no secret of our views on the ECB's handling of the credit crisis and ahead of the imminent interest rate decision in a few hours, it's looking clear that the economists are strongly expecting rates to remain low (but not sub 1%) until late 2010. What's interesting is the unexpected recent announcement by Riksbank has done little to shake this expectation; they are probably right but the academic conviction in the ECB hardline is a datapoint that can't be ignored. With a deflationary spiral looming and the Euroland consumer taking bodyblows for the past several months, QE may be looking increasingly appealing from a policy perspective. However, the timing is critical especially if we're looking at a "darkest before the dawn" type scenario.
Ultimately, the big fear has to be that if the ECB sits on its hands for too long but then decides to plunge into QE in a major way, the yo-yo picture of inflation (and subsequent rate price action) would have a ridiculous effect across the board. After a certain tipping point, it's better to just sit on the sidelines rather than attempt to serve up some medicine too late. The focus thus far has been disproportionatly weighed towards the US inflation picture but the Euro presents a much different set of possibilities (especially without the made-in-China-dollar-hoover and the policy implications of ECB decisions).
EDIT: This was meant to be posted this morning (i.e. before the rate announcement)
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I'm not convinced that QE would help. Why should it? The problem is that confidence and therefore orders in the manufacturing sector have collapsed.
I think the main reason why manufacturing has collapsed is not a lack of credit but because deficit countries have stopped consuming and so the balance of payments rebalances
global lenders and borrowers in 2008
The housing bubble in USA, UK and Spain busted and no QE in the world will prevent a new global balance. China is only growing because they make insane loans to everyone
China’s loan growth isn’t boosting my confidence in China’s “green shoots”
They will have serious problems in a few years...
Credit boom? Currency DOOM!
http://www.traderview.com/economiccommentary/tedbitsEconomicCommentary.asp
-40% wouldn't be enough to get credit flowing in Euroland or here. The money is being thrown out the front door, and it comes right in the back door, except with a private name on it instead of "Citizens of the United States."
ECB is trying to put a brave front on things. Do you know the panic which would ensue if they dropped to 0? But it just shows that all the Neville Chamberlain types are still in charge in Euroville, obeying their shadow king the Prince de Ligne.
Stiff upper lip, old boy.
what?>??
I doubt QE would help when global demand is down... I suppose the ECB would be late to the QE party.