The Difference Between Bubbles And Panic: Mario Draghi Explains

Tyler Durden's picture

One can't make this up: in what was timed to be a near perfect alignment of the FOMC Minutes release and Mario Draghi' lecture in London which started, pardon the phrase, minutes after the Fed own Minutes were released (which however will not please Mario judging by the surge in the EURUSD) Mario Draghi just uttered this absolute stunner.

Keeping one’s own house in order also has a further benefit: it helps mitigate the effects of contagion. As we have seen during the crisis, those governments that had more robust fiscal positions were much less affected by contagion – at the extreme they even benefited from safe-haven status.

 

This protection, however, is not absolute, because it relies on the ability of markets to discriminate between sound and unsound debtors. Yet bubbles and panic happen. A bubble is a situation where markets ignore fundamentals, even if debtors are unsound. For too long, markets failed to raise funding costs for countries with unsustainable policies. And a panic is a situation where markets also ignore fundamentals, but this time to the detriment of sound debtors.

This... coming from the same central bank that just ushered in NIRP not to fix its busted monetary plumbing and stimulate lending but to put the peripheral bond carry trade into overdrive and create the biggest sovereign debt bubble of all time!!!??

One doesn't know whether to laugh or cry.