Draghi: Trillions In QE Have Made Economies "More Resilient"

Tyler Durden's picture

When last night we previewed this week's annual Jackson Hole symposium at which Mario Draghi is scheduled to speak just before the market close on Friday, we said that the ECB head is warming up for the trip by speaking at the Lindau economics symposium in Germany this morning "and as such he could front run himself." Unfortunately for many who were expecting some advance highlights, Draghi disappointed those who hoped he would preview his Jackson Hole appearance.

So what did Draghi talk about? Instead of previewing the ECB's inevitable taper (especially as the central bank will soon run out of Bunds to buy at the current pace of monetization), the central banker defended growing criticism of his unorthodox monetary policy, and said the ECB's policies such as QE and NIRP, saying they have been a success on both sides of the Atlantic, and that the purchase of some $15 trillion in assets has somehow made economies "more resilient."

Speaking to the Lindau audience of 17 Nobel laureates and 350 young German economists, a nation which has been one of the stiffest critics of ECB policies such as quantitative easing, Draghi's speech avoided any specific hints on current ECB deliberations, and instead said officials must be “unencumbered by the defense of previously held paradigms that have lost any explanatory power.”

He then launched into a vocal defense of QE, saying that “when the world changes as it did ten years ago, policies, especially monetary policy, need to be adjusted. Such an adjustment, never easy, requires unprejudiced, honest assessment of the new realities with clear eyes, unencumbered by the defense of previously held paradigms that have lost any explanatory power”

Aptly on Monday, Nick Macpherson, a former UK Treasury official said what we have been saying since 2009 when he compared QE to "heroin" because it has been so difficult to wean the UK, US and eurozone economies off it. Lord Macpherson, who was permanent secretary to the Treasury when the Bank of England started QE in 2009, tweeted on Monday: "QE like heroin: need ever increasing fixes to create a high. Meanwhile, negative side effects increase. Time to move on."

Draghi disagreed:"a large body of empirical research has substantiated the success of these policies in supporting the economy and inflation, both in the euro area and in the United States," he said referring to a body of evidence written mostly by central bankers and other career economists who still can't figure out the reasons for the mass popular anger that culminated in Brexit and Trump.

The ECB buying relatively safe assets such as government bonds means that banks can lend more and invest in riskier assets, which in turn improves access to credit for riskier borrowers, Mr Draghi said. He added: "Policy actions undertaken in the last 10 years in monetary policy and in regulation and supervision have made the world more resilient. But we should continue preparing for new challenges."

Draghi also said "studies" (again, central bank studies mostly) show "innovations" such as forward guidance and trillions in bond purchases under QE have been successful in supporting the economy and inflation.

As Bloomberg notes, that view wasn’t wholly endorsed by Nobel Laureate Christopher Sims: “My view is that the unconventional actions that the Federal Reserve took in the early stages of the crisis were extremely effective as a major lender of last resort,” he said in a Bloomberg TV interview with Francine Lacqua. “The subsequent quantitative easing I don’t think was harmful, I think it may have been somewhat helpful, but I don’t think it’s been a major powerful instrument of monetary policy.”

Meanwhile, other critics of QE - such as this website - simply show insane charts such as the one below according to which over the past 9 years central banks have acquired 40% of world GDP in terms of assorted assets, and have argued for years that this has inflated asset bubbles and stoked inequality by rewarding the asset-rich while punishing savers, a view that has become increasingly mainstream.

In any case, Draghi had to have the last word: after leaving the podium, Draghi took one last swing at his critics. "you need serious conceptual analysis and base policy on that, not on prejudice, or -- even worse -- on moral grounds,” he told reporters after his speech. “Some people say ‘Oh, QE is immoral, because it creates money out of nothing."

Actually, what it ultimately creates is war - one which will be conveiently scapegoated on the "nationalist fascist" du jour. Luckily we still haven't quite gotten to that point just yet.

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junction's picture

Resilient is the wrong word. Try corrupt.

Haus-Targaryen's picture

These CBs are more akin to a cult than a central bank. 

eclectic syncretist's picture

It did get him that monkey suit he's stuck in.

Honey-Badger's picture
Trillions In QE Have Made Banks and Companies Closest to the Spigot "More Wealthy"

 

FIFY you luciferian shit stain!

BennyBoy's picture

 

Easy to give trillions to your buddies when it's not your money.

Stuck on Zero's picture

I'm going to rush out and borrow $100K to buy a F350, a pair of jet skis and an ATV. That will make more more "resiient."

JRobby's picture

A statement from the biggest lyng tool box in the EU. Great!

skbull44's picture

As author Robert Heinlein pointed out: Man is not a rational being, he is a rationalizing one.

NotApplicable's picture

These thoughts seem apropos.

The use of mathematics has brought rigor to economics. Unfortunately, it has also brought mortis.

        — Attributed to Robert Heilbroner

 

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

        — Friedrich von Hayek

mtl4's picture

"......and as such he could front run himself."

This would only be funny if frontrunning CB's wasn't the entire playbook for banks tapping into QE profits over the last 10 years. Gov't is finally realizing that these low rates cause other problems (pensions) and oops, wall st is still addicted to the QE drugs, this can't end well.

bionicknees's picture

Central Banks are a giant ponzi scheme to give member banks money for nothing and loan it out at usery rates. The Central Bank at least in the USA and their members should be dissolved.

bionicknees's picture

Central Banks are a giant ponzi scheme to give member banks money for nothing and loan it out at usery rates. The Central Bank at least in the USA and their members should be dissolved.

Pliskin's picture

Agreed, they're a right bunch of cults.

GlassHouse101's picture

Try 'broke'! 96% of our wealth has been stripped!

GunnerySgtHartman's picture

Only a central banker would say that printing more fiat makes economies 'more resilient.'

BlindMonkey's picture

You are wrong there.   I just read that the British building inspectors have declared that hanging gasoline soaked sheets from your balcony will make the building "more resilient" from fire.

 

 

NotApplicable's picture

Well, given that the economy is now nothing more than a machine of finance, it is kind of true at the moment.

Just as long as one can ignore the production/consumption artifacts of the old-style economies.

ZoroAustrian's picture

And god forbid that you use moral considerations in making policy.  Perish the thought!

Stick with gobbledygook all mathed up self-justifying nonsense 'research' put out by your friendly neighbourhood kleptocrats.  That'll give you resilience.

No wonder they're so afraid of any moral disucssion.  They're all going to hell, hopefully sooner rather than later

DavidC's picture

I read what I could of this with my head in my hands.

I'm reminded of Andy Dufresne's (Tim Robbins) line to Warden Norton (Bob Gunton) in 'The Shawshank Redemption' 'How can you be so obtuse?'.

DavidC

spastic_colon's picture

research confirms lolololololololol..........who's research?? you mean the chirping wall street banks?? evidence?? you mean like the phony econ reports that have been adjusted to fit the QE narrative??

williambanzai7's picture

Oh yes, you Keynesian methane sac!

buzzsaw99's picture

that's not the word i would have picked.

LawsofPhysics's picture

Me neither, I think the word he is looking for is corrupt.  QE is in fact PRINTING or free money to bankers and financiers. Look at bank reserves, that money has NOT made it out into the real economy (if it does we get hyperinflation on a scale never seen before).

 

However, it has allowed the 0.1% in banking and finance to claim ownership of almost EVERYTHING.

Yes, power corrupts, absolute power corrupts absolutely.

Thought Processor's picture

 

 

Draghi: Trillions In QE Have Made Economies "More Resilient"

 

 

That's right people, debt is good.  This can go on forever.  We can print to the moon!

 

It's all skittle shitting unicorns from here on out.

 

Everyone sing with me now..................

 

NotApplicable's picture

I just spent the entire weekend listening to a bunch of lefties complaining about one disaster of corporatism after another (of course, they called it capitalism). Each and every time, I'd have to point out that the root cause was really debt-based fiat money issued by central banks that cannot but help to undermine everything.

This resulted in mostly blank stares.

GlassHouse101's picture

Thank you Central Bankers! We once had $1 Dollar, now we have .04 cents because of you!!

Debt-Is-Not-Money's picture

Is this what the Constitution means by "maintain a constant value" (Art 1, section 8, clause 5)?
When the Congress created 'The Fed' it clearly violated the Non-Delegation doctrine of the Constitution where the Congress cannot delegate to others what it's responsible to do (agencies, branches, outsiders).
What will it take to get government to obey the law?
LOL

GlassHouse101's picture

The Fed/ Central Banks are the REAL governments. Something tells me they aren't afraid of the Constitution.

Debt-Is-Not-Money's picture

R

Right - "He who owns the "gold" makes the rules!

wobblie's picture

What an embarrassment. And we're supposed to pretend private profit finance jerk-offs give a shit, never mind knowing something about economics.

What a joke.

https://therulingclassobserver.com/2017/08/19/in-the-time-of-useful-idiots/

Latitude25's picture

Draghi's an extraterrestrial trying to exterminate humanity.

Thought Processor's picture

 

 

 

 

This is actually a possibility, until proven otherwise.  

 

 

 

Thought Processor's picture

 

 

On that note-  how do you get a name like Draghi?

 

What's the origin of that?  

 

 

Funn3r's picture

Means "dragon", from Latin "draconis". Not really too far away from "extraterrestrial trying to exterminate humanity" I guess.

Thought Processor's picture

 

 

Of course, he's a Draco!   Now it all makes sense.

 

 

(my sarc/ button seems to be permanently malfunctioning as of late).

 

 

 

Unholy Dalliance's picture

I believe that the moon is made of Dutch Edam cheese and I demand my right to be believed be honoured by everyone!

(What Draghi said is roughly akin to the above.)

shizzledizzle's picture

HAHAHAHA! Yea buddy, and it's gonna take trillions more to hold them up. 

oak's picture

can you, Draghi, please do more qe?

GodSpeed_00's picture

Buy Crypto, DECENTRALIZED Crypto that is.

GodSpeed_00's picture

Please tell me how that clown will benefit from someone holding decentralized crypto, oh that's right you can't.

Honey-Badger's picture

Yeah stick all your hard earned labor into a device they could slam to $0 with one new law.

GodSpeed_00's picture

Not going to happen. Even if they made a law in the US "banning crypto" which is impossible to enforce btw, the price would not go to zero as it is legal in other countries.

bunkers's picture

Europe prefers guillotines. America prefers large oaks (or maples, etc). It's a cultural thing.