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It Was All A Dream…
On Thursday, the ECB confirmed the end of net asset purchases and the timing leaves something to be desired.
In retrospect, Draghi probably should have started running a little faster down the road to normalization at the beginning of the year, when the eurozone economy was still robust. As documented pretty extensively on Thursday morning, economic activity is decelerating and that has some folks talking about "quantitative failure."
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ECB Ends QE And, Critically, Enhances Forward Gu
QE has always been “quantitative failure”, from its conception. Any easing in financial conditions that it brought to the world was through expectations management (Draghi’s expertise, judging by his sycophantic fanboys). That is not to denounce its brilliance: the swap of toxic assets from bank’s balance sheets with non-toxic securities was a stroke of financial genius, because it sterilized the balance sheets of banks. But this portfolio sterilization never achieved its end goal, which was to rekindle the flow of credit in the real economy (as opposed to the financial economy) by allowing banks to swap their non-toxic CB securities for risky loans.
The real failure is central banks’ insistence on QE as the only acceptable measure to ease monetary conditions, something they never truly achieved (just looking at funding markets like the eurodollar market over the past 10 years is indicative of this). As a European I find it hard to sympathize with the gilets jaunes or the 5 Star Movement but their anger at technocrats’ incrementalism is the logical reaction to a lost decade for Europe’s non-asset-owning classes.