ECB’s New QE Points Toward Helicopter Money; Trump Buys It
Sept. 12, 2019 (EIRNS)—Lame-duck European Central Bank President Mario Draghi announced a new “quantitative easing” money-printing program today, which President Donald Trump immediately pushed the Federal Reserve to imitate. But the ECB’s Governing Council members were strongly divided, the program has no real chance of stopping Europe’s economic downslide, and it will feed big-bank speculations instead of the productive lending it claims to want.
For Trump the only way possible to stabilize the dollar’s value against hyper-speculation, is to make fixed-exchange rate agreements, with exchange controls. But he tweeted as follows: “European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”
A Bloomberg report suggested the ECB Governing Council from the strongest exporting countries—Germany, France, Austria, Netherlands—actually were opposed to Draghi’s plan. And the euro did not fall against the dollar.
The new ECB scheme, besides lowering the interbank lending rate to −0.5%, features buying €20 billion a month in bonds from dealer banks “indefinitely”; “QEternity” for short. There is a new round of ECB liquidity loans to the big banks. The plan has some strange characteristics which indicate a) the new conditions of deepening European recession, b) ineffectiveness of central banks’ actions in a negative-rate universe, and c) the open discussion of “helicopter money” printing at the Jackson Hole bankers’ meeting in August.
The loans by ECB to the bigger banks will be “two-tier.” Banks which re-lend out a low amount of that money will do so with a negative yield; those which lend out more, can be permitted that old throwback—a positive rate of return! So, the interest rate for lending to the economy is higher in this program than that for holding and speculating with reserves.
Supposedly €5 billion/month of corporate bonds will be bought, and €15 billion of government bonds—limited to those (northern and eastern) European governments whose bonds have good enough ratings to be bought by the ECB. No one government’s bonds can be more than 33% of the total bought by ECB; this means Germany. So, after about one year and €180 billion of government bonds bought from primary dealer banks, the limit on German bunds will have to be raised to at least 50% of the total, or the quantitative easing will sputter to a halt. The German government could be pushed to issue more debt than it thinks it should, just so the ECB can buy it, in turn so that it can feed reserves into megabanks on the edge, like Deutsche Bank.
It’s not surprising that Draghi’s written statement was full of exhortations to “those governments with fiscal space” to fill it—spend. In the name of inflation, borrow, spend! We’ll buy all the bonds you can issue—with no interest! Draghi was getting close to helicopter money, specifically the Standby Emergency Fiscal Facility version of it proposed by BlackRock LLP at Jackson Hole.