Gorilla's Blog

The ECB’s finally noticed that the Eurozone is in another recession, that austerity isn’t working at all (they’ve noticed but not actually admitted this is true), and that inflation continues to be too low.

So a cut in interest rates, not to zero, but from 0.75 to 0.50%…

Alas, what’s also needed, namely a reorganization of the banking system, a much higher inflation target, the end of austerity, large scale fiscal stimulus, and a clear assumption of the lender of last resort role remain off the table.

Until these things happen, Euroland will limp along, with all eyes on whether the Fourth Reich will win reelection in the fall.

Gorilla says: “Even idiots occasionally are correct!”

If Eurozone governments had actually hit their targets for cutting spending!!!

Meanwhile, the EC is out with another forecast: contraction is indeed contractionary, so no growth for another year and even higher unemployment…

The complete and utter stupidity of the ECB and leaders like Angela Merkel have condemned millions to absolutely unnecessary suffering.

What’s needed is what’s been needed for the last 5 years: 1) a much higher inflation target, at least 4-5% until unemployment falls, 2) a reduction in interest rates to 0% until growth recovers, and 3) a continent-wide stimulus on the order of $1-2 trillion/year for the next 3 years.

And none of this is on offer because European leaders have learned nothing about the economic history of the past 75 years.

Gorilla says: “The Reichstag fire is still smoldering!”

Yes, there will be some bond purchases, but no, there won’t be a clear statement that the ECB shall be the lender of last resort on sovereign debt.

No, there will not be a cut in interest rates, but yes, the Euro must survive.

Yes, it’s all within the ECB mandate, but no, there will not be commitment to pursuing a much higher inflation target.

No, the Germans won’t be resigning en masse, but yes, they will continue to insist on absolutely counterproductive austerity programs.

Yes, it appears inevitable that Greece will leave the Euro, but no, there’s nothing at all being done about the disastrously high levels of unemployment throughout the continent.

Gorilla says: “Yes or no, it’s still not enough!”

The markets are excited, the ECB may finally do something!

What the ECB should do:

1) Cut interest rates to zero.

2) Announce it will serve as lender of last resort for all Euroland sovereign debt.

3) Raise the inflation target from 2% to 5%.

4) Encourage the austerians to stop being so unsuccessful and start large-scale stimulus programs.

What the ECB will do:

1) Cut interest rates to .50%.

2) Announce a vague bond buying program.

3) Await further instructions from the dithering clowns in Berlin.

Gorilla says: “No, the trains don’t run on time either!”

Everyone’s excited about ECB Chief Draghi’s promise to do “whatever it takes” to rescue the Euro, but nobody seems to know what that means.

ECB as lender of last resort and guarantor of all sovereign debt?

Cutting interest rates to zero and proceeding with big-time quantitative easing coupled with fiscal stimulus?

Pursuing a higher inflation target of 4-5% until unemployment (now at a record in Spain, which will collapse without an ECB guarantee) comes down?

Until these things are said explicitly, and without harrumphs from the Germans, the Eurozone crisis will continue.

Gorilla says: “Whatever it takes does imply that it takes something more than the failed policies now being undertaken!”

1% of GDP for stimulus is what it is: wholly inadequate to get Euroland growing.

Each time it looks like someone will decide at last to lead, we get summits in which the only Euroland institution that can do the job, the European Central Bank, is again hamstrung by the worst political leaders since World War II.

The ECB needs to declare itself the lender of last resort, cut interest rates to zero, and raise the inflation target to at least 5% until unemployment drops substantially.

Gorilla says: “What’s the point of lurching from crisis to crisis? Opportunity’s knocking, but all we get is a dialogue of the deaf!”

All you need is a central bank that does its job:

1) Print money, lots of it, and give it to people.

2) Guarantee all sovereign debts, print money, lots of it, and give it to people.

3) Cut interest rates to zero and keep them there for at least 3 more years.

4) Pursue an inflation rate of 5% until unemployment falls below 7%.

5) If in doubt, print money, lots of it, and give it to people.

Gorilla says: “Easy peasy, but the Germans are queasy!”