The collapse of velocity (public spending) throughout the entire European monetary union isn’t something any Central Bank can fix. This is a structural problem best resolved by politico’s. Having the Central Bank assume responsibility for political problems that are intrinsically fiscal has been exposed. The panic of deflation has set in throughout the Union, and no amount of quantitative easing can resolve it.
This blog has taken the responsibility to outline why the E.U. cannot procure escape velocity; the printing of money to conjure spending (velocity). Anyone with even a cursory knowledge of Marshall McLuhan’s studies of digtial technology would understand what hampers the E.U. Digital technology breaks the social, political hold that center-magin based civilizations have enjoyed for centuries. The managment of expectations is all the Central Bank can achieve now. New monetarist schools of thought have begun to advance theories of Nominal GDP to offset the advance Milton Friedman made when he rediscovered the causal relation between money supplies and spending. Nevertheless, what we’re witnessing now throughout Europe is political, and no amount of central bank accommodation can fix what remains structural, namely the suffocating regulatory and tax regimes that underwrite zero growth.
The great enablers have failed. Now its time for the adults in charge to do some heavy lifting.
This is why Draghi permitted the nose-dive of M3. Even the U.S. federal reserve has revealed that central banks around the world are being asked to do too much. Recently the European Central Bank’s Benoit Coeure threw down the gauntlet, revealing, “talking vaguely about structural reforms, but not doing them is the worst of all worlds. It creates uncertainty over the path of real interest rates, without in tandem raising expectations of future growth.”
Translation: central bankers have failed and must return to classical adroit political relations that dominate the third rail of modern politics: fiscal balance sheets, structural political reform.
Well, if politicans don’t start grappling with growth inhibiting policies, then the global Hail Mary of monetarist credibility will itself become a source of cronic instability.
When central bankers begin to look for the exit, you know the Emperor has no clothes!
Let’s see is Draghi has what it takes to speak German.