Mario, Tim and me…

From Ambrose Evans Pritchard at the Telegraph:

Mr Draghi has won high praise from monetarists around the world, convinced that he has acted just in time to head off a dangerous contraction of the money supply and a full-blown banking disaster. “Draghi has been very astute, and has given the single currency project another lease of life,” said Professor Tim Congdon from International Monetary Research.

“It helps enormously that banks have time to recover. Cheap loans will boost M3 money growth and drive a wider economic recovery this year. Needless to say, the Draghi Bazooka doesn’t solve the external imbalances in the Club Med countries. They will still have to go through internal devaluations, and the question is whether they can endure the agony,” he said.

“Draghi may have saved the euro,” said Lars Christensen from Danske Bank. “What they have done is not optimal. They are acting arbitrarily with no fixed rules and no transparent exit strategy but at least they are acting. If the ECB had done this a year ago, we wouldn’t have had the latest crisis in southern Europe and they would have saved European taxpayers billions.”

Leave a comment


  1. Do you think there’s a stigma for taking the money? Sweden’s finance minister yesterday said publicly that he thought Swedish banks should consider using the LTRO, but none of them did.

  2. Darko Oračić

     /  March 1, 2012

    Lars, M1 growth in the euro zone increased from 1.6% in December to 2.0% in January, and loans to the private sector from 1.0% to 1.1% – we still don’t see the beginning of the alleged Draghi revolution in data. In comparison, M1 growth in the USA amounted to 18.3% in December and 19.2% in January (data from FRED). The already second part of the Bernanke revolution is under way!

  3. Oscar, the short answer is no.

    Darko, I agree – lets hope broad money supply measures soon start to pick up. The market action indicates that a pick up in both M and V is under way. The risk, however, is that the ECB gets cold feet when this starts to work.

  4. David Eagle

     /  March 1, 2012

    As Lars Christensen and I keep saying, expectations are key to getting nominal spending to react to the European Central Bank’s attempts to stimulate that spending. That is why the ECB should be transparent with regards to its NGDP intentions. Without that transparency, the ECB may fail in its attempts. In the U.S., Congress required the Federal Reserve between 1978 and 1987 to report its money supply targets. However, because of instability of velocity, this was deemed to be worthless after 1980 and the Federal Reserve quit reporting such targets. However, if the U.S. Congress were to have instead required that the Federal Reserve had to report its NGDP intentions, then that would have been more in the spirit of the original requirement and the velocity’s instability would not have mattered. Even if a central bank targeted something else like inflation (as crazy as that would be), that inflation targeting still has implied NGDP intentions and the central bank needs to be transparent in those intentions. I would recommend the Federal Reserve, the ECB, the Bank of England, and other central bank publish its intentions with regard to NGDP either voluntarily or be mandated to do so. Of course, the ideal would be that the ECB and other central banks be committed to stick to its original NGDP intentions and a long-run NGDP path, which is what level NGDP targeting is all about, but getting those NGDP intentions out in the open is something that we should all agree on for the sake of transparency.

  5. Benjamin Cole

     /  March 1, 2012

    Print more money, and keep printing until you get results.

    I love money, I love material income and wealth, I love the boom times.

    Bring ’em on, Jack.

    Print more money, and we will find a way to spend it.


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