Will Draghi’s LTRO get Obama reelected?

Following the US media’s reporting on the Republican primaries it seems like the candidate who will be nominated for the GOP candidacy for US presidency and who will eventually might win the presidential elections will be decided by their views about a retro-toy called  Etch A SketMight I suggest that US political pundits instead start following the actions of an Italian called Mario – Mario Draghi!

On December 8 the ECB under the leadership of newly appointed ECB chief Mario Draghi moved to ease monetary policy by introducing the so-called 3-year LTRO.

See what happened to President Obama’s reelection chances after the introduction of the 3-year LRTO. The chance of reelection shortly after jumped by 10 percentage points according the prediction market InTrade.

Believe it or not but the GOP hopefuls probably miss the French guy – Jean-Claude Trichet the former ECB boss who twice hiked interest rates last year. Last time July 7 – and look what that did to Obama’s reelection chances. Don’t tell me that monetary policy is not important – also for Santorum, Romney and Obama…


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  1. cthorm

     /  March 23, 2012

    I selfishly miss Trichet. Since Draghi took over 30yr treasury yields have climbed like 40-50 bps. And I was hoping to refinance my mortgage! Maybe Bernanke will do me a favor and blow it in June and raise rates/take QE3 off the table explicitly; then he can reverse the next month and institute level targeting.

    It’d hard to argue with the prediction markets, but I think they’re way overstating Obama’s chances still. I think he has a ~40% chance of reelection. He has been so colossally bad on civil liberties & war (from the left and libertarian perspectives), and horrendous on economic freedom (matters more to the Republicans) that I can’t see turnout favoring him. I expect a huge decline in turnout for young liberals, and a significant increase for Republican voters. Unless Santorum gets the nomination, which would be sufficiently scary for liberals/libertarians. Romney may not inspire the base, but he doesn’t inspire opposition either. My hope is that Romney takes the nomination and adopts some of Ron Paul’s platform or takes Rand Paul as his running mate. That helps with some of Romney’s conservative credentials, doesn’t terrify the liberals, and may even encourage the anti-drug war liberals/moderates to cross the aisle.

  2. cthorm, you might one to hedge your bets – one of yields and the other on the GOP;-)

    I am pretty sure that the prediction markets got it right…if not then I think investors fast should exist their “risk on” trades. After all the risk on-trades is driven by the expectations for higher NGDP growth…as is the expectation for Obama’s reelection.

    • cthorm

       /  March 24, 2012

      “After all the risk on-trades is driven by the expectations for higher NGDP growth…as is the expectation for Obama’s reelection.”

      I agree – but I can’t help but wonder if the expectations for higher NGDP growth are based on a longer horizon than this election. Yes higher NGDP now helps Obama’s election, but does Obama help NGDP growth? I think a GOP presidency, or at least GOP control of congress, will bring higher NGDP growth. I don’t see how NGDP trend growth will go up if we have another 4 years of Obama. I agree with Scott that Obama has been the worst president from a supply-side perspective since Nixon. Maybe that changes with a Republican house & Obama in the WH, it seemed to work in the Clinton years.

  3. Well, Obama does not decide on NGDP – the fed does. I am not sure how bad Obama has been on the supply side issues and there is a strong connection to monetary policy. If monetary policy delivers on NGDP stablisation/targeting then it will be much easier to push through supply side reforms.

    Anyway, I never have high hopes for politicians and I certainly know the the GOP no longer (if it ever were the case) is a reformist pro-market party. I am afraid other issues dominate Republican politics….

  4. Excellent blogging.

    Cthorm: I agree, Obama has been mediocre on energy, monetary policy, and even on Iraqistan. We will ever extricate ourselves from that mire? And he has missed an pop to make the Dems a pro-business party.

    Still, Obama’s GOP rivals look like Ron Paul and The Three Stooges.

    Then, if Romney wins to GOP nod, you have the strange set-up of a Mormon seeking votes from the GOP’s evangelical base. And Obama is a born-again Christian.

    And remember: Romney has bank accounts in the Cayman Islands. The Dems campaign like sissies, but if Obama surrogates start asking questions about the Caymans repeatedly near the end of the campaign….

    And Romney campaigns with all the fluidity of The Tin Man.

    Upshot: Obama beats Romney—economy loses either way.

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