News

**Galaxy**

Free-Market News: The market has rejected the euro and the EU. Now Draghi proposes to reject the market. In a groundbreaking reversal, he has indicated he will print currency to buy eurozone sovereign debt.

Mario Draghi, president of the European Central Bank (ECB), will do "whatever is necessary" to ensure a solvent euro. Draghi made the comments at an investor conference at the Olympics. Professional investors like John Fox, director of research at Fenimore Asset Management, believe it may mark a turning point in the four-year old crisis.

"When the head of the ECB comes out and says he's willing to do anything," Fox is quoted as saying. "That's code for 'We are going to agree to resolve this issue.'"

Of course, there may be another reason why Draghi is doing this now but it is nothing that Fox would ever allude to. We'll get to it toward the end of this article.

In any case, one wonders how much of Draghi's statement is merely an attempt to "talk up" the market and how much is grounded in reality. To be sure, he is obviously trying to sound tougher about using an array of monetary weapons at his disposal.

In an article about Draghi's announcement, the Wall Street Journal writes that Draghi "has had enough." Like a previously abashed partner in a bad business partnership, Draghi is going to the show the market who is "boss." He calls the euro "irreversible," and claims the "euro zone has the power to defeat market speculation."

Draghi can make a case for generating price inflation now because the expense of government borrowing is impeding the ECB's ability to conduct monetary policy and to support private sector transactions. He thus has a mandate to "lower ... premiums."

Of course, by that logic anything in the marketplace that affects government debt adversely is fair game for the ECB. Please note: The German people were sold the EU and the euro as something of benefit ... not as a "transfer union." Draghi may manage to do what he intends, but he is running close to the "red" line.

The ECB sees that interest rates on government bonds cripple private borrowing. It needs to stimulate demand for bonds by buying paper in crippled PIGS countries. Nonetheless, as the WSJ article points out, the ECB is "prohibited from monetizing debt, or buying bonds directly from issuing governments,"

For a while, Draghi tried stuffing European banks full of euros and then basically demanding that banks purchase domestic debt, which would tend to drive down rates. But even €1 trillion wasn't enough. Now, as the Journal article points out with considerable understatement, "it seems Mr. Draghi is willing to ignore restrictions on debt monetization."....

http://www.thedailybell.com/4127/ECB-Wil...ly-But-Why

**Luvapottamus**

Doom over!

Pure genius!

chuckle

**Galaxy**

Luvapottamus Wrote:

Doom over!

Pure genius!

It has some positive points. No need for further austerity (= economy strangling)
Euro devaluates = cheaper Euro = more export = stimulating economy = more jobs = more tax income.

So.. why not ?

**Gibbie** · **Gibbie** ^D ^D ^D whoa User ID: 34710 07-28-2012 01:39 PM **Posts: 7,187**

Galaxy Wrote:

Luvapottamus Wrote:
Doom over!

Pure genius!

It has some positive points. No need for further austerity (= economy strangling)
Euro devaluates = cheaper Euro = more export = stimulating economy = more jobs = more tax income.

So.. why not ?

Isn't this what the FED does all the time? They purchase bonds from the government and then sell at different times to control interest rates.

The FED has been the largest buyer of US government bonds since at least 2008. They own half of them!

**Luvapottamus** · (This post was last modified: 07-28-2012 01:43 PM by Luvapottamus.)

Galaxy Wrote:

Luvapottamus Wrote:
Doom over!

Pure genius!

It has some positive points. No need for further austerity (= economy strangling)
Euro devaluates = cheaper Euro = more export = stimulating economy = more jobs = more tax income.

So.. why not ?

Well it's not the debt that's the problem, most of that's fictitious anyway.

It's trying to homogenize disparate economies that's problematic.

Is it really even desirable?

That's up to you guys, none of my business, but I personally would enjoy traveling in Europe more if it doesn't turn into America with the same crap at every strip mall.

chuckle

It sounds like they're just following the Federal Reserve's lead. Our fed bought 61% of US treasuries last year. Same deal basically.

But at the same time, aren't they saying the targets for Euro countries is to go into debt at a low rate every year?

chuckle

(snip)

1. Inflation rates: No more than 1.5 percentage points higher than the average of the three best performing member states of the EU.

2. Government finance:

Annual government deficit:
The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year. If not it is at least required to reach a level close to 3%. Only exceptional and temporary excesses would be granted for exceptional cases.

http://en.wikipedia.org/wiki/Euro_convergence_criteria

So the GOAL is 3% deficits every year.

Who the Hell in Europe wants their country to do THAT?

chuckle