ECB chair Mario Draghi delivered big-time this morning by announcing lower interest rates and a new round of debt monetization. Historically, this kind of thing has sent the financial markets into Pavlovian ecstasy, with stocks soaring and the local currency falling.
Sound money people have for years been warning that such New Age
monetary policies are poison and that the markets would eventually wise
up and react accordingly. Today, finally, that’s what they did. European
stocks popped on the news — then dropped.
The euro did the opposite, dropping then popping:
And the US dollar, which in a rational Keynesian world should soar as its main competitor is inflated away, fell hard:
US stocks, as this is written at 1 pm EST on Thursday, are down and
gold is up big, which implies that markets now view negative interest
rates and central banks buying corporate bonds and equities as signs of
profound failure rather than innovative genius.
It is now clear that the only reason a government would resort to
such things is that its previous policies haven’t worked. In which case
there’s no reason to think the next batch will do any better. Which in
turn implies that financial assets are a dangerous place to be while
chastened monetary authorities sort out their misconceptions and rework