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Schizoid paranoia

The euro tumbled below parity against the dollar on Thursday night after the European Central Bank (ECB) vowed to continue its money printing programme despite surging inflation.

The ECB increased interest rates by 0.75pc in an effort to limit sharply rising prices, with inflation hitting 9.9pc across the eurozone last month.

But it also said that it would continue the quantitative easing (QE) programme where new money is created to buy bonds.

An expansionary and a seemingly contractionary monetary policy at the same time!

The second straight 0.75-point rise in rates lifts the benchmark deposit rate to 1.5pc, bringing it to its highest level since early 2009.

9.9% inflation, so real interest rates are minus 8.4%. That’ll kill inflation, right?

So, in fact, we have a grossly expansionary interest rate policy plus a grossly expansionary base money policy. Which is just the way to deal with inflation, right?

Except this article just keeps getting better and better:

The ECB vowed to continue creating money by reinvesting the principal payments from maturing bonds bought in the aftermath of the eurozone crisis and during Covid.

Err, no, that’s a static policy. They’re not creating new money there, they’re just not destroying it nor creating it. Sigh, journalists, eh?

4 thoughts on “Schizoid paranoia”

  1. Why not just insure against inflation?

    What if the ECB sold inflation swaps at a price that set breakevens at 2%, or whatever?

    Why do you continually ignore the substance of this question by distracting away from the hard, cold finance with cheap personal attacks?

    Is it because you know I’m right?

  2. Bloke in the Fourth Reich

    Well, this is also far from the first time that the euro has fallen rather than increased in value after interest rate increases. Does our host have an explanation beyond “local authorities will have less to spend on furlough schemes, climate awareness, and drag diversity story hours”?

  3. Why not just insure against inflation?

    Insurance is a form of gambling. So who do you think will take the other side of the bet, you’re proposing?

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