Not only is he a man who does not seem to understand how banks actually, not only is he dominated with the idée fixé of his blessed inflation mandate instead of paying more regard to what his institution should—and more importantly—should not do as a contribution to the material well-being of those under its sway, but dear old Mario is clearly no kind of a psychologist, into the bargain.
Thus it was that, having been careful to have prepared the markets for action (the better to present any doubters among his colleagues with an irreversible fait accompli), yet clever enough also not to excite them this time to a state of unassuageable frenzy, he brought out ALL the big guns—an intensification of NIRP; more, longer-term, zero-cost monies; a wider range and a greater amount of securities to be bought; a whiff of ‘forward guidance’; a clone of the BOE’s ’funding for lending’ scheme with the added kicker that good little banks will actually be paid up to 40bps to lend—all this to an initially rapturous reception.
Twitter lit up with Oohs! and Aaahs!, the euro fell 170bps to a six-week low. Bunds jumped 2 1/2 handles, the DAX shot 250 points skyward to touch its best in 8 weeks. The sweet aroma of triumph pervaded the air!
But then our man snatched defeat from the jaws of the victory in spectacular fashion. Somewhere along the line he gave the impression that this package was so comprehensive it would be the last announced for some good while to come. The first signs of petulance were not long in coming after this relatively innocuous admission of the fact that even on the ECB’s amp, the dial doesn’t go beyond eleven.
But that was only a foretaste, for next the ECB scored a spectacular own goal by downgrading its own growth and CPI forecasts for the coming year—implicitly telling markets, ‘What we did last time didn’t work, nor will what we do this time’.
Given that no-one sane attaches any weight to their vaticinations (except in a tail-chasing dog sort of way with regard to what’s on the policy menu), could they not have fudged the numbers—you know, undertaken a little econometrics with Chinese characteristics—in order to paint a brighter, more confident picture? After all, the entire multi-trillion economic gavage they are undertaking is supposedly aimed at making a very unbroody golden goose expect to lay more eggs in the near future, so why deter said tight-bottomed fowl by a declamation of their decidedly downbeat, DSGE divinations?
Nemesis’ arrival was swift. The euro bounced and soared 4 big figures, the Bund lost 570 pips (!) in einem Augenblick, and the DAX slid no less than 500 points deep into the abyss from its brief, intraday zenith. Cue a barrage of equally inane comments from the Veruca Salt clones we marketeers have all become, the gist of which was that, based solely on the evidence of a four-hour, ‘I want another pony’ tantrum of buying rumours and selling facts, all Mario’s bold hopes for the next five years of his programme had failed!
No greater testimony to the pernicious influence of our hyperactive central bankers can be had than this. Draghi takes his share of the blame for the opprobrium heaped upon him, too, for declaring bluntly that one reason for this latest, most radical intervention was that: ‘financial conditions have changed considerably in this period of time, and there has been a widespread volatility of high intensity for a reasonably long period of time at that intensity. And that has caused, by itself, a tightening of financial conditions.‘
Since we all know that ‘volatility’ is a euphemism for ‘sell-off’, this says nothing other than ‘we eased because markets sold off’—and that, dear reader is the sort of casual moral hazard which makes spoiled, impatient children of us all.