The insane ECB

If you haven’t been paying attention the Fed said Tuesday “shit is all fucked up and bullshit and even though there’s loads we could do to diminish the shit and the fuckedupness we have decided against it.”

The ECB said today “shit is all fucked up and bullshit and even though there’s loads we could do to diminish the shit and fuckedupness we have decided against it, in fact we are going to make things worse.” See this tweet from Joe Gagnon:

The ECB have announced that if you raise taxes, and in doing so raise prices, they will respond with tighter monetary policy, just as people like Scott have feared.

Higher taxes reduce demand other things equal, this is easy to understand as everybody understands taxes making them poorer. That doesn’t have to be the case of course, because a  the central bank can accommodate this. This is especially important if tax is increased on final prices because it will look like high demand is pushing up prices even though taxes are in fact reducing demand.

Let me repeat, the ECB is combining tight fiscal policy with tight money, they are quite literally making poor people poorer. They are lunatics! Or Monsters…Honestly, Trichet and now Draghi are causing an epic amount of suffering in Europe.

6 thoughts on “The insane ECB

  1. Well, at least they’re consistently insane. This is the same ECB, remember, that RAISED interest rates twice in 2011 despite the growing sovereign debt crisis.

    The last time we had a central bank acting in such a completely counterproductive way was of course the Fed in 1931, when it raised interest rates to protect the dollar (and keep it in the gold standard) despite severe and deepening domestic recession. We all know what happened next, don’t we? For some reason the ECB seems to think that the lessons from that appalling error don’t apply in Europe.

    1. Consistent insanity I can do without. Credible commitments to lunacy are not helpful!

      I do wonder whether there is any hope of market participants believing the ECB even if they adopt less insane policies.

  2. Well, my impression is that it’s a case of prioritising the (short-term) protection of the assets of those who already hold capital over all other considerations… At this stage, a bit of inflation wouldn’t be such a bad thing for many people – it’s only the worst thing in the world if you’re already sitting on a large pile of cash and are so averse to seeing it reduced that you’re willing to risk the implosion of the entire system in order to protect your existing position. But then I would have to admit that I know fuck-all about economics…

    This relates to what Jon Schwartz calls the “Iron Law of Institutions” – people will always act to maintain or enhance their existing positions of power within an institution in the present, even at the expense of the long-term survival of the institution in question.

    1. I don’t think many people are gaining from the tight money policy of the ECB apart from politically. I think we’re facing a case of “some long dead economist” stymieing efforts.

      1. Not even a long-dead economist. A long-ago historical event, the causes of which were utterly unlike the situation today. “We cannot risk another Weimar”…..

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