Four 'Decoded' Things the ECB Screwed Up

How the ECB Screwed Up

The ECB held interest rates at 1%: Umm, Mr. ECB policymaker, have you not been paying attention to the crumbling financial system around you?  The ECB should have lowered interest rates because:

Every single piece of hard to understand economic related to Europe in the past two months has either missed investor expectations or declined month to month, despite April sucking wind.  To its credit, the ECB has a track record of head-scratching slow decision-making when the you know what hits the fan: the ECB never cut interest rates below one percent during the depths of the financial crisis in 2009.

The ECB didn’t announce a new “bond-buying program”: Simply, under this program, the ECB would take its loot and buy debt of financially troubled countries, like Spain, to keep borrowing costs at bay (be smart: buy the debt, prices rise, yields or costs to the country fall).  Lower borrowing costs=lower debt payments=chance financially strapped countries will not bring down the entire European financial system.

The ECB did not wish to repeat its “unlimited loan program”: Again, to simplify, this program was done in December 2011 and February 2012 and consisted of the ECB loaning for three years an unlimited amount of funds to ailing financial institutions.  The benefit was that it gave banks money to cover their losses brought on by bad investments in a slowing economy, and cushioned the vaults from depositors withdrawing money.

The ECB seemed to be smoking the wacky tobacky…because it mentioned a forecast of stabilizing economic activity at low levels (be smart: that would be a GDP growth rate of 0% to 0.5%, consistently) and a growth improvement later this year.  What planet are these people living on?

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