Europe Joins the QE Party
by Frank Hollenbeck
The European Central Bank (ECB) finally pulled the QE trigger by committing to purchase 60 billion euros of government debt and other assets every month until September of 2016 or until inflation gets closer to 2 percent.
The made-up excuse for this legal counterfeiting is that Europe is dangerously close to having (a very flawed) index of consumer prices drop below zero; as though calamity would strike Europe if the index were to register a negative number. The ECB claims it needs to print money because lower oil prices and — previous to that — a stronger euro were causing average prices to deviate from its 2 percent inflation target. It’s like having your supermarket run a 50 percent off sale on steak one weekend, and then having the ECB try to make all other prices in the supermarket go up so your total bill at the cash register goes up.
The 2 percent inflation was never meant to be a target, but a ceiling. The problem has never been too little printing but too much printing. Deflation has never been a real problem (see here, here and here), but bouts of inflation have regularly led to chaos and social upheaval.
Don’t Fear Price Changes
The drop in oil prices is creating a change in relative prices that are part and parcel of a capitalist economy. Such changes are critical to guide resources and production in the direction of where they are most needed. They occur constantly and are not to be feared. They should be embraced as a necessary adjustment to guide limited resources to produce output that best meets society’s demand. A central bank interfering with the measuring stick of prices to alter absolute and relative prices to reach some non-meaningful target shows just how much mainstream economics has become nonsensical. By targeting an aggregate number, central banks distort individual prices and interfere with the efficient allocation of resources and goods and services.
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Read more: mises.org
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