As the ECB begins this week its Public Sector Purchase Programme (PSPP), also known as QE, banks in the Eurozone begin selling a variety of sovereign bonds and securities from European institutions and national agencies to their National Central Banks. The sales will be settled in “central bank money“. So the question today is: Do we know what central bank money is?
Deflation: Symptom or disease?
Today, Italian media published the news that prices in January were 0.6% lower than a year ago, calling such deflation a disease, a contagion. The fact that a component of deflation is the falling price of oil should be good news for an oil-importing country such as Italy. But no! National TV (RAI) insists that deflation is a nightmare, and other media wish for inflation to come back thanks to Draghi’s QE.
Is QE forever?
The point of Draghi’s QE is not the amount. It is the principle.
It is not the much discussed size of the ECB operation. Rather, it is the fact that the ECB has become a buyer of government bonds issued in the countries that are members of the Eurozone.
This is the really big news in the Eurozone where, until last week, the ECB’s monetary operations did not include the possibility of trading in the government securities market in the same way the Fed, the Bank of England, or the Bank of Japan do.
Swiss franc cap policy gone. Now what?
The single truth and sure result of last week’s SNB move is that, from now on, the value of the Swiss franc will be the outcome of “market forces”.