The Draghi Down The Rabbit Hole

It is beyond me how conventional market participants can continue to play this game without having already completely lost confidence in the Central Bankers of the developed world, save for a US Fed temporarily speaking out of both sides of its mouth, at once firm on raising the Funds rate and considering NIRP. Among the developed world, the US looks relatively sound with its massive .5% interest rate.

But today is Draghi day, and reading the details of this Bloomberg article is like falling down a rabbit hole where anything is possible.

Your Guide to Understanding Today’s ECB Decision

“ECB predicted to cut its deposit rate deeper below zero”

Conventional reporters give conventional readers all the details about the complexities and challenges. “Your Guide”??? As if this is a sporting event?  As they say at Fenway, “get yah hot dawgs heeah!”… “ice cream heeah!”… “get yah guide heeah!”…

Where is the lower bound?  How low will they go? How should the ECB mitigate the impact on banks? How far can QE grow? When will the ECB reach its goal? What else is on the menu?

Menu? Seriously? This is not a menu. This is desperation and attempted magic. It is policy gone off the charts and gone exponential in its compounding. Here are the “great expectations” of the average economist.

Of course, the ECB has the cover of deflation, which is a curtain behind which it pulls these levers. It’s like the US jingle from the 70’s, WIN (whip inflation now), only in reverse. WDN doesn’t have quite the same ring to it.

But unemployment in Europe has been on a steady decline. What could be better than a steady downtrend in unemployment and muted price effects of previous inflation?

One answer could be that the Draghi, like is fellow Central Bankers, is not stupid. The Draghi knows that deflation would eventually address the hockey stick known as EU debt per unit of GDP. As it is, it is rolling over and the ECB has little choice but to not only go ‘all in’, but all in and down said rabbit hole.