It’s All Backward

Confirming that they inhabit the same planet but live in a very different world, Mario Draghi, the head of the European Central Bank, who is front and center for global monetary politics this week spoke in Germany ahead of his Jackson Hole main event. What he said was astounding in the same sort of way a drunken man spouts nonsense his stupor has him believing is genius.  If ten years ago you were told that the major central banks around the world were going to “print” tens of trillions in “money” and that the result of all that was ten years later their research emphasis trying with the thinnest evidence to show that they were not, in fact, powerless, you would have thought the very idea pure insanity.  

But here we are.  And in trying to explain how we could have come to such a reductive state, Mario Draghi actually said that the ECB or any central bank must be,

…unencumbered by the defense of previously held paradigms that have lost any explanatory power.

OK.

If it doesn’t work, stop doing it.  That’s a good way of thinking, but that’s not what Draghi is saying.  He is talking about “unconventional” monetary policies like QE as if they were good and effective programs.  The “previously held paradigms” to which he is referring are the old conventions that state you don’t create money out of thin air (people should not lose sight of the setting of his speech, which was Germany, after all).  Banks do it for economic reasons (theoretically) but central banks don’t.  

Mario Draghi doesn’t realize, because he can’t, that QE isn’t any different than those “previously held paradigms”; it was but an extension of ineffective central planning. He or other central bankers like him didn’t actually change the game, at all.  Look at each economy and how they have effectively shrunk. To claim that QE worked is to revert to the “jobs saved” standard, which is exactly what he is doing now.