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"Draghi delivers," writes Ambrose Evans-Pritchard in a contrarian take on the ECB press...

"Draghi delivers," writes Ambrose Evans-Pritchard in a contrarian take on the ECB press conference. By seeking instant gratification, markets missed the point that work is underway on the sort of programs hoped for. "Over the coming weeks, we will design the appropriate modalities for such policy measures," said Draghi. Is anyone listening?
Comments (34)
  • The only problem is, the markets already priced perfection into an inherently imperfect process. Central banks did just what they should have, in telling the markets to get real.
    2 Aug 2012, 01:33 PM Reply Like
  • Perhaps they are no longer listening to that guy who's crying wolf.
    2 Aug 2012, 01:37 PM Reply Like
  • Not weeks, but months and years.
    2 Aug 2012, 01:38 PM Reply Like
  • One irony is that what Europe needs more than any monetary engineering is a weaker euro, so to the extent that delay breeds fear and pessimism, it's actually being helpful, if that depresses the euro. In fact, one of the paradoxical elements to a monetary "solution" is that the euro may spike up, which is counterproductive to Europe's future competitive needs.
    2 Aug 2012, 01:42 PM Reply Like
  • Tack, you are spot on!
    2 Aug 2012, 01:45 PM Reply Like
  • Which means that a strong dollar will hamper the US ??
    2 Aug 2012, 02:42 PM Reply Like
  • Pat:


    No, this is a new-age myth. It was never an impediment for the U.S. to have a strong dollar until "new" thinking and policies took hold that have ignored capital-flows reality.


    The idea of a weak dollar is predicated on the notion that trade deficits are bad and that less imports and more exports would be good. This thinking is half-baked. In many other posts I have touched on this topic, but here goes again.


    When a nation, like the U.S. possesses the world's reserve currency and is widely accepted as the safest place to park money and/or invest funds, then just looking at trade balances becomes hopelessly simplistic. One must examine overall balance of payments.


    The U.S. attracts vast sums of capital in trade, investments, deposits, etc., constantly, much more so than it sends the other way in the form of overseas investments or deposits. Therefore, its literally incumbent for the U.S. to recirculate dollars in the form of imports; otherwise, all the money piles up on balance sheets and in accounts in the U.S., creating a vast excess (as we see now) and reducing global monetary velocity and reducing everybody's standard of living.


    When one enjoys the world's reserve and "safe-haven" status it's not only a nice side effect that the rest of the world subsidizes and finance's our elevated consumption-oriented standard of living, it creates an offsetting imperative to keep the money circulating. Somewhere along the line -- I believe, parallel with "pc" thinking that the U.S. consumes too much, is destroying the Earth and a lot of other poppycock -- it became policy to reduce our consumption and to "conserve" more and to export more to improve "trade." In reality, we are mistakenly winding down the economic engine that has driven, and continues to drive, world commerce. It's not helping anybody, the Earth included.


    As long as money is naturally attracted to our shores, we need to be intrepid in employing it in myriad ways, both in consumption and investment, to recirculate that money back into commerce and, particularly, back overseas. More consumption and spending is good, not bad.
    2 Aug 2012, 03:00 PM Reply Like
  • Trade deficits and budget deficits are both "bad", no matter how you spin it. But the hard truth is that every country cannot have a trade surplus. Balance, as in all things, is required.
    2 Aug 2012, 03:09 PM Reply Like
  • Hend:


    "Balance" doesn't work as long as the U.S. attracts a surplus of capital.


    (Of course, if we work hard enough, as this Administration is trying, to make it unattractive to send capital here, the situation will be resolved, but not to our benefit.)
    2 Aug 2012, 03:15 PM Reply Like
  • It will certainly hamper the profits of companies that sell abroad since but it could be good for the internal economy since a buck will buy more. I'd say; bad for the Dow, good for us.
    2 Aug 2012, 03:34 PM Reply Like
  • That's an insightful comment.
    2 Aug 2012, 03:44 PM Reply Like
  • Unless all that excess capital eventually helps with the twin deficits it doesn't help the US, anymore than it has helped Japan.
    2 Aug 2012, 04:14 PM Reply Like
  • Hend:


    You're making my case.


    Unless the capital moves, increasing commerce, and taxable income, it accomplishes nothing by sitting in accounts. That's why natural incentives to spend, like better exchange rates, plus tax cuts, enhance commerce.


    Presently, we have an Administration that believes the opposite, i.e., that more taxation and a weak dollar are economically beneficial. One would seem the empirical evidence would be obvious to all, even the slowest-witted voter, but recent polls seem to indicate a lasting belief in bigger and more Draconian Government.
    2 Aug 2012, 04:46 PM Reply Like
  • So a stronger dollar helps the trade deficit? What good do tax cuts do for foreign money parked in treasuries? The theory that we should convince foreign capital to spend our way our of economic weakness say the least. The effect of relative currency valuations on trade balances is known, not really questionable. A weak currency helps correct trade deficits. That's history, not theory.
    2 Aug 2012, 08:52 PM Reply Like
  • Hend:


    Apparently, you have missed the argument entirely. The issue isn't merely "trade deficits" or surpluses; it's the balance of payments, which compose much more than merely trade.
    2 Aug 2012, 09:57 PM Reply Like
  • The balance of payments are, by definition, balanced. The components, current account (trade) and capital accounts (foreign money) are not in balance. A bunch of money sitting in the capital account owning treasuries may help finance the budget deficit but it doesn't do much for the private sector other than help keep government rates down.
    3 Aug 2012, 04:02 PM Reply Like
  • Hend:


    Yes, despite the term "balance of payments," monetary flows are not always, or even usually, in balance. If the U.S. were to export its brains out, drawing capital here, and Europeans, likewise, thought that the U.S. was also the cat's pajamas for a place to invest and/or park all its funds, then huge sums would begin to pile up here. If we didn't take reciprocal action to buy lots of imports and make foreign investments, all that capital would stagnate in accounts and on balance sheets. That leads to a decrease in economic activity (i.e., monetary velocity), which is bad news for everybody.


    In fact, as I stated, because of our nation's status as the "sanctuary" and because we possess the reserve currency, we have a special responsibility to keep the money in play and find ways to recirculate it back to Europe and other locales. If we don't do that, and the money stagnates, then the global economy will wind down. As money is already automatically attracted back here for the foregoing reasons, it's completely misguided for us to seek out a policy of running a net export surplus.


    Unlike Monopoly, the country that winds up hoarding all the capital doesn't win, nor does anybody.
    3 Aug 2012, 04:14 PM Reply Like
  • So, we would all be better off if we bought more Toyota's or Honda's or BMW's and fewer Fords or GM products? I'm still not following the reasoning.
    3 Aug 2012, 08:49 PM Reply Like
  • Hend:


    Hondas and Toyotas can be made here, and Apple iPods made somewhere else. Think more broadly.


    It's necessary to think in terms of overall monetary flows, not in terms of local social engineering. Economics doesn't care who has the jobs, or where they are, just the total amount of capital flowing and its velocity. When capital stagnates, economic declines occur.


    It's also important to think in global commercial terms. Companies these days are global entities that transcend national boundaries. Their health isn't dependent on whether Americans are necessarily optimized or totally happy in the process.


    As investors, we need to invest in global corporate performance, not nationalistic issues. A local focus on nationalistic-minded politics usually makes for bad investment decisions.
    3 Aug 2012, 09:02 PM Reply Like
  • Explain that to the Chinese leadership.
    5 Aug 2012, 01:19 PM Reply Like
  • Markets fell long after TARP and other promising programs were announced in the US in 08-09. Need to see results first. Just buying bonds doesn't solve the problems the market sees. Without a tight Fiscal Union it is merely can kicking and we'll be back here shortly.
    2 Aug 2012, 01:46 PM Reply Like
  • One of the reasons that the general TARP passage and announcement didn't salve markets is because it was feared that the implementation would entail the nationalization of the banking system. It wasn't until Geithner's announcement of the Public-Private Investment Program (P-PIP), which made it clear that the banking system would remain private, was announced on March 23, 2009 that markets took flight.


    It's quite reasonable to expect markets in Europe to behave similarly until it becomes clear what the details and implications are for banks or any support plan for the financial system.
    2 Aug 2012, 02:04 PM Reply Like
  • Markets had a similar reaction to the introduction of the LTRO and later figured out it was significant.
    2 Aug 2012, 01:59 PM Reply Like
  • Or sending out countries that can't meet the requirements as needed. Hence, the market responded exactly as it should based on what people are saying. If they want a different result then quit preannouncing and just implement solutions and broadcast them to all at one time.


    Otherwise wishful thinking up, reality sets in down is the future course of the market. The sad thing is that may be the best outcome we can hope for.
    2 Aug 2012, 02:02 PM Reply Like
  • Dragi is irrelevant, knows it and went out on a limb and now he has no credibility.
    2 Aug 2012, 02:09 PM Reply Like
  • less export products and more imports means obviously less US citizens employed less income less spending less US industries
    less investments, less home build etc...etc....all the funds willgo
    to countries US will import goods, like China and all the others..
    vicious circle......
    so to conclude, weak currency is good for US economy.....thats why we are asking the Chinese to revalue the Yuan
    2 Aug 2012, 03:21 PM Reply Like
  • "...more imports means obviously less US citizens employed..."


    This is not a necessarily truism. There are myriad ways people get employed in import-related businesses and in higher-value service jobs (not everybody is a hamburger flipper, as some believe). Look at Hong Kong or Singapore. They produce almost nothing, yet enjoy high employment and high standards of living.


    And, it's just economically impossible to restore former manufacturing jobs, unless workers wish to "enjoy" the low wages paid abroad. And, high taxes and tariffs isn't the answer to that issue, either, except as applies to pandering to union workers.


    If people want to work in modern economies, they either get better educated and trained, or become Government dependents. Those are the only two choices.
    2 Aug 2012, 03:49 PM Reply Like
  • This high value service jobs and death of manufacturing meme is getting tiresome. Germany, Switzerland, Japan and even Italy are doing great manufacturing real things (and don't come with Italian jokes, per capita wealth there is 3 times America's). What are these high value service jobs? Investment banking, consulting, tort lawyer? Are you kidding me? It's high value manufacturing jobs that this country needs and for that instead of letting the kids spend 4 years in high school studying "health" they should go on the market and learn a trade. Something you make with your hands.
    2 Aug 2012, 04:06 PM Reply Like
  • Duc:


    Nothing wrong with making something, but if somebody else can and will make it for 25% of the pay you'll accept, you're out of luck unless subsidized by force, in the form of Government subsidies, tariffs and taxes that come directly out of the pocketbooks of other citizens. Sorry, but I'm not interested in paying somebody four times the going wage for the same work product.


    P.S. And, when you subsidize and protect somebody to make good inefficiently, they make crap quality, too. I know because I spent a career in business visiting high-tariff places, like Australia, where indigenous products (textiles are a good example) are of high cost (to match the high-tariffed imports) and are of dubious quality.
    2 Aug 2012, 04:49 PM Reply Like
  • Tack, I thoroughly enjoy reading your comments on SA. I find them more informative and educational than 98% of the articles. I tried to message you this directly but there's a rule I have to fill out my profile first (including posting a picture of myself), which I'm not yet ready to do.


    These times feel to me like the exact mirror image of a bubble. I guess you could call it a negativity, or pessimism bubble, where everything is to be looked at as the glass being half empty. Another financial crisis and market crash is coming around every corner, economic growth will forever be sluggish, and anyone espousing a bullish view is to be ridiculed. If you're a conservative, Obama and the Democrats are destroying the country. If you're a liberal, obstructionist Republicans are destroying the country. Central bank policy is always reckless, and hyperinflation is inevitable. People like Roubini and Gross are regarded as sages. And given the sentiment of the commenters here on SA, on balance, it should be renamed Seeking Armageddon. I can't help but think equities likely do very well in the coming years.
    3 Aug 2012, 12:22 AM Reply Like
  • Every person who wants to work can find work of some kind or other,the problem is that a lot of people are lazy,unambitious or Government dependent. Import duties hamper trade and continued growth. We need to remove trade barriers,increase imports from the Eurozone and get free exchange of goods and services. Government should regulate the industries and all sectors of the economy not stifling it. It is a global economy that we are in and once the Euro is stabilized the world will be in sync...
    2 Aug 2012, 07:07 PM Reply Like
  • i am sorry to read that you compare 52 united states of America
    to hongkong and singapore
    3 Aug 2012, 01:48 PM Reply Like
  • Please let us know what two new principalities we've annexed.
    3 Aug 2012, 02:34 PM Reply Like
  • canada and mexico
    12 Aug 2012, 04:19 PM Reply Like
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