Zak Mir on the €1 Trillion Man

It would appear that all eyes in the financial markets will be on Europe over the next week, with the combination of the ECB’s €1.1 trillion stimulus to get deflation out of the system, and the result of the Greek general election. The timing of the two events seems to be more than just destiny.

Of course, we are led to believe that the main opponents of doing the right QE thing have been the Germans, who perhaps rather wrongly looked at the history books containing the Weimar Republic’s hyperinflation, and decided not to look at the way that QE in the U.S. and UK meant that these economies have been amongst the most robust since the financial crisis. Now over five years “late” and possibly too late to prevent a Grexit, the belated move looks to be on tap, one that was long in the making and so unexpected that even the Swiss National Bank had to throw off its euro peg in the wake of the inevitable.

The question now is will there be any winners?

So far the results of QE look to be the creation of modest growth, but without any significant inflation. This is not quite a Goldilocks scenario, but as compared to the situation in much of Southern Europe and the new PIIGS nation on the block – France – it sounds like a fairytale. The only problem is whether the €1.1 trillion injection which is allegedly on tap is too little, too late.

We are currently seeing a race to the bottom as far as many leading currencies are concerned, with the Japanese and Australians lined up with the ECB in wanting to get on the competitive devaluation bandwagon. There are perhaps at least a couple of issues here. The first is that even the Japanese, with all their efforts over the past couple of years, have so far not exactly delivered an economic miracle. The other issue is that the devaluation club is simply getting too crowded. We are in fact in something of a polarised foreign exchange position with the U.S. dollar, sterling and the Swiss franc arguably heading towards painful over valuation versus the other currencies of leading economic nations.

But ahead of whatever the ECB may or may not do I would like to issue a reminder of perhaps one of the greatest ills among central banks and finance ministers alike in recent history.

We appear to be living in an age, not only burdened by over regulation and red tape in many areas, but also by over interference. In the good old days, before 2008 and the financial crisis, there was very much a policy of letting nature take its course. This was the boom bust of the economic cycle, something which typically might last 5-7 years at most. Now it would appear that the cycle has been broken. But not in the way many would have imagined.

There is no boom and no bust, just effectively a flat lining of growth and prices. It is too early to say that this is a new economic order. Mr Draghi may however find that even €1 trillion and more is not enough to act as the kind of catalyst the Eurozone needs.

Super Mario?