The ECB’s Mario Draghi said there is “not much” that monetary policy can do to fight structural unemployment. If it really was “structural”, his plea might convince. It is not.
Ireland has one of the world’s most flexible labour markets yet its jobless rate has risen from 4.6pc to 14.6pc, and that includes the safety valve of massive job flight to the UK, US, and Australia.
And here is Yglesias:
Former ECB governor Athanasios Orphanides — a world expert on deflation –has broken loose, rebuking his ex-colleagues for standing “idly by” as Europe’s socio-economic disaster unfolds.
“We are in the middle of a policy-induced recession and monetary policy can do more to contain it, without compromising price stability,” he said.
Jacques Cailloux from Nomura says money is still ferociously tight for a string of countries. Their sovereign bond yields have fallen far, but not far enough to keep pace with GDP contraction.
Yglesias links to an article by Ambrose Evans-Pritchard:
Nor have the gains fed through to the economy. Italian and Spanish companies still pay twice as much to borrow as German rivals. The North-South gap is becoming hard-wired into the system.
The horror before our eyes right now is social ruin. Europe’s crisis strategy is to the break the back of labour resistance to pay cuts by driving unemployment through the roof. That is what `internal devaluations’ are. It stinks. And the ECB is adding to the cruelty by keeping money too tight.
Mr Draghi deserves his accolades, but his job is not yet done. He has saved the rich. Now he must save the poor. Coraggio.
It’s great that the “big guys” are starting to call the spade the spade, sternly pinning the blame for the European social catastrophe where it belongs, on the ECB. It’s no question that the policies of the ECB are the dirtiest shirt of them all. But what have we really gotten from the Fed other than some set QE amount for 1 quarter and almost doubling of it at the end of Twist? It’s is something more, for sure. But how much more is it when its members refuse to let go of the inflation target, interest rate pegs, and chatter on about not feeding the starving economy too much for fear it will get fat, the size of the balance sheet and losing money on the stuff it has to buy to get somewhere no one really knows – after all of these things have caused the financial calamity of our generation, financially destroying millions of Americans and leaving even more in a state of hopelessness?
Perhaps it is just easier to criticize foreigners to the extent demonstrated here. But I believe real change starts at home. And I invite them to join me in taking off the gloves and pointing out the pure folly that the Fed has dressed up to look like progress while doing only enough so that the worst of the criticism falls on the ECB. Did any of these people see the US employment report for last month? It sucked, just like the ones before it for nearly the entire year. We are living through years long epic Fed fail. It’s time for it to stop.
HT: Scott Sumner