Thursday, 5 June 2014

The "Problem" Draghi Today Will Try To "Solve"

If he is successful in making the euro area banks create more credit in order to increase inflation, this will lead to an increased growth rate in the money supply. 

But an increase in the quantity of money does not improve economic performance. What it does do however is increase debt further, the last thing the euro area needs more of. What the euro area really needs is less regulation and less government spending.

In short, the euro area (and the EU as a whole) needs more pro free-market policies, not more credit, money and debt. Hence, whatever Draghi does today cannot solve the real problems facing the real economy. On the contrary, it can only make things worse and Draghi ought to spend a few minutes reading the link below instead of being obsessed with avoiding price deflation.