Tuesday, 24 March 2015

How Inexpensive Credit Spurs Recovery, according to Draghi

Speaking yesterday, ECB president Draghi put forth the following viewpoints according to Reuters,
Cheaper credit is boosting investment projects, driving up business demand for bank loans and aiding the eurozone economy, European Central Bank President Mario Draghi said. 
"As bank lending rates are being reduced, new investment projects -- previously considered unprofitable -- become attractive". "In the short run, this should sustain the demand for credit and investment."
Draghi is correct on most points. Unfortunately, none of them are sustainable long term and will only lead to the wasting  of yet more resources, the opposite of real economic growth. In fact, it is the same recipe that got the eurozone into the current financial problems in the first place. Common sense tells us that one cannot cure a problem with more of what caused it in the first place. Not so for Draghi and the other monetary cranks around the world.