Thursday, December 1, 2011

Mario Draghi Buries Paul Krugman

Well, that took less time than I thought.

As I noted yesterday, Paul Krugman is totally clueless as to the orchestrated moves by European leaders, with the US in the background pulling the strings.

Amazingly, Krugman did not believe that yesterday's central bank swap announcement was a big deal. He wrote:
...this looks to me like a non-event.
I responded:
It usually takes months to prove Krugman clueless. This time it will take just a little more than a week. The swap announcement is the first step in a major money printing plan. Or do you think Geithner and the President had European Council President Herman Van Rompuy over to the White House on Monday, along with European Commission President José Manuel Barroso, and High Representative Catherine Ashton, because they are great conversationalists over tea?

December 9 is the day the European Central Bank will announce its new money printing plan. You heard it here first.
Less than 24 hours later, ECB President Mario Draghi confirmed my suspicions. Reuters reports:
The new head of the European Central Bank signaled on Thursday he was ready to take stronger action to fight Europe's debt crisis if political leaders agree next week on much tighter budget controls in the 17-nation euro zone.

Speaking a day after the world's major central banks took joint action to provide cheaper dollar funding for starved European banks, Mario Draghi painted a dark picture of the state of the banking system.

"What I believe our economic and monetary union needs is a new fiscal compact—a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made," he told the European Parliament.

"We might be asked whether a new fiscal compact would be enough to stabilise markets and how a credible longer-term vision can be helpful in the short-term. Our answer is that it is definitely the most important element to start restoring credibility.

"Other elements might follow, but the sequencing matters."

Draghi did not spell out what action the ECB might take, but it is under huge political and market pressure to massively step up purchases of euro zone government bonds or to lend money to the IMF to support ailing Italy and Spain.

In response to lawmakers' comments, he added that the ECB had scope to act within the European Union treaty and the most important thing was to make sure that frozen credit channels start to work again.
Got that? "sequencing matters".

The central bank swap announcement is the first step in a massive near-global money printing scheme. The next step will be the announcement on December 9 by European Union leaders meeting in Brussels that they have reached an agreement on a more centrally planned fiscal union of the eurozone. This will be followed by the European Central Bank hailing the fiscal union and implying or outright stating that the ECB will aggressively begin euro money printing.

Rather than being a non-event, as Krugman believes, the swap announcement is a first step in major reversal of the ECB's tight money policy. It is likely to bring huge price inflation to the eurozone.


  1. It's all so incredibly frustrating that clueless idiots continue to believe that they can successfully control and direct and economy.

  2. Good job, Bob, figuring out two steps ahead what is coming our way.

  3. Well, it's Dec 12th today. Has the ECB reversed its tight money course yet? So far, who is right, you or Krugman?

  4. According to Tim Congdon, which is in line with Wenzel's view, this is exactly what is happening: