First QE Results are in: ECB did not Engage in “Printing Money”!

May 24th, 2015
in Op Ed

by Dirk Ehnts, Econoblog101

"Europe finally starts pumping markets with cash", CNN Money titled in early March 2015 when the ECB announced its program of quantitative easing (QE). Other press outfits wrote similar lines (Telegraph, RT, Reuters, ...) whereas some understood what was going on at the time (among others, the BBC).

Follow up:

Since the actual implementation of QE started on March 9 2015, one would expect that the amount of money circulating in the euro zone would shoot up because of all this "printing money". The ECB has just released the data that concerns March, and since it is stocks, that means end of March. So, did the amount of money (cash) in the eurozone increase significantly from February 2015 to March 2015? Here is the data:


The first graph shows a longer time period, the second a year. it is quite obvious that there was only a slight increase in currency in circulation. Growth of currency in circulation has been in line with the data of the last five years and does lead one to conclude that QE consists of printing money. What QE was supposed to do was to lower longer-term interest rates, but the yield curve went up, not down:


That might have something to do with expectations, as "the market" bought into treasury securities in advance, speculating on rising prices and falling yields (see ECB's yield curve below). Personally, I doubt that the yields will move up significantly in the near future because the ECB can buy treasury securities in unlimited amounts. If it wants lower long-term yields, it can get them. Perhaps the flight from the euro has caused the rise in the yield curve. I do not buy into Bill Gross, who was wrong about the bond and stock market before, who says that the bond market will collapse ("short of a lifetime").

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