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What We Read Today 23 January 2015

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Europe to print €60bn-a-month to fight deflation and euro crisis - but why is it happening and will QE work? (Simon Lambert, This is Money.co.uk)  ECB (European Central Bank) president Mario Draghi announced a QE (quantitative easing) program Thursday for the Eurozone that will see €60 billion of bonds purchased per month for 20 months, ending in and including September 2016.  The €1.2 trillion expansion of the ECB has the objective of inflation inflation towards the 2% target it has set.

The size of the program is at the upper end of the range that had been rumored (€50 billion per month, for up to 24 months).  The total involved is the maximum but the rate of growth is faster (21 months vs. 24).

The structure of the ECB purchase plan was not revealed, but it will definitely include government bonds.  What other types of securities may be included were not disclosed.  In the final (so far) and largest QE in the U.S. involved similar amounts of government securities and MBS (mortgage backed securities).

As with all QE programs to date, this will put money into the financial system.  In general that results in asset inflation and the ECB objective of 2% inflation applies to consumer prices.  This somehow seems like trying to fatten hogs by feeding the cows.  But that is what these genius "farmers" seem to believe in.

Drahi said that a large majority of the ECB directors approved the new program but it was not unanimous.  Sadly Econintersect does not think those objecting were of the mindset of hog farmers but were actually thinking of not feeding any of the animals.

There is more about the euro below.  



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