The 2% Solution

Mario Draghi made another “whatever it takes” speech this morning, in New York. This reassured all the liquidity junkies who were dissatisfied with yesterday’s ECB announcement and so they pumped up equity prices.

Before going any further, I really am staggered that there is no obvious dissent over the assumption that the mandate for “stable prices,” shared by the Fed and the ECB, can be read as “steady 2% inflation.” Stable does not mean “exponentially rising,” which is what 2% annual inflation means. Sure, the exponent is not huge, but it compounds viciously. Of course, the reason is that it is easier to finance government deficits if income rises 2% a year while debts don’t, declining in real terms. That is why no politician speaks out against this outrageous notion that stealing 2% a year is perfectly fine.

Having said that, there is no evidence that Draghi’s liquidity pumping has had any effect other than enriching (further) his colleagues at Goldman Sachs and their buddies. Nor is there much prospect in the future, as even this morning’s international trade report, obscured by the hoopla over the employment report, nevertheless showed a rapid decline in both imports and exports. The world economy is slowing quickly under the malign hand of the Keynesian central banks. They must be taken in hand and restrained.

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