What good do these economists expect to come out of European Central
Bank debt monetization?
Do they really believe that once the ECB has committed itself to buying hundreds
of billions worth of Italian government bonds in order to manipulate the yield on
these bonds – against market forces – down to what the political class deems
sustainable, let’s say 5 percent, that Italian politicians will then reform public
finances in the country, that they will quickly bring down deficits and the debt load
to sustainable levels, at which point Italy can borrow from the market again, the
ECB can safely sell its bonds and reduce its balance sheet, and everybody lives
happily ever after?
Does anybody seriously suggest that this scenario is likely, probable or even
Fact is that none of these governments can be trusted to bring their finances
under control as long as they have access to cheap credit.. .
“Quantitative easing” in Japan, the United States, and the United Kingdom goes
hand in hand with growing debt, not debt reduction.
Providing a lender-of-last-resort and easy money and cheap credit to governments
does not lead to deleveraging but to the opposite. Only default and cutting off a
government from additional borrowing will reform the government.
That is why I say: Embrace default!
- Detlev Schlicter, “Infinite Stupidity”