6 Sep 2012

Could the ECB fix the crisis today?

According to a report from Bloomberg yesterday, Mario Draghi, head of the ECB could announce a plan to buy unlimited amounts of government bonds. Apparently, the plan is to buy up massive amounts of government bonds, but will be accompanied by measures to neutralize the effect on the money supply. As the Bloomberg report puts it : "To sterilize the bond purchases, the ECB will remove from the system elsewhere the same amount of money it spends, ensuring the program has a neutral impact on the money supply". If that involved  imposing a financial transaction tax to mop up the excess money supply, then my dreams will have come true! That is really getting pretty close to what I proposed recently in my youtube presentation "Some radical propositions for monetary reform".

It is important to realize that this sort of scheme really could work. As you hopefully already know if you have been reading my blog, eurozone government debt currently stands at €8.2 trillion, and cost €286 billion in interest payments last year. The total for interest payments since 1995 is €4.5 trillion - i.e. more than half of all government debt. The numbers are all here.

If the ECB took on all the debt by buying unlimited amounts of bonds, and charged the governments the same very favorable rates it offers commercial banks (or even no interest at all), the Euro crisis would be dead. But so would the goose that has been laying golden eggs for the banks for centuries. Could Mario Draghi, the ex-European director of Goldman Sachs have the courage to do this? I really hope so...

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