Tomorrow, the European Central Bank is generally expected to march where other central banks have marched before – and largely failed – by initiating it’s own quantitative easing program. All will be revealed at 1245 GMT/ BST tomorrow.
Round two of currency wars looks set to begin as the ECB attempts to weaken the euro in order to increase competitiveness in Europe, reduce imports and increase exports thereby creating jobs, stimulating demand and aiding economic growth. At least so it is hoped.
With Europe flirting dangerously close to recession, deflationary pressures building in some sectors and with interest rates at 0% and close to as low as they can go, the ECB is going all out in the desperate hope that further QE is the required medicine for the structurally challenged and debt riddled European economies.
Given the ECB is the central bank of a common currency with many national Central Banks as members, each with their own – and sometimes competing – national agenda, this new version of money printing will be quite different from that of the US or Japan.
At the moment, it is the scale of the program which is causing the most speculation. Insiders expect QE of around €500 billion ($580 billion) to be announced tomorrow.
Anything less would be likely to disappoint markets and could see further volatility. They are already anticipating a move by the ECB to adopt QE, causing, for example, the euro to weaken and stocks to rise despite poor fundamentals.
The central bank wants to raise the balance sheet of the Eurosystem (the ECB along with the euro zone’s 19 national central banks) from €2.2 trillion to €3 trillion.
Will it be enough to avert deflation and a Eurozone recession or Depression?
Will last week’s action by the SNB, which caused the Euro to fall to eleven year lows, discourage the ECB from devaluing the currency too aggressively?
Who will ultimately benefit from the action?
Will it be the people of Europe or only the mega-rich? For whom, we have continuously pointed out QE has greatly benefitted and as Alan Greenspan recently pointed out – has been a “terrific success.”
The intensification of currency debasement and currency wars shows the increasing importance of owning real assets such as gold in order to protect and grow wealth.