Mario Draghi, President of the European Central Bank (ECB), spoke before Germany’s Parliament on Wednesday, defending his decision to purchase government bonds from member states needing financial assistance but without unleashing inflation. Similar to the Federal Reserve’s continuing attempts to stimulate the economy through the purchase of government securities, called Quantitative Easing, or QE, Draghi’s Outright Monetary Transactions, or OMT, “will not lead to inflation,” he claimed in the closed-door session. He said:
In our assessment, the greater risk to price stability is currently falling prices in some euro-area countries. In this sense, OMTs are not in contradiction to our mandate; in fact, they are essential for ensuring we can continue to achieve it.
This is utter nonsense, wrote Mish Shedlock, in his blog Global Economic Analysis. Since Draghi’s “mandate” is similar to that of the Federal Reserve — that is, to maintain price stability along with low unemployment — it’s impossible to increase the supply of money by buying government bonds with credits created out of thin air without eventually unleashing price inflation at the consumer level in the economy. Shedlock wrote:
The problem with such nonsense is you cannot break the law while screaming you are upholding it. Draghi now sounds and acts like hypocr[itical] US presidents of both political parties.
Both President Bush and President Obama (as well as the treasury departments under each administration) have shown little concern for the law. Increasingly presidents are of the mind [that] "we have to destroy capitalism [in order] to save it" or as President Bush stated and Obama practices: “ I've abandoned free-market principles to save the free-market system.”
What the members of the German Parliament wanted to hear was that Draghi would not be bailing out bankrupt governments with their money. This is how Draghi phrased it:
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Photo: President of European Central Bank Mario Draghi, right, and Greece's Prime Minister Antonis Samaras meet for talks at the European Central Bank in Frankfurt, Germany, Sept. 11, 2012: AP Images