..the wrong tools being considered because of wrong assumptions. QE does not lead to "inflation" nor does it combat "deflation". These officials think asset swaps lead to increased economic activity...something reinforced by bond-houses that love this sort of political volatility.
Never ask a barber if you need a haircut...and if you simply look at the employers (current and prospective) of these officials who claim QE is both essential and effective in combating deflation, you will see the influence matrix.
European Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region.
“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times. The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”
Unlike the U.S. Federal Reserve and the Bank of England, the ECB has offset liquidity created by purchases of government bonds so that such operations don’t amount to quantitative easing that stokes inflation. ECB Executive Board member Juergen Stark told Germany’s Die Welt newspaper in an interview published today that the central bank doesn’t “have a mandate” for unlimited purchases of government bonds.