Why Mario’s Got A Bee In His Bonnet
“We have a mandate to preserve price stability for the whole of the euro zone, not only for Germany,” he said. “We obey the law, not the politicians, because we are independent.”
There you have in brief the whole rationalization for the monetary madness that Draghi and his kindred central bankers have unleashed on the world. They claim that their rubbery statutory mandates to pursue the equivalent of economic apple pie, such as ‘price stability’, leads in a straight, unbreakable line of logic and monetary science to the lunacy of negative 0.4% money market rates and $90 billion per month of bond-buying.
No it doesn’t. There is no scientific linkage whatsoever—–just an ideological leap based on a Keynesian demand model that conveniently delegates all power to the central bankers’ soviets.
Just as in the case of the Humphrey-Hawkins Act in the US, the ECB’s enabling statute does not define price stability in quantitative terms—-nor does it specify the inflation index to be used or the duration to be measured. Even when the ECB’s Governing Council attempted to formulate a quantitative definition of ‘price stability’, it only got slightly more specific in defining it as something between zero and 2% over the course of a year.
“Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.”
By its own definition, therefore, the eurozone does not have a “deflation” problem or even a “lowflation” threat. For the last 16 years, the core HICP has averaged 1.5%, and during the last year when allegedly the deflationary sky was falling, the core consumer inflation index has risen by 1.0%.
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