Europe Struggles as the ECB Pretends to Know What It’s Doing
The European Central Bank (ECB) is rumored to be planning a halt to its four-year quantitative easing program at the end of this week when it will stop its asset purchases while continuing to keep interest rates at current near-zero levels through 2019. The Economist laments this ‘rash’ decision, arguing that the European economy is still ‘faltering’, showing only very feeble and unstable signs of growth.
Since 2015, the ECB has bought bonds worth almost $3trn. However, core inflation has remained fairly low, exports have waxed and waned, and the Euro area has shown no clear signs of recovery after the 2008 financial collapse. Groping in the dark, The Economistblames “[p]oor weather, strikes and a bad flu season” for the shaky start of 2018, and low demand, both domestic and foreign, for the overall bleak outlook.
But in fact, the European economy is a very sick patient whose self-appointed doctor, the ECB, is treating it with the same poison that made it ill in the first place. It is also judging the health of its patient by monitoring the wrong signs, i.e. looking for some color in its cheeks rather than a strong heartbeat.
Mises (2009, 20) pointed out as early as 1934 that
[…] the inevitable and ineluctable consequence of the expansion of credit… was bound to lead eventually to a collapse. And the thing which is chiefly advocated as a remedy is nothing but another expansion of credit, such as certainly might lead to a transitory boom, but would be bound to end in a correspondingly severer crisis.
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