- By ‘pushing out the boat on QE2’ a little further, cutting rates again, & setting up new longer-term refinancing for banks, the ECB is taking out as much as it can for now from its emptying policy ‘tool-box’. But, even more negative rates may follow.
- ‘Helicopter money’ is considered a next step. But, this works if the velocity of circulation builds. The risk of the euro-zone being caught in a liquidity trap & the absence of a region-wide fiscal agency probably preclude a US-style ‘drop’ from being effective.
- To test whether the macro strains are still spreading, we update our ‘Misery Indices’. After a marked deterioration during the crisis, the improvement since 2014 should be sustained in 2017, driven by the periphery. The unhelpful divergence since 2008 is thus correcting.
- This is encouraging, though not enough to tackle the cause of the crisis. QE, imperfect as it is, could be with us for many years to come, aiding the disparity in real rates & a probable Greece restructuring. But, while far from fixed, the worst of the euro-zone’s macro strains may at least be over...
US homebuilders on shaky ground