When Draghi Talks, Everyone Listens?

European Central Bank President Mario Draghi pontificates
[courtesy Google Image]

^thCNBC

“U.S. stocks traded nearly 2 percent higher Friday . . . as investors cheered a solid jobs report and remarks from ECB President Mario Draghi.

“Equities extended gains in early afternoon trade as European Central Bank President Mario Draghi said in a New York speech that “there is no particular limit to how we can deploy any of our tools.“ 

In other words, European Central Bank (ECB) President Draghi was promising Quantitative Easing (QE) to infinity!  The ECB will keep printing more fiat currency until Hell won’t have it—and even beyond.

Investors cheered!

Why?  Because, in theory, persistent QE (printing of mo’ money, mo’ money) should cause inflation which should stimulate the European economy or at least support the European stock markets.

In fact, QE has yet to cause significant inflation or economic stimulation anywhere in the past 25 years.  Japan has tried QE and it hasn’t worked.  The US has tried QE without much success.  China is trying QE and, so far, it’s failed to stimulate the Chinese economy.  The EU has heretofore tried QE without significant success.

But, not to worry.  ECB president Mario Draghi has promised that the ECB will never abandon QE, will never stop printing more fiat euros thereby trying to cause inflation and stimulation.  And, apparently, when Draghi talks, everyone listens.

But should they?

Draghi promised QE to infinity for European markets.  Why anyone would believe Draghi’s promise is hard to fathom.  But what’s really strange was the result:  based on Draghi’s promise to ignore objective reality in Europe, the US stock market temporarily jumped 350 points.

That objective reality is:

1)  QE hasn’t worked well anywhere for 25 years.

2)  Even so, the ECB promises to push ahead with more QE—perhaps to infinity.

3)  The reason ECB President Draghi is committed to QE (which he should know is unlikely to work) is that he has no other viable strategy that’s likely to work.

4)  The reason the US markets cheered Draghi’s promise with a 350-point rise may be that US investors know that there’s really no objective basis to sustain the US market highs and therefore rely on subjective cheers and pep rallies for market support.

5) There’s not a single instance in American sports where the cheerleaders won the football game.  In other words, victory depends on more than cheers, smoke and mirrors.

In the face of those realities and high probabilities, should Draghi’s promise make sense to anyone?

Remember that old definition of “insanity”:  “Doing the same thing over and over and expecting a different result”?

How long have various governments tried to make QE work without success?

25 years more or less?

Is it true that “this time it’s different”?

Or is it true that, this time, it’s just like it was in the last few episodes when QE failed—and thus, more QE is evidence of insanity or at least desperation?

More, just how strong and reliable is a US stock market index that jumps 2% in one day because a European central banker promised to keep playing the fool?

Should that 2% increase provide an objective reason to inspire investor confidence?

Or does that irrational 2% jump warn of a coming moment when the excessive stupidity and irrationality seen in US stock markets will be flushed out by means of a dramatic, downward “correction”?