Saturday, May 4, 2013

European Central Bank Admits Austerity Policy Failed – Cuts Interest Rates

But the Policy Of Cutting Interest Rates Will Also Fail – Don’t These People Know Nothing?

The recognition that European economic policy has been a total and complete failure got another boost as the European Central Bank cut its lending rate to commercial banks by 25 basis points. 

Facing diminished prospects for an economic recovery in the recession-bound bloc, the ECB cut its main refinancing rate by a quarter percentage point to 0.50 per cent and 
Mario Draghi, ECB president, said the bank remained “ready to act if needed”

The reaction all around the world – So What.  See if the rate was .75% cutting it to .50% is not going to make any difference to anyone.  If banks were not borrowing from the ECB and loaning out the money when they could borrow for 75 basis points, they are not going to change their ways when the rate drops to 50 basis points. 

So why did the ECB do this?  Well one theory might be that they wanted to send a message to other policy making leaders that no, what Europe has been doing is not working and you need to change.  But more likely is that the bank is under pressure to do something, and that the people who make the decisions are just to ignorant to know that what they did is useless. 

Yeah, that sounds more like it.

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