The ECB Blinked, And Gold Once Again Proves To Be a Wealth-Saver
by Sprout Money
ZeroHedge.com
01/25/2015
As was widely expected, the European Central Bank has started a program of Quantitative Easing, something which the ECB vowed it would never even consider when the supranational institution was created. Situations can change and less than 10 years after its incorporation the central bank already had to deal with the worst financial crisis on the markets in decades.
Back in 2008 it already looked like the ECB was very hesitant to get involved on the market and the Eurozone was very fortunate to see a lot of spill-over effects of the quantitative easing program of the Federal Reserve, its American counterparty. Fast forward to 2012 when the Euro-crisis started to erupt and the collapse of Greece and the sky-high interest rates in other countries forced the ECB’s hand and a hefty market reaction was absolutely necessary.
When you look back at the past 5-8 years, these two events have actually paved the way for the ECB to take drastic measures like the announcement of a 1.1 trillion quantitative easing program over the next 18 months. The central bank will now start to pump 60B EUR per month ($70B) in the financial system which is more than expected. This means the total value of the Quantitative Easing program will be roughly $1.26B or approximately 10% of the total GDP of the Eurozone in just 1.5 years.
This could prove to be very effective, but the main question will be whether or not the full amount (or even half of that amount) will effectively trickle down to the ‘real’ economy. There are approximately 340 million inhabitants in the Eurozone, so the total size of the ECB’s Quantitative Easing project means that the ECB will print in excess of 3000 EUR per inhabitant. As this will be completed in just 18 months time, this is huge. Unfortunately there will be a lot of ‘middle man’ with sticky fingers and it’s increasingly likely the banks will simply deploy a large chunk of the QE money on the capital markets for their own benefit, instead of acting as an ECB agent to use the funds for what they were intended to be.
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