The Fed Has Boxed Itself Into A Corner…”markets are on the verge of learning just how damaging the unintended consequences will be”
Scotiabank’s Guy Haselmann
ZeroHedge.com
01/29/2015
Perfectly Imperfect
Following the ECB meeting last week, news headlines summarized the initial market response with titles such as, ‘Markets rally as ECB bond buying plan exceeds all expectations’. Such characterization judged the plan only on its size and schedule and failed to fully appreciate the deeper flaws buried in the details. My judgment is that Mr. Draghi secured the best compromise he could, yet it is one that is far from “whatever it takes”. It is a plan that cleverly masks shortcomings in its complexities.
For the Eurozone to truly maintain a currency union, it needs to have political, fiscal, and banking unions. All of these have been elusive and slow to develop. The ECB QE plan now exposes the cracks of their monetary union. If the EU truly possessed a monetary union then the ECB should have guaranteed or assumed the potential losses from the purchases of those assets. Forcing the national central banks to assume the risks, recognizes the non-zero possibility of default or EU break up.
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