Danielle DiMartino poses an interesting question regarding the ECB. I have a set of answers.
What is the ECB Doing?
I started thinking about that question weeks ago.
I have a set of answers and even started writing this post before DiMartino brought it to the forefront.
There are only two answers. One of them is very unsettling.
Occam’s razor is a principle from philosophy. Suppose there exists two explanations for an occurrence. In this case the one that requires the least amount of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation.
Occam’s Razor typically eliminates most conspiracy theories. It’s not that conspiracies don’t happen, but that simpler solutions are far more likely.
My corollary to the theory is very easy to understand: If stupidity is one of the possible answers, it is the most likely answer.
I am a normally a big fan of Occam’s Razor.
But this is so bizarre that I have my doubts.
Importantly, this may not be a conspiracy at all. Mario Draghi can easily be acting alone.
My Lead Question
How stupid can things get before one starts believing something else is in play?
I had already been thinking about that question when not only did ECB president Mario Draghi further push interest rates into negative territory but he also said it was a good idea for the ECB to think about MMT.
Shocking ECB Dissent
Lagarde inherits #ECB tinged by bitterness of Draghi stimulus. Draghi has issued veiled criticism of his QE opponents. New president will need to confront fractious policy making. https://t.co/PC1FRcvi9V pic.twitter.com/3AIoCKoTZi
— Holger Zschaepitz (@Schuldensuehner) September 29, 2019
Dissent at the Fed happens all the time. It is rare at the ECB. The ECB builds a consensus and it is typically unanimous.
Question on Deutsche Bank and Commerzbank
How is it that Draghi cannot see the damage negative interest rates do to German banks?