Europe is stuck and has to do something. Loosening money is obvious, and generating the usual chorus of “what’s wrong with deflation” from the unwashed masses.
Dear unwashed masses. The ECB and Germany’s bankers know exactly what’s going down. They are desperately trying to have their low-no inflation and weak currency too. Looky here at what’s been going on in Europe.
Belgium (e.g. ECB) started sucking up treasuries (buying dollar) back in December of last year. They gave up in April. But look at the top line in green “Grand total, all nations”. That’s been rising. How has it been rising?
June, there were some prominent buyers of treasuries. Germany, Belgium, Netherlands are EU core banking nations. Ireland and Spain are German lapdogs. Ooh, looky there! France is taking advantage! Go France! I’m not entirely sure what Taiwan and Brazil and Canada are up to, but my guess is that they also want to goose their economies by pumping up the dollar.
Switzerland and Luxembourg? I’d peg that activity as the gnomes acting on intelligence about the ECB and EU nation’s plans and jumping on for the ride. I’d watch Lux and Swiss turnaround to gauge when the party is over.
Instead of QE, what Europe has been doing this year (first through the ECB, and then through individual nations) is to manipulate the exchange rate by buying the dollar. Purchases of US treasuries by the ECB started in December, continued through March, then declined. Germany, the banking core, and the rest of Germany’s lapdogs took over buying like mad. France broke ranks and is making money selling the dollar.
The obvious goal is that the EU is trying to pump up the US dollar so Germany’s exports can be sold to the United States without cutting prices. (Price cutting on major exports across the board would be deflation.)
The obvious next step, if the national banks run out of money to buy dollars with is QE through the ECB. I suspect they will do that, probably in October or December, but possibly as soon as September 4th.
Meanwhile, the USA is also trying to lower the value of its own currency so that our exports are competitive too. Abenomics in Japan is trying to lower the value of Japan’s currency to make its export driven economy improve.