Is Europe’s Attempt at QE Doomed to Fail?

Rick’s Picks shifts to a new format this week with a Question of the Week instead of an essay. This week’s question: How do you see Europe’s attempt at quantitative easing playing out? Between now and September 2016, the European Central Bank plans to purchase $68.76 billion of sovereign bonds each month, for a total of more than $1.2 trillion. It is a foregone conclusion that the program will fail, and badly, for several reasons. For one, unlike Americans, the European consumer’s credo is not “shop till you drop.” That’s why easy credit is unlikely to result in the binge-buying of homes, cars and big-ticket appliances such as we have come to expect in the U.S. And for two, European companies have even less reason to borrow for expansion than their American counterparts. The latter have used a large portion of the money they’ve borrowed to buy back their own shares. More than revenue growth itself, this financial perpetual motion machine is what has sustained the bull market on Wall Street since 2009.

The effect has been heightened by cheerleading Keynesians and a credulous, economically ignorant new media that has bought into the recovery story, even if the board middle class, whose wages have remained stagnant, has not. Europeans will be tougher to convince, however, since, German car-exports aside, there are no sources of economic strength – even false strength — big enough to float Europe’s boat. What Europe’s bourses lack is an Apple or a Google to help keep share prices pumped. Far from joining in the party, European regulators have been trying to suppress the growth of Apple and Google with lawsuits and regulations. This is business as usual in Europe, and it is unlikely to create even the fraudulent kind of economic “strength” and prosperity we’ve seen in the U.S., let alone real growth.

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