Courtesy of Mish.
Mario Draghi has strong opposition to his QE program from two sources: German central bank president Jens Weidmann and Dutch central Bank president Klaas Knot.
In a television interview on Sunday, Dutch Central Bank Head Says He Doesn’t Support ECB Bond Purchases.
Mr. Knot, who sits on the ECB’s Governing Council, said in an interview on Dutch television that he wasn’t convinced of the “necessity and effectiveness” of the program, known as quantitative easing. “Even if you believe it worked [in the U.S.], you cannot project its alleged success onto the eurozone,” he said on the talk show “Buitenhof.”
Email from Bruno de Haas
I got the above story from Bruno de Haas, head of policy & research at a medium-sized Dutch pension fund and author of a book arguing that the Netherlands should leave the euro.
De Hass Writes …
Hi Mish,
This Sunday morning the president of the Dutch central bank, Klaas Knot, was interviewed on Dutch television. In my view he made some remarkable comments on the main topic, namely the ECB’s decision to embark on QE.
Knot was very candid. He explained that he had not supported the decision because he thinks it is neither necessary nor effective. He doesn’t think it is necessary because there is no deflation in the eurozone once you strip out the effects of the lower oil price.
With regard to effectiveness, he doesn’t expect that buying sovereign bonds from banks will increase credit by banks. He does expect that “using the printing press” (a phrase he literally used) will result in higher stock prices and more expensive real estate, further inflating what he called a “bubble on financial markets”.
According to Knot asset prices already are far detached from the real economy, and although this situation may last a while, there will be a moment when the two will converge again.
In contrast to the US, where a wealth effect could be expected from inflating asset prices, Knot doesn’t find a positive wealth effect likely in the eurozone. The main reason is that most people have their assets in pension funds and insurers, and their solvency ratio decline because the negative impact of a lower interest rate on the mark-to-market value of their liabilities overshadows any gains in the solvency ratio from higher asset prices. This is indeed the case in the Netherlands where the two largest pension funds will have a funding gap at the end of January because of the low yield curve….
