ECB To Print Trillion Euros – Gold Could Surge 40% In 15 Minutes Against Euro, Dollar

by Mark O’Byrne, Gold Core Mario Draghi is preparing to unveil QE today as the ECB looks certain to announce it’s much anticipated quantitative easing (QE) program. The move to print up to €1 trillion euros in the coming months appears to be a fait accompli although it will occur against a backdrop of strong German resistance and many concerns. Following leaks that mainstream news sources regard as credible, the ECB is expected to announce monthly purchases of €50 billion in government bonds of member states. The scheme is expected to run from March until the end of 2016 – for some 21 months – bringing the total to around 1 trillion euros. The ECB’s balance sheet currently stands at about €2 trillion. Proponents argue that the move should or will prevent deflation and help revitalise the ailing euro zone economy. goldcore_bloomberg_chart1_22-01-15 It is hoped that QE will counter low euro zone inflation by increasing the amount of money available to financial institutions and to encourage lending by banks. The aim of QE is to counter disinflation and act as a large stimulus to struggling economies. It should lower the cost of borrowing for European governments, which in theory should increase the availability of credit across the euro zone. Although interest rates are already at record lows in the Eurozone and globally and yet economic growth remains weak. It is also hoped that it will potentially boost equity markets. This has happened in the US and UK and more recently in Japan. However, the jury is still out if the “wealth effect” is actually aiding the struggling working and middle classes. Many have voiced concerns about the ECB QE including Angela Merkel, Axel Weber and Andrew Sentance. Weber, the former head of the Bundesbank cast doubt on the future viability of the euro yesterday. He said that if countries do not follow Germany in imposing structural reforms to boost their longer-term growth rates the euro would not survive. He called the probable introduction of quantitative easing by the ECB as “only part of the fix.” Weber, now the chairman of UBS, said there were legitimate questions hanging over the viability of the single currency. Andrew Sentance, formerly of the Bank of England’s monetary policy committee, and now senior economic adviser to Price Waterhouse Coopers, said the euro zone is not the environment where QE is going to be effective. UK economist Roger Bootle of Capital Economics told the BBC yesterday “I am not the greatest fan of quantitative easing – I don’t think it’s going to cure the European malaise. The point is, there is not much else in the locker.” Angela Merkel continued to make Germany’s concerns known as late as yesterday indicating once again the lack of consensus among European policy makers. “The ECB hasn’t made any decisions yet,” she said at a press conference yesterday. Germany’s greatest concern from Merkel’s point of view is that Germany does not end up on the hook for losses of defaulting peripheral nations. Germans believe they should not have to underwrite weaker EU economies debts, via the printing of money by the ECB, while having no executive power over how those failed economies are structured. “It’s important for me, as a politician, that all signals have to be avoided that could be perceived as weakening the necessity for structural changes and closer economic-political cooperation in euro zone countries.” “That definitely has to be countered. We’ll have to wait and see about everything else,” she said. A prospective compromise which is being widely reported is that the National Central Banks (NCBs), rather than the ECB, would purchase bonds and be responsible for any default. Such a measure would encourage member states to press ahead with reforms rather than papering over their problems with free money in the expectation that defaults suffered by the ECB would be sustained by the stronger countries. Continue Reading>>>

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