When the news broke that the European Central Bank was going to have to go after its policy of money printing by having it purchase assets, a currency or bonds from the private sector in an effort to prop up the Euro, it was not really the complete story. The story was much bigger than that.
There is no doubt that the headline news had people talking. The market reacted accordingly, when the news was released. It was not the action of a healthy market or one which was simply reacting to a news release.
The ECB response was not really at all significant. Even if the bank had kept its previous quantitative easing policy, it could only do so much with the supply of euros in the banking system.
If the bank had tried to use the monetary base to fix the financial crisis, it would not have been able to do anything. The fact that the demand for cash balances was still on the rise would indicate that the markets would demand even more if the bank had attempted to offer any support.
In a world of a shrinking world economy, the only thing that the central bank could do is try to buy assets. This might help to stabilize the financial system, but it would not help the real economy. The global economy is going to continue to struggle with deflationary forces for a long time, which is something the central bank needs to stay aware of.
For the most part, the banks are making the ECB reaction all about the Fed and their massive QE program. But, remember that this is not a good situation.
The central bank may be able to stop the bleeding by supplying more money into the banking system, but it will not be able to produce any real relief for the banking system. So far, the monetary base has been restricted to essentially injecting liquidity into the banking system. The fact that the ECB was able to meet its primary targets during the intervention only suggests that the tightening is not actually going to have any significant effect on monetary supply.
And, while there is an attempt to sell the idea that the central bank will be the big winner with the purchase of the large ECB QE package, there is no denying that the benefits will be more for the financial institutions than for the EU member states. The ECB may be able to ease the credit pressure, but this is only temporary and the idea that it will improve the credit profiles of the people living in the EU is not really going to happen.
At this point, it appears that the only thing that the central bank is really doing is trying to calm the markets down and keep them from jumping on the bandwagon. And while it is a good way to solve some problems, it does not address the root of the problem.
While the ECB is trying to control the worst effects of the global economic crisis, there is no doubt that the fact that the European Central Bank is controlling the European economy is going to be damaging to the economy as a whole. Without something that is going to boost the economies in Europe, the entire continent is going to be doing more harm than good.
Even though the central bank is making some adjustments, it is not going to be able to bring the economy back into shape. So, if it is going to be able to do anything at all, it will need to look at the changes that are already happening in other major economies, like Japan and the United States.
These are the two countries that are probably going to face the most severe problems from the credit crunch, but they are not the only ones. which will be faced with major issues in the future.