Government Market Intervention European Style

From The Wall Street Journal we learn that that the European Central Bank wants to “manage” the interest rates on member nations’ sovereign debt instruments, and it wants to do so by entering the market for government bonds—announcing its buys and sells in a manner intended to “influence” the market’s interest rates imposed on those governments’ borrowings.  The WSJ quotes the ubiquitous “person familiar with the matter” as saying

ECB would guide investors toward a target, or range, for government bond yields of Spain and others by publicly communicating specifics about the amount of the bond purchases it conducts, as well as the details on the types of bonds it buys. For instance, if the central bank says it bought €1 billion ($1.26 billion) worth of shorter-dated Spanish bonds, it could move investors toward the yields it deems appropriate by raising or lowering purchases in subsequent weeks.

But the real thinking was revealed by the ECB’s President, Mario Draghi.  “Exceptionally high” risks are embedded in many government bonds markets, the WSJ cites him as saying, and to the extent to which these “risk premia” include a euro breakup scenario, they are “unacceptable.”  Thus, the market should sit down, shut up, and do what its betters tell them to do.  Investors’ pricings on exploding debt will not be tolerated.  Their duty is to simply keep lending at rates their Betters dictate.

Never mind that, as the Bundesbank’s Jens Weidmann puts it,

In democracies, Parliaments, not central banks, should decide about such comprehensive sharing of risks[.]

He’s not one of the Know Betters, so he’s just whispering in the wind.


Then we have this from Spain, in particular.  The government says it expects the Spanish economy to contract 1.7% this year, despite growing exports (from the declining euro more than any real productivity-related effects), and it will contract next year by an additional 0.5%.  Yet that same Spanish government fully intends to impose “billions of euros” in tax increases over these next two years (along with allegedly large spending cuts).  You read that right.  In a contracting economy, the government fully intends to take a ton of money out of the private sector: it intends to defund the very part of the economy that is the engine of economic prosperity—and here, of economic recovery.


And then there’s this.  The Obamacare Independent Payment Advisory Board, consisting of “15 philosopher kings,” is starting to be set up, although we don’t get to know who these kadi are until after the election this fall.  This Board will have the power to dictate prices to all participants in the health care industry: hospitals, doctors, insurers, patients alike.  No market forces at all here.  And yes, there will be plenty of patients: customer participation is mandatory.  Of course there’ll be fewer and fewer providers as these are driven out of business by the Board’s price controls; this will turn the Board into a Death Panel.  A third example of government market intervention European style.

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