The financial markets are increasingly acting like spoiled kids. On Thursday, March 10, the European Central Bank announced new measures aimed at boosting inflation and economic activity. Markets rallied initially, but quickly declined after hints of not getting further negative rate cuts. The fact markets are not even fazed by promises of more free money shows the situation is getting dire.
So what new monetary stimulus measures did the ECB announce? First, an additional 20 billion euros of bond purchases per month, bringing the total monthly purchases up to 80 billion from the current 60 billion. Further, the program is expected to extend into 2017, which should push the ECB balance sheet to over 3 trillion euros.
Remember the Fed tried rounds of QE that reached a similar $80 billion per month, with the same intention of lowering interest rates and trying to spur spending, credit, and growth. It was a grand experiment, which has subsequently been shown to have little benefit and may even have sown the seeds for future problems.
Second, the ECB will expand its quantitative easy program to include high-rated corporate bonds. Yes, the ECB will be purchasing company bonds; in other words, loaning money directly to private corporations with freshly printed money.