Terminal Velocity

As I mentioned in an earlier post, the success or failure of the Fed and Bank of England strategies of quantitative easing (QE - essentially buying bonds with newly printed money to pump cash into the system - a modern version of turing the printing presses on) rests entirely on the velocity of money. In essence that is simply how fast it turns over - how fast consumers spend it and companies spend or invest it. I mentioned in that same post that without any velocity, QE is useless.

It seems that in Europe velocity has collapsed to the point of being negative.

This makes nonsense of any arguments in favour of QE. It would almost literally be pushing on a piece of string. The only way out of this for Europe is for the ECB to turn on the presses for government bonds and buy the governments some time to set their fiscal houses in order. Attempting "stimulus" through purchase of corporate, financial or mortgage-backed bonds is pointless.

It is strange that European Banks can rely on the ECB for unlimited liquidity, but European governments can't.

Eventually ideology has to give way to practicality. Might as well make it sooner rather than later.