Germany Is Being Hurt by the ECB's Stimulus & ZIRP


Don Kaufman Image Don Kaufman Co-Founder, TheoTrade

Germany has excessive stimulus, asserts Don Kaufman, Co-Founder of TheoTrade. And in the US, what are the economic impacts of hurricanes Harvey and Irma?

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In a previous article, we discussed the ECB’s decision to not raise rates until 2019 as it starts to further taper QE in 2018 before thinking about raising rates. The fact that Draghi said in his last meeting that he was willing to add more QE if the economy falters is remarkable because he’s already done way too much.

The chart below looks the Taylor Rule using German economic data. It compares what the Taylor Rule sales interest rates should be to the ECB’s interest rate.

Unsurprisingly, the gap between the Taylor Rule and the ECB rate is enormous. The ECB rate is at zero while the German unemployment rate is 3.70%. The ECB rate is lower than the Fed funds rate while the U.S. unemployment rate is higher. The level of stimulus pumped into the economy is unprecedented and wreaks of desperation. Draghi isn’t in control by saying he’ll do whatever it takes; he’s out of control as he tries to pull out all the stops to get the economy to grow.  

chart 1

The excessive stimulus pushed into the economy has led to the death cross seen in the chart below.

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