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Who Said It? Name the Public Official Behind This Quote


The answer may surprise you.

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Can you try and guess which public official said the following quote? The answer may shock you.

"By partially replacing term funding in the form of more expensive bank bonds, the [redacted] can create a scarcity of investible assets, which will result in lower yields and easier market funding conditions even for banks that have not taken part in the operations."

If I hadn't have known the answer I would have guessed this was Ben Bernanke speaking, at some point in history.

In fact, of the dozen or so people I asked, every single one guessed a prominent US monetary policy official. Former or current Fed Chairs Ben Bernanke, Alan Greenspan, or Janet Yellen were common responses. Also suggested were Tim Geithner and Hank Paulson. 

The statement in question was spoken yesterday by Peter Praet, the chief economist at the ECB who's considered the mouthpiece for the bank's president Mario Draghi.

My main point is that you could have assigned the quote to any US Fed official shortly before he or she embarked on an asset purchase program. The goal of quantitative easing is to lower real rates to the point where there is a real cost for every investor class to hold a deposit (cash). Therefore, it creates a scarcity of every financial asset on the planet because holding any asset becomes the same as holding cash.

The takeaway is this: I think, if need be, the ECB will figure out a way to move forward with full-blown QE. Either that or they will increase the supply of long-term loans to lower the funding cost even further. Will it "work"? I am extremely doubtful, but I believe there's a very good chance that European assets will appreciate while the ECB is trying to synthetically create inflation. Never before in history has a major central bank in a developed market felt the need to set a negative deposit rate, and that shows how serious and committed the ECB is to achieving its goal.

Twitter: @MichaelSedacca

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