In July 2012, Mario Draghi, president of the European Central Bank, steadied European money markets simply by saying, “. . . the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
Apparently, simply promising to do whatever it takes was enough because the ECB had to do next to nothing the following two years. However, Draghi now actually has to do something to stand behind his promise as the Eurozone is falling clearly into recession.
What Draghi is going to do is follow the flawed Keynesian policy of printing money to buy sovereign debt from Eurozone banks in an effort to stimulate economic activity. In Keynesian talk, this is known as “increasing the money supply,” one of the cornerstone principles of Keynesianism.
However, as Frank Shostak revealed in Why Isn’t Monetary Pumping Helping the Economy?, printing still more money hasn’t helped since 2008.
Maybe the central banks just didn’t print enough. Paul Krugman, Princeton economics professor and New York Times op-ed columnist, called for $9 to $10 trillion to be printed to fight the 2008 crisis. Is Draghi listening?