It’s not QE3, the Fed’s highly anticipated and much discussed quantitative easing program, but the European Central Bank’s (ECB) bond buying program is having a similar impact.
Stock markets worldwide rose announced its bond-buying program yesterday.
Bond buying is Wall Street’s version of crack … it costs money and has a negative long-term impact, but it creates a temporary euphoria and makes everything seem just find for the those who want to live in the moment.
As The Wall Street Journal put it, “we suppose the good news is that it isn’t as sweeping as it might have been.”
To receive money from the ECB, countries that want help must first apply to the eurozone’s bailout fund. Countries that receive assistance must consent to reducing government spending and debt.
In reality, though, countries like Spain, Italy and Greece are under pressure from citizens who don’t want austerity. They’re protesting in the streets of Spain because the government would like to reduce their generous benefits … and politicians who want to survive had better take heed.
The program also has the potential to send bond yields soaring, not to mention causing higher inflation.
Conversely, one reason the markets responded favorably is that the program reduces the risk of a Eurozone break-up – at least for now.