Money value / the ECB’s market intervention
For this week’s topic “Money and Markets”, it may be interesting to take a closer look at the ECB’s market intervention.
What happened? Last Thursday, Mario Draghi announced a so-called “stimulus package” for the Eurozone. As a result, “[t]he euro falls and stock markets jump as Mario Draghi pulls out ‘a big bazooka’ to fire up flagging eurozone and ward off deflation“, as the Guardian summarizes the markets’ reaction.
What is the rationale? The goal of the ECB is price stability, which refers to an inflation of between 0% and 2%. However, the price level of products had had a negative trend in the past months, i.e. things got cheaper (deflation). Hence, one might say the value of money increased, which is not favorable according to economic theory. Therefore, the ECB decided to make more money available in the market (in the Keynesian manner) with the rationale that if there is more of a thing available, its value decreases, i.e., in this case, money becomes worth less: the Euro depreciates.
What is striking, however, is that the ECB has actually not yet done anything but to announce the plan. Nevertheless, the market(s) reacted immediately, the Euro depreciated. In economic theory, this is explained with investors’ and bankers’ (analysts’) expectations of the future, which are all considered in the current price of a financial product.
This may add to Allen and Pryke’s article the notion that money renders the ‘now‘ not only in the sense of making ‘future money’ available today (through credit, for instance,) and of accelerating the pace of life, but also in the sense that it subsumes the future into today. That is, it makes today a product of the future and thus influences the (subjective) impression of time also in this way.
Besides, the fact that the value of money may change without one’s influence further suggests that power relations based on money not only occur with regard to the accumulation of money (Marx’ understanding of ‘Capital‘) but that the pure fact of having one’s assets ‘stored’ in the form of money is itself subject to a power relation. The question is, however, by whom the power exerting side is represented: the ECB? The market? I wonder how resistance may look like in this case.
(http://www.theguardian.com/business/2015/jan/22/ecb-big-bazooka-bigger-than-expected-qe-stimulus)
Vincent
Contributed by VincentJanssen on 26/01/2015
