Many have already talked about the recent ECB QE program, which is currently estimated to reach around 1.1 trillion euros or $1.3 trillion (or perhaps $1.2 trillion now that the Euro/USD is around 1.12).
So here is another way to look at this QE program with respect to what the Federal Reserve in the U.S. has done. During the past few years the Fed implemented three QE programs, where the last one was an open end program that ended gradually at the end of last year. During that period the Fed’s balance sheet grew by almost $3 trillion. This was on top of the $800 billon stimulus package the newly elected President Obama signed in back in February 2009.
In comparison, the EU economy is currently estimated at $18.5 trillion. So when we compare the size of the stimulus plans when they first started, we can see that ECB’s stimulus is roughly 7% of the EU’s GDP, while the entire QE programs of the FOMC accounted for over 20% of the US GDP. This isn’t an exact point to point comparison and only intends to put ECB’s plan in perspective.
Now the FOMC QE program didn’t seem to have a huge impact on inflation, which remains below its 2% target (yup, there is also the issue of oil prices that isn’t the Fed’s fault). But even just looking into loans and leases of commercial banks – this figure hasn’t risen much compared to M1 or US money base in the past several years.
(As a side note: This doesn’t include many differences the two economies had and their staring point – in this race the EU’s position is much worse; this is on top of the diversity among EU countries and the labor problems that the EU faces and the US had to a much lesser extent).
Where does it leave us?
The ECB plan could be a good start but if a much bigger stimulus plan, which was also accompanied with a modest fiscal stimulus, didn’t do enough to bring back up the amount of US dollar in peoples wallets and to start spend more; then the ECB plan could be just that – a good start nothing more.
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