Thread by @ThomasPHI2

Thread (1/N) @ecb : Draghi is right. Most of his critiques’ arguments are wrong or inconsistent. Let me summarize them: “it might not work; wages are increasing; keep dry powder; house prices are too high; it’s too risky.”
ECB hawks rally against Draghi reut.rs/2NXL4mz

2/N: "it might not work". So what do they propose we do instead? Inflation is running below target, the job of the central bank is to get it close to target. The only credible alternative to QE is fiscal expansion. I would love to hear the hawks advocate for that 😁

3/N: "wages are increasing". First, that's inconsistent with the previous point. Second, the ECB's job is to stabilize *price* inflation: as long as broad price levels do not rise faster, there is slack. It is not the ECB's job to guess the trend growth of labor productivity.

4/N: my favorite, the "dry powder" nonsense. Here is what it really means: a fool walks in the desert carrying an anvil on his back. A man asks him: why do you carry this heavy object on your back? Well, the fool says, if a beast comes, I drop the anvil and I run much faster.

4'/N: hint: anvil = dry powder. Just think about it for 2 minutes.

5/N "house prices are too high". Hmmm, well maybe you could stop subsidizing housing then? perhaps all these inefficient rent subsidy programs and interest deductions aren't such great ideas after all.

6/N: "it's too risky". At this level of generality, maybe... But when I read "increasing signs of scarcity of low-risk assets, distorted pricing in financial markets", my head spins a bit🤪. Dude, we can't even measure the natural rates of unemployment and interest ..

6'/N: .. and you're telling me you can measure the third derivative of the asset pricing kernel. Come on. And if there is a pocket of risk, just increase capital ratios for that asset class. That ain't rocket science.

N/N: as usual I welcome all comments. But if you're gonna write about dry powder, please at least be funny.