Much Euro About Nothing

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You’ve just made your morn­ing cof­fee, and look up in hor­ror as you realise that the gas burn­er has set your kitchen ablaze. So you take deci­sive action: you pour your cof­fee on the floor.

Such is the real impact of the Euro­pean Cen­tral Bank’s lat­est attempt to revive the Euro­pean econ­o­my, which cut rates a whop­ping 0.1 per cent (from 0.15 per cent to 0.05 per cent), and increased the neg­a­tive inter­est rate imposed on bank reserve deposits from a huge ‑0.1 per cent to a gar­gan­tu­an ‑0.2 per cent.

For­give my sar­casm. But the mys­tery that should occur to every­one — and it prob­a­bly does to most peo­ple who haven’t been giv­en a £9000 lobot­o­my (as Aditya Chakrabort­ty recent­ly described an eco­nom­ics degree) — is why an econ­o­mist might think that such appar­ent­ly triv­ial mea­sures would have any impact on the dis­as­ter that is the euro­zone econ­o­my.

Ah, but an econ­o­mist can tell you why. It’s because of the ‘mon­ey mul­ti­pli­er’! This potent force will turn that alle­gor­i­cal pud­dle into a prover­bial sea that will drown the flame of 25 per cent-plus unem­ploy­ment in south­ern Europe.

The fable the­o­ry goes like this.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.