Draghi’s comments about the ECB doing “whatever it takes” are irrelevant

Everyone seems to be talking about Mario Draghi these days. They think his comments about the ECB doing "whatever it takes" are important. They're not. They are meaningless. Here's why.

The flaw in the euro zone's construction is that no entity can prevent solvency crises for national governments. The way the eurozone is set up means that it is very easy for a liquidity crisis to become a solvency crisis. The ECB's willingness to buy peripheral sovereign debt on the secondary market doesn't change that. It is a form of extend and pretend.

See, credit risk is the defining element of all bond analysis. Bond investors are risk averse coupon clippers. They are loaning money to someone in expectation that they will get their money back in full. The interest rate compensates the...


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