"ECB President Mario Draghi largely confirmed market expectations for potentially unlimited purchases of short dated bonds of countries implementing approved fiscal austerity programs and also said the central bank would legally rank equally with private investors buying the same bonds."Sugar high. The European Central Bank is following the US Fed and buying back Europe's debt. A flood of brand new euros will hit the banks and everyone will celebrate the new prosperity, for a while.
It is Mario Draghi's (dragon in English) version of quantitative easing. We wrote about this QE program twice in August.
Let's review: The Federal Reserve, or in this case the ECB, creates new money and calls it something innocuous like 'stimulus' and 'quantitative easing' or bond buying. The money to make the purchases is created, or borrowed. When you flood a currency with electronically created money, you devalue the existing money in circulation.
So, now we have the EU and soon the US flooding new dollars into the banks that will find its way into stocks. Sounds great, except for that pesky problem of currency devaluation. When that happens it takes more currency to buy the same goods. Get ready for higher gas and food prices, while everyone celebrates.