by Karl Denninger, Market Ticker:

When you see someone with a gun in their own mouth threatening to blow their own brains out, the correct action is not to follow their lead and place a gun in your mouth.

The ECB effectively declared “MMT” as their monetary policy this morning.  This will guarantee the fiscal destruction of the Euro — and all nations who use it.

It renders the tension between taxation and desired government services an anachronism, declaring that governments can run indefinite and indeterminate “fiscal stimulus” without concern for whether their bonds are marketable or whether investors believe they’ll be paid.

It renders pension funds instantly and permanently insolvent should they purchase said instruments as a coupon source, since there will either be no or a negative coupon — and thus government bonds in the Euro world shift from being capital reserves to capital destroyers.  The only reason to buy such a bond, in other words, is because you believe there will be a sucker who will buy it from you when rates go even more negative.  This turns the entire premise of bonds — the senior piece of a nation or firm’s capital structure — on its ear in that the only purpose for owning such an instrument is speculation.  In other words in terms of capital safety bonds are now not far from a purchased option for which you have paid a decaying premium!

Of course these policies are not exactly new in the European complex, but the underlining this morning makes clear that the policy has failed to produce the expected results.

This, by the way, is the danger — which nobody seems to care about.  If you do something with an expectation of a result and not only don’t get the result you get further deterioration it’s highly likely whatever you’re doing is either ineffective or making the problem worse.

If you keep this up and that turns out to be the case then you’ve guaranteed your own destruction.

So what comes next?  Good question — but I’ll bet the nations using the Euro won’t like it.

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