Draghi’s ECB Bond-Buying Program May Be Only Path: Prasad

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Sept. 4 (Bloomberg) -- Atul Lele, chief investment officer at Deltec, and Cornel University professor Eswar Prasad discuss the tools available to the European Central Bank to help the European economy ahead of today’s decision and press conference. They speak on “Bloomberg Surveillance.”


There is a purchase program of asset-backed securities.

That really removes the liquidity from the banking system.

It takes away the systemic importance of the banking system and getting the money from the ecb to the consumer.

It is a more direct route than we are seeing.

When money goes into the banking system, if the ecb was to be involved in another way, you would not know that it was going to flow through.

It goes into asset-backed securities, they are backed by assets like autos -- enables base to make -- it enables banks to make loans because a gets loans off the balance sheet and they can make more.

A consumer can buy a car if the asset-backed market is more liquid and there is more demand.

The status of the market is important to providing liquidity to the consumer.

It is a more direct route.

In that sense, it should go somewhere towards stabilizing growth.

European banks have been saying they are not making loans because there are not good loans to make.

It is partially true.

The ecb published a survey on the supply and demand of credit.

Up until six months ago, demand for credit, from consumers and businesses, was very low.

In the last six months, we have seen that stabilize.

This would not have done anything a year ago but my work now?


In a credit driven economy, demand for credit matters.

It is very different from the scenario in the financial crisis, where it was a supply of credit problem.

Eswar, weigh in.

It could.

So far, mario draghi has managed to effectively use monetary policy without doing anything.

By just saying he will do whatever it takes.

That was enough to stabilize the eurozone.

Even the core parts of the eurozone, germany is slowing down.

In terms of structural reforms, there was some action a year ago, that kind of stalled.

Monetary policy is the only game in town.

Mario draghi has to show his cards.

This is a good time for the ecb to be acting.

Whether this is going to get traction is hard to say.

If you don't have the other parts of the macroeconomy working well, as her policy is not going to be that effective.

This text has been automatically generated. It may not be 100% accurate.


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