The European Central Bank Plays a Logical Song

NEW YORK (TheStreet) -- When U.S. policymakers pushed austerity and high unemployment, cutting the deficit in half despite sluggish growth, the Federal Reserve stepped in with its program of quantitative easing.

Economists and analysts are still arguing over the impact of QE, but the alternative was to do nothing, because the usual weapon of monetary choice, cutting interest rates, was no longer available. Interest rates had fallen to near-zero.

The situation is often called "pushing on a string" or a "liquidity trap," and it now seems Europe is in it with us.

In a surprise move yesterday, the European Central Bank cut its key interest rate in half. That sounds like a lot, but it was actually just a one-quarter point cut, from 0.50% to 0.25% on refinancing.

The response by markets can be described as "meh." Most European stock markets are down this morning. So is the value of the euro.

Europeans seem divided on the bank's action, locked as they are in their own intellectual straitjackets.

Rolf Wenkel of Deutsche Welle calls the move a "risky game" and remains more fearful of inflation than deflation. England's The Economist insists the bank was forced to act, noting that Europe's inflation rate is now lower than Japan's, where deflation has been the problem for a decade.

What it looks like to me is that Europe, Japan and the U.S. are all in the same boat, pushing on strings to jump-start economies when a better solution -- simply spending money -- is clearly at hand.

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