What are Jean-Claude Trichet and company really thinking right now?
The most likely scenario is this: they bet on mean-reversion in unemployment, on the magic full-employment equilibrium-restoring properties of the market, on their role as prudent stewards of financial rectitude, and on a take-no-prisoners commitment to price stability in all circumstances as the driving force behind the great moderation.
They were wrong.
They now have a choice.
They can admit that they were wrong. Then they will probably have to resign, and then be snubbed worldwide. Nobody likes a loser.
Alternatively, they can double down. Their reputations right now are underwater. What do they have to lose reputationwise by saying more absurd nonsense? And there is a chance that tomorrow the confidence fairy will appear, wave her magic wand, and the V-shaped recovery will start.
That is my guess as to how to understand what Trichet and Company are now saying: they are reputationally-bankrupt zombies gambling for resurrection.
Is there another way to understand what they are now saying? I am trying to think of one, but I am not getting very far...