No one expected Mrs. Lagarde yesterday (7.3.2024) to announce when the interest rate reduction would begin and much more to announce their reduction. And this, despite the fact that inflation (the ECB’s figure) is almost stable at the 2% threshold, while salaries, generally admittedly, even by some ECB officials, do not seem to threaten its anti-inflationary objectives. And all of this in an economy (Eurozone) which according to some analysts is already in recession, others are moving towards it without doubt. The truth is that this last argument concerning whether the EU. She slips in remission doesn’t need much argument. Evidence of the negative progress of the strong Eurozone economies is sufficient. Especially the strongest German. Then will anyone say why the ECB does not reduce interest rates? The Eurozone is already financially crushed by double pressure from one US and one China partner. And with two wars running, one on its territory (Ukraine) and the other on its neighbourhood (Medium East – Gaza). Nevertheless, the ECB’s key “declared” concern is … that inflation is returning. The argument no longer convinces anyone. The truth is that what scares Mrs. Lagarde and her colleagues is what they …know and we just “snatch”. That rain is coming. What are you saying, you’re going to say, don’t you see that the American economy is running, the stock markets are running, the investors are even going to Athens to touch their surplus capital on investment? The truth is that the American economy is “running” because it is powered by an unprecedented fiscal deficit that is in turn funded by a no-limited expansion of debt. According to American analysts (bloomberg, etc.) US debt increases by one trillion dollars every 100 days and has already exceeded $34.5 trillion (123% of GDP). And it’s coming to a new high. How not to “run” the stock indices especially of 7+1 (Mag 7) large companies in the field of IT, high technology and AI, which alone account for 60% of the total capitalisation of WS. It sounds a little strange that Mr. Biden promises that he commits to reduce the country’s debt by $3 trillion in the next decade, if re-elected, when only his annual growth exceeds the goal of the decade he sets… This “river” therefore seems to have been … overflowing and “troubled” with geometric progress in the financial markets. How much? According to the official available data, they are ‘released’ on the basis of this liquidity some 650 trillion dollars in currency and credit derivatives… The perfume of 2007 – 2008. We have recently had an eye on two relatively ‘new’. One thing is that the American Securities and Exchange Commission is asking for the promotion of the application of Basel III treaties to be frozen. And review her text because she thinks it is extremely harmful to… banks. To remind you that Basel III is the regulatory framework agreed by the Central Banks (BIS) to apply to the capital stabilisation of banks, in order to exclude the possibility of a new worse 2008. So the US is not going to take a step that way. And if the U.S. doesn’t take a step, obviously the others aren’t going to follow, because that would mean worsening their competitive position… The second “new” comes from the United States. The Fed has opened the way for the extension of the use of a new financial product of the generation of notorious “composite derivatives” that have set up as everyone knows the path since 2007 in 2008. This even more sophisticated form of “composite” derivatives, hears in the name “synthetic risk transfer” and could be attributed as “synthetic risk transfer products”. Wholesalely the “idea” are banks since they have found them difficult to raise interest rates, which led to depreciation of their old portfolios, turning them into assets representing “unrealised damage” (which is why the March 202 crisis) will be able to do the following: they will be able to “sell” this risk to investors willing to take it instead of an interest rate. But the ‘good’ is that the assets that have this risk will remain in the bank balance sheet but no longer the ‘risk’, as an improved category of funds… With the approval of the Fed please. Does it remind us of anything from 2007 to 2008? Obviously, but at worst, because since March (11/3) when the Fed closed (as planned) the operation of the emergency fund created to secure emergency funding to all these banks, which … had gone off last March, somewhere they must find funds or otherwise close, as some of them have been closed in the meantime. Let us clarify here that the majority of these hedge funds are informal tools of banks to avoid the aforementioned risk from their portfolios. But where are all these funds available from the thousands of hedge funds that are willing to buy the most visible risk as long as they make sufficient returns? A look at the previously mentioned scales of public debt expansion gives an easy explanation, as well as the extreme financial expansion of recent times. It’s where one understands why the gold has gone up the monetary elevator and doesn’t say to brake. At 525 euros the gold pound three days ago, over 540 yesterday… And to think that this is the case with the dollar slipping over the Euro. If you take a step back and look more closely at this overall picture it is not difficult to understand that the ECB’s embarrassment, much more than that of the Fed, in view of what it will do with interest rates, is not about inflation. It is about what margins and tools she can secure for herself as a Central Bank when the “storm” breaks out. As it broke out in September 2008. Then, the greater the margin it has to …put up the “black holes” that will be poured into the banking system, with new money and above all much – much cheaper, the better for her and the banking system. Because savings will pay the bride anyway. As in 2008. We here in Greece know better than others… A well-known and experienced analyst who fortunately found himself and remains in an extremely critical post in one of the most powerful financial tools of the Eurozone, once speaking of what he sees coming, he described and likened me right now – which we probably live now – to a move by volleyball players. On volleyball he said, the front players (the quarterbacks) raise the ball as high as they can for the “high” who gets up to pin when it becomes possible, from the conditions of the game. So maybe that’s how it happened with the Central Banks, they raised the interest rates as much as the market could afford to re-tweet them even below zero when this moment they think it’s here again. As in 2008, as in 2020. Then perhaps we will see real inflation and the “real” prices of gold…
For Lagarde’s embarrassment with interest rates, it’s not the inflation, it’s her nightmare.
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