There Is Just No Escape From Mario Draghi's Monetary Zombie Nightmare

Tyler Durden's picture

On November 7, when the ECB announced a "surprising" rate cut, 67 out of 70 economists who never saw it coming, were shocked. We were not. As we observed ten days prior, Europe had just seen the latest month of record low private sector loan growth in history. Or rather contraction. Back than we said that "one of our favorite series of posts describing the "Walking Dead" monetary zombie-infested continent that is Europe is the one showing the abysmal state Europe's credit creation machinery, operated by none other than the Bank of Italy's, Goldman's ECB's Mario Draghi, finds itself in." We concluded: "we now fully expect a very unclear Draghi, plagued by monetary zombie dreams, to do everything in his power, even though as SocGen notes, he really has no power in this case, to show he has not lost control and start with a rate cut in the November ECB meeting (eventually proceeding to a full-blown QE) in order to boost loan creation." Less than two weeks later he did just that. The problem, as the ECB reported today, is that not only did M3 decline once more, to 1.4% or the slowest pace in over 2 years and well below the ECB's 4.5% reference growth value, but more importantly lending to companies and households shrank 2.1% in October - the biggest drop on record! Draghi's monetary zombies are winning.

This is what Europe's monetary pipeline zombies look like:

From SocGen:

The European Central Bank reported that money supply growth (M3) in the euro area decelerated further in October, dropping to an annual rate of 1.4% – the slowest pace of increase in two years – well below the ECB’s 4.5% reference target. The flow of credit to the private sector dropped by 1.7% yoy (adjusted for securitization and sales), down from 1.6% in September.


While the credit impulse to households remains low but positive (0.1% yoy), the fall of credit to corporates (-3.7% yoy) confirms that we are heading towards a creditless recovery, where investment will not be an engine of growth. Of note, the picture is once again one of fragmentation. While the French corporate sector proved rather resilient to credit crunch, the total amount of loans  to corporates plunged by 5.7% yoy in Italy, 6.6% in Portugal, and 19.3% in Spain.

Buzzzz, wrong. In a Keynesian world there is no such thing as a creditless recovery: something Goldman's operative in the ECB knows well, and why the ECB may truly use the nuclear option, and opt for negative deposit rates probably after a conditional LTRO or another 15 bps repo rate cut, but potentially as soon in the next month or two, as it has tried everything else, aside from outright QE, which however would mostly benefit Germany's asset holders and do nothing to stimulate credit growth (see the US for 5 years worth of proof).

As for the European fragmentation in the loan creation department, our condolences to Spain because no amount of employment data falsification or Rajoy propaganda can undo the devastation left from an ongoing 20% crash in credit creation.

And the punchline:

In conclusion, even SocGen is now pessimistic that anything the ECB does will have much of an impact on the credit implosion that is Europe: "Yet, it is not clear to us how a movement in overnight deposits would be such as to stimulate investment. What we rather see is that the flow of credit remains negative, which suggests that the strong recovery in investment everyone expects is unlikely to happen for, at least, six to nine more months."

How surprising: "everyone" as usual has zero understanding of how money and credit creation truly work, and just regurgitates whatever the guy next door has said. Alas, that will not help Draghi in his fight against monetary zombocalypse.

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jubber's picture

DAX hits a new ATH above 9400, no one is listening

ZH Snob's picture

this central banking gig looks pretty easy.  print or don't print, and lie, lie, lie.  anyone know how I can become one of those guys?

max2205's picture

Cue deflationary bust....crushing margins...and companies....hope they hoarded enough cash to survive the next ten years

Cacete de Ouro's picture

Overheard outside Mario's office

"That's so nice". "Whoo-hoo! Lucky Mario!"

And another voice also

"Here we go". "Oh, yeah! Who's number one now?! Me!"

dtwn's picture

Tick-tock on the Euro-implosion clock. . . . .

I am Jobe's picture

Coming soon to the New World. Same Shit 

Ghordius's picture

EUR credit implosion, you mean.? How is it that when SocGen, a megabank that would like credit to pick up again and "lead to growth" speaks about the eurozone it uses words like "implosion" while in other areas it uses a less emotional "deleveraging"?

I know quite a few of central european owners of second homes in Spain who are happily paying back mortgages, for example

I know of lots of medium-sized companies that are paying back bank credit or reducing their debt. Being less prone to be stock-exchange listed (it's after all the eurozone), they don't buy back shares, they reduce bank credit lines

as usual, viewed with a Keynesian lens, it's madness, pure madness

Sudden Debt's picture

Well, when the jobmarket is grimm and the economic future looks grimm you don't take out more loans which you can't finance a growth plan. You only take out a loan when the ceiling is falling down and the creditors are knocking on your door.

So the only people taking out a loan are those who want to but can't downpay a older loan.

Makes perfect sense.

hugovanderbubble's picture

Equity markets are non representative of real expectations. CB manipulation has crashed all models.

falak pema's picture

debt is asset; period.

disabledvet's picture

everything gets turned on its head in a "bulls gone wild" world. the only goal is to increase cash flow at all costs...which is pretty straightforward on the planning side. beef up sales, research and development, media relations and product launches. the USA is still on a war footing so the policy goals are even more clear...wipe out the deficit, increase working capital stock, built out "sustainability." not that I see anything of this happening. "let's just have a bubble and forget about the details."

nmewn's picture

Oddly enough yes, until the one owed, discovers it won't be repaid and the rules (read law) by which the collateral held against it (making it an asset) are changed by just law or violent revolution. 

Its not like it hasn't happened before or will not ever again.

Let them eat debt ;-)

falak pema's picture

some are eating this, like skulky heretics,  awaiting the fiat to evaporate like holy smoke of papal conclave :

Litecoin Price - Business Insider

TPTB will never cede  their "inalienable rights", as scions of 'our way of life is non negotiable', to forgoing hearing the music playing on the Titanic... until it sinks.

"Its our band and we've paid for it, so play it one more time Sam!" 

Oldwood's picture

<Perfectly sustainable

<No one could have seen it coming

Troy Ounce's picture



One would almost think that someone with infinite money, like the Fed or their banks, are manipulating the price of Bitcoin.

Haha, silly me.

Right-on Left-off's picture

One would almost think that someone with infinite money, like the Fed or their banks, are manipulating the price of Bitcoin.

In an indirect, roundabout way ... YES!

Right-on Left-off's picture

Haha, silly me.

Not really.  In the Natural World, Mother Nature … the Physical Universe abhors extremes/infinities and will always move towards equilibrium.

Infinities/extremes are simply a concept and cannot exist in reality.  That's what the Keynesians are up against and they are too stupid to realize it.

Right-on Left-off's picture

Let them eat debt ;-)

:o  Undoubtedly one of the best, most ironic statements of all Keynesian times.  ;-)

asteroids's picture

The DAX is ridiculous. It too will collapse, it's just a matter of time.

dunce's picture

No, no, no, this can not be happening!! The keynesian books say it will not and can not happen!! It is in the the book, it is written!! Rise, rise, i command you!!

moneybots's picture

"There Is Just No Escape From Mario Draghi's Monetary Zombie Nightmare"


You'd think they would stop doing what doesn't work.  But no.


Bernanke wrote in 1988 that QE does not work. You'd think Bernanke wouldn't do it in the first place.  But no.

Colonel Klink's picture

It's because what he's doing is working for those whom he serves, and it AIN'T the proles!