The IMF, Lagarde and QE

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The lady has spoken.

Christine Lagarde of the International Monetary Fund has told the European Central Bank that they need to consider Quantitative Easing if inflation continues to remain low, which it will. She stated: “If inflation was to remain stubbornly low, then we would certainly hope that the ECB would take quantitative easing measures by way of purchasing of sovereign bonds”.

Apparently Lagarde’s version of ‘stubborn’ is something that persists despite taking measures to boost otherwise. In other words, is this the last resort of the ECB and the IMF? Is there nothing else to do apart from print the money and inject it into the financial markets to over-inflate them as the US has done with the Federal Reserve’s money being thrown from the helicopters?

So, prepare yourself for the hefty buzzing noises emanating from the cellars of the ECB. Mario Draghi will be starting them there printing presses rolling just as soon as he can. The French can start liking Europe again and stop hating their President, Mr. Flabby François Hollande. The Brits can carry on with their housing boom and not fear the collapse of their bubble (just quite yet). The rich can get richer and governments can hide the fact that they aren’t creating jobs for anyone but themselves and the boys that belong to their clubs. After all it’s all about the stock market increasing, isn’t it?

Has inflation remained stubbornly low? Despite the unprecedented decision of Mario Draghi to impose negative interest rates on banks depositing money at the ECB, there is going to be little effect on prices. The economic recovery in Europe is flagging to say the least. Europe has got the big economic droop to deal with.

• Never before has any central bank put the rate on its deposit facility for banks at -0.10%. Interest rates were also cut at the June policy meeting from 0.25% to 0.15%
• Consumer prices saw an increase of only 0.5% in May (year-on-year) and that was a fall from April’s 0.7%
• Whatever is happening in the Eurozone, that’s way below the desired target of the ECB (2%).

Lagarde was asked whether she believed that governments would become complacent regarding structural reforms after these measures. She stated: “They all seem convinced that they have to pursue structural reforms, support demand by good solid monetary policy, and continue the fiscal consolidation path they have agreed”. Optimism is a sign of virtue, Ms. Lagarde.

• But, the problems still remain. Jobs aren’t being created. 
• Both sovereign and corporate debts are still there. 
• Geopolitical tensions are just around the corner, if not already on the EU’s doorstep. 
• Who’s going to invest while those problems persist?
• The UK government borrowing has just been announced to have increased in May by £13.3 billion
• That was way over what the City had forecasted. Tax receipts are down in the UK and the budget deficit is not being reduced.

According to the IMF, Quantitative Easing “would boost confidence, improve corporate and household balance sheets, and stimulate bank lending”. Of course, we all saw the overt signs of stimulation in bank lending and increased confidence as well as corporate and households raking it in when the US’s Federal reserve di the money-printing thing for years. The signs are so obvious they are just impossible to see.

This is not the first time that the IMF has told the ECB to pull the punches and become more aggressive in its decisions. IMF officials have on many occasions told the ECB to start a US-style bond-purchasing program.

But, hang on a moment! Isn’t that against the statutes of the European Central Bank? Doesn’t the ECB have a clause saying that it simply can’t provide monetary finance to governments? Oh, well, never mind. Since when did any bank, central or otherwise, play by the rules. The governments put the people there into power, so they can certainly return the favor, can’t they?

Remember when all is said and done that 60% of the trades done on the stock market every single day are just for the wealthiest 5% of the world. Yes, the 95% of the other poor devils that think they are controlling the financial markets through their buying and selling of shares have absolutely no idea. Christine Lagarde’s advice on the benefits of Quantitative Easing can only be of major benefit to the 5%. There’s really no need to wonder why the rich have got richer around the world.

Originally posted: The IMF, Lagarde and QE