This page has been archived and commenting is disabled.
Why the ECB Cannot and Will Not Be Able to Create Growth in Europe
The ECB has just about everything it can at the crisis over there.
But inflation continues to fall.
Indeed, a mere one month after the European Central Bank or ECB announced NEGATIVE interest rates, or NIRP, (meaning you have to pay to deposit your money in a bank) the EU’s inflation readings fell again to 0.4%.
This has Mario Draghi in a panic. As President of the ECB, he wants to force banks to lend so that inflation will rise. The reason for this is because Draghi believes inflation is the same thing as growth.
Deflation, to a Keynesian like Draghi, is an unspeakable evil that must be destroyed via currency depreciation and low interest rates. Deflation must never be allowed to happen, no matter what/
Why are the ECB and EU so concerned about deflation? After all, doesn’t deflation make everything cheaper for EU citizens?
The reason the ECB is so panicked is because Europe as a whole is up to its eyeballs in debt. Debt deflation means that this debt loan is becoming more difficult to service.
Consider that, taken as a whole, European banks are leveraged at 26 to 1.
In simple terms, this means they have just €1 in capital for every €26 in assets. Bear in mind, that most of those “assets” are in fact loans made to EU corporations, consumers and other EU banks.
When you are leveraged at these levels, you only need the assets you invest in to fall 4% before you’ve wiped out all of your underlying capital (€26 * 0.04 = €1.04).
At that point you are total insolvent.
As one can imagine, with most of Europe’s economy in the toilet, many of the assets owned by EU banks have fallen in value by over 4%. Fortunately the ECB doesn’t require them to accurately mark these assets at realistic values.
Today, Europe is not much better off than it was at the depth of the crisis in 2012. Using make believe accounting standards and buying your own bonds to push yields down doesn’t really solve anything.
Indeed, if you’re totally insolvent it doesn’t matter where interest rates are. At some point you’ve reached debt saturation: the point at which additional debt, no matter how cheap is of no value.
Europe hit that point many years ago.
So now Draghi is resorting to absolute insanity (negative interest rates) to try and turn things around. All that’s left is QE. But given the total failure that has been in the US when it comes to creating growth or forcing banks to lend, we don’t expect this to have much of an impact in Europe.
This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.
This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.
Best Regards
Phoenix Capital Research
- advertisements -
Creditor nations are not stupid. You can play your inflatiing out of debt game in an era where your club controls global trade/investment. Not today.
Creditor Nations like China got their b**ls squeezed in having $ reserves and need time to dribble out. As for Europe, they do not give a s**t. What they want is debt/equity swaps. Equity in real assets not paper and it starts with hi-tech gears that they need.
European Banks are toasts and one hope is that the Creditor Nations also tilting towards hard landings implode first.
and no mention of the proposed Russia sanctions either....
Laurel & Hardy economics--- '...that's another fine mess you got me into....'
No worries for the public unions in the US if deflation strikes they still have their precious fucking mill levee's.
But you and your employer will be real happy when those public union workers use their wages to buy your shit private product. Come on man! Stop being stupid. Public unions, or unions in general are not the reason $23 trillion of our money was given to Wall Street.
There are no problems here that a couple of dozen Trillion Euro Coins wouldn't solve.
Every one going off the dollar is doing the U.S. a favor.
It de-pollutes the dollar from all the junk currencies like the Euro and disconnects the dollar
somewhat from the Global Deflation going on outside the dollar. Thus the dollar will
be stronger in a "health" way...
Surely all those now unwanted dollars splashing around the global economy will be sent back where they came from - and this will cause massive inflation.
Read that comment. Understand that comment.
+100 crazytech
Sure they can. Wait until the ECB manages to run the UK and Germany out of the EU-plenty of growth will happen to both those countries.
Or -run the PIIGS out and the remaining Eurons will grow nicely.
its an either or proposition that the piggy eurocrats in Brussels are probably incapable of seeing for themselves
Apparently, Germany is on its way
Same deal with the Fed in the US only moreso - central banks never do create jobs.
Fiscal and monetary fiddles can't touch structural issues and globalization.
You could sink US wages another 50% and it *still* wouldn't significantly impact the structural issues.
We've already tried ZIRP and that hasn't worked.
Screw ebola, there's a plague of stupidity going around that has it all beat.
They should get Krugman on a retainer.
He knows how they can sort this mess out:
Employ millions of people to dig holes.
Employ millions more to fill holes.
Print enough cash to pay them all.
Viola , problem solved.
Edit: I could fill atleast 2 holes a day if they were fit - for free .
I don't have a problem with this approach actually. "Pay em to dig ditches.". I'm sorry...cheap debt is the problem????? Europe has the most expensive debt on the planet! Damn Skippy they're worried at the ECB.
There is a SLIGHT difference between insolvency and the asset being worthless. "And that my friends is called the difference between a bid and an ask." Everything is worth something.
Even an attitude problem!
They are and will stay insolvent, but thanks to the prining press(es), the big banks will remain liquid until the end of the game.
So here we have the ECB mistaking inflation for growth, and the FED mistaking credit expansion for growth. Maybe they should start looking for the opposite -- a shrink.
No central Bank in history ever "created growth"; you have to be a moron to even utter the phrase.
Cancer's a form of growth.
Because its fucked.
Taxes in layers, debt to GDP - toast