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Despite Upping The QE-Ante, Europe Will Sink Into Deflation, Trigging The Next Round Of The Global Market Crash

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Draghi Eurozone

Just one year after Mario Draghi reassured the market he would do ‘whatever it takes’ to ensure the inflation rate in the Eurozone will increase again, he seems to have been pushed back into a corner. The European Central Bank once again had to reduce its economic growth expectations as well as the expectations for the average inflation rate in the Eurozone.

Eurozone Inflation Rate

Source: tradingeconomics.com

Despite the ECB having been a huge buyer of bonds on the open market to increase the liquidity in the system, the 60B EUR per month has been insufficient to create a serious trickle-down effect in the real economy. Whereas the central bank is targeting an inflation rate of 2% which it deems to be the ‘sweet point’ for a sustainably growing economy.

The inflation expectation for the entire year 2015 is just 0.1% and is expected to increase to 1.5% in 2016 and 1.7% in 2017. This also means that a negative inflation deflation in the next few months (on the back of a lower oil price) is a very realistic possibility now and it certainly looks like the ECB will have to step up its game to make sure it doesn’t lose control.

Eurozone M1 Money Supply

Source: ibidem

But it also looks like it has maxed out some bond purchases, as one of the newly-instated updates on the bond-buying program is an increased ceiling of how much the ECB can buy of one issue. Whereas the previous ceiling was placed at 25%, the ECB has now increased this level to 33% and the market is now widely anticipating Draghi to upgrade his Bazooka to a Bazooka 2.0 as the ECB is reportedly considering to purchase more different asset classes, to extend the current program (which is scheduled to end in 12 months from now) and to expand the program from 60B EUR per month to 75B+ per month.

The different players in the currency war are now taking their next steps at a very fast pace. After the Chinese crash and the devaluation of the Yuan, the USA will now very likely hold off on increasing the benchmark interest rate, now the ECB will very likely increase the liquidity in the system by a few billions per week, but the next step will be unfolded next week when China will announce an updated status of its foreign currency reserves.

Eurozone China Forex reserves

Source: forexhacker.com

Those reserves peaked at $4T in the summer of last year, but it will be very interesting to see how much of those reserves were dumped by China during its very agitated summer. The forex reserves dropped by in excess of $40B in July, but this number will very likely be much higher in August, and Netherlands-based Rabobank is estimating the outflow could be in excess of $200B as the Chinese central bank had to dump foreign currency in an effort to rescue the Yuan from a semi-freefall.

And this move could trigger another round of selling as Deutsche Bank expects the combined amount of forex sales from the central banks to be $1.5T in the next 16 months. Yes, that’s 1,500 billion dollar. And then the Federal Reserve will have to make the next move as a weaker Euro and Yuan is once again undermining the American economic growth.

The domino pieces are falling. Fast.

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Mon, 09/07/2015 - 10:09 | 6518157 Non Passaran
Non Passaran's picture

They're nowhere near done. They can print more, buy private debt, cancel cash, etc.

This shit can keep going on for at least 5 more years, if not forever.

 

Mon, 09/07/2015 - 09:44 | 6518065 Honus
Honus's picture

Seems to me that any economic system that requires constant inflation is unsound in the first place.

Mon, 09/07/2015 - 04:28 | 6517705 OldPhart
OldPhart's picture

A lot of us talk about taking out politicians (which promptly brings the FBI to your door [believe me on this]).

What if we started targeting Banksters, instead?

Someone must know where they live, eat, do, go to.

A bit of shared info might start solving a lot of problems.

And not one of them is a goobermint official.

Mon, 09/07/2015 - 01:47 | 6517588 novictim
novictim's picture

Of course. QE does not create real money in the economy as it only props up speculative values.

It cannot cause inflation and that is why it does not work.

Sun, 09/06/2015 - 22:00 | 6517164 StarSoul
StarSoul's picture

Germany did it again by destabalizing Europe. Germany is no economic power. Its ultimate goal always was to destroy Europe. 

If there was ever a Trozan Horse Prize..Germany will win every year.

 

Sun, 09/06/2015 - 19:44 | 6516740 who cares
who cares's picture

It is sickening to see writers use the word inflation in lieu of growth. You can have inflation without growth i.e. stagflation and that is not what money printing is trying to achieve. So please stop talking about inflation or deflation and use the right wording: growth and recession.

Sun, 09/06/2015 - 19:30 | 6516694 Herdee
Herdee's picture

We all know what happens to the budget of not just state subsidized companies in Europe that are overinvested in emerging markets but also I should add that it translates into reduced tax revenues coming in as well.

Sun, 09/06/2015 - 19:28 | 6516684 Herdee
Herdee's picture

That's because of the size of investments that European countries have in emerging markets and their investments are all going to hell.

Sun, 09/06/2015 - 17:20 | 6516271 Hongcha
Hongcha's picture

Speaking of the refugee influx, did anyone see how the NY Times rendered it on Page One of the Sunday edition?  A full color, sensitive, Pulitzer-calibre photo of grinning arabs flashing the peace sign as Germany let them in.  Shame on any not willing to help these happy faces...

Sun, 09/06/2015 - 13:09 | 6515621 foxmuldar
foxmuldar's picture

What will hasten the demise of Europe is the flood of Muslim leaches pouring into Europe. Hundreds of thousands of Muslims all looking for lifelong welfare that most of the Muslims currently living in Europe are living off. It won't be long till Europe becomes an Islamic Caliphate. These are not refugees pouring into Europe, its an invasion of untold numbers. And in a short time many of them will end up in this country thanks to the liberals running this country. 

http://foxmuldar-conservative-thinker.blogspot.com/2015/09/east-west-div...

Sun, 09/06/2015 - 18:15 | 6516442 TrulyStupid
TrulyStupid's picture

Actually you can thank the American war machine who have spent the last 13 years destabilizing the countries of the middle east. Not only are they creating more "terrorists", they are also creating a huge humanitarian crisis and a refugee problem for Europe (and themselves). Please note that neither Israel or Saudi Arabia are accepting refugees.

Which liberals are running the country? last time I looked it was the frothing at the mouth neocon conspiracy calling all the shots.

Sun, 09/06/2015 - 11:58 | 6515373 messymerry
messymerry's picture

Pic of Darghi:  If that's not the face of an effing moneychanger, I don't know what is. 

Wee need to publicly rally against the inappropriate influence of the Bwankers!!!

;-D

 

Mon, 09/07/2015 - 06:24 | 6517752 MSimon
MSimon's picture

Don't borrow money from them.

Sun, 09/06/2015 - 11:00 | 6515199 NoPension
NoPension's picture

This is all wrong.

Europe is on the fast track to prosperity. The consumption and future growth will be stunning. They have opened their gates, and are going to benefit massively from the influx of university trained engineers form Middle Eastern countries, who, up to now, have not been able to ply their trade.

Is it me, or is almost every " refugee" a university trained engineer?
Whether from Africa or the ME. These special migrants will make Europe a very special place. New jobs. New industry. More development. Those Germans will now have the engineering assistance they require to build a better car or Peice of machinery.
All one has to do is look south, from the glorious cradles of civilization from whence these poor migrants eminate to understand the the glorious revolution that is about to envelope Europe.

Just look at the technology and advancement we in the USA have benefited from, by opening our southern border. Werner Von Braun and Albert Einstein, my ASS. Jorge and Julio is what we always needed. ( and the added benefit, they are smart nuff to vote D en masse)

Mon, 09/07/2015 - 02:44 | 6517635 khnum
khnum's picture

my country got kebab stands and taxi drivers that cant speak english but the 90 percentile assist the economy by keeping welfare and social security workers gainfully employed...yet they all drive expensive black suv's whats with that?

Sun, 09/06/2015 - 22:02 | 6517173 StarSoul
StarSoul's picture

Germany is a Trozan Horse created to destroy Europe. Throughout History. Germany has always taken decisions that destroyed Europe. 

Mon, 09/07/2015 - 06:23 | 6517749 MSimon
MSimon's picture

You know which German leader had a cure for that? Incompletely implemented.

Mon, 09/07/2015 - 08:13 | 6517826 GlobalCtzn
GlobalCtzn's picture

Shhhhhhhh.................slippery slope.

Sun, 09/06/2015 - 11:31 | 6515289 KnuckleDragger-X
KnuckleDragger-X's picture

Its like that old rock and roll saying: Its better to burn out than to fade away.....

Sun, 09/06/2015 - 14:16 | 6515792 GreatUncle
GreatUncle's picture

The Kurgen in Highlander 1 said that ...

He got his head lopped off later of course.

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