Earlier today, the portfolio manager of the world's biggest hedge fund, Mario Draghi, whose total assets held by the European Central Bank's special situations fund amount to €3.72 trillion, or 36% of the eurozone's GDP...
... said that it is not his gargantuan "portfolio", or the roughly $14 trillion in global central bank liquidity sloshing around (as lamented earlier today by Bill Gross) that would be the catalyst for the next market crash, but rather that it was Donald Trump's deregulation of the banking industry that has "sown the seeds of the next financial crisis."
Cited by Reuters, Draghi argued that lax regulation had been a key cause of the global financial crisis a decade ago, and said the idea of easing bank rules was not just worrying but potentially dangerous, threatening the relative stability that has supported the slow but steady recovery.
"The last thing we need at this point in time is the relaxation of regulation," Draghi told the European Parliament's committee on economic affairs in Brussels. "The idea of repeating the conditions that were in place before the crisis is something that is very worrisome."
What Draghi did not mention is that it was his former co-workers at Goldman Sachs - in this case led by Trump's chief economic advisor and former Goldman COO Gary Cohn - who forced this particular ""deregulation" precisely with the intention of sowing the seeds of the next financial crisis, so that when the next Lehman happens, it will be yet another global taxpayer-funded bail out of the financial system, allowing banks to sweep massive accumulated bad books under the rug a la 2008, and come out clean once again, merely at the expense of the "next Lehman", whoever that may be.
Better yet, they will have Trump to blame for all of it.
Draghi's words are among the strongest reactions yet from Europe since U.S. President Donald Trump ordered a review of banking rules with the implicit aim of loosening them. That raises the prospect of the United States pulling out of some international cooperation efforts.
And just as we predicted on the day Trump was elected, Draghi has now defined who the scapegoat for the next crisis will be - the man who has been in charge for less than a month - while absolving Trump's predecessor Barack Obama of all economic, monetary and financial sins.
To be sure, it had to be a collective effort, and so other central bankers - who know that without someone to blame the next crash on, it will be their heads (metaphorically we hope) - chimed in:
Andreas Dombret, a member of the board of Germany's powerful central bank, the Bundesbank, said that reversing or weakening regulations all at once would be a "big mistake", because it would increase the chance of another financial crisis. "That is why I see a possible lowering of regulatory requirements in the U.S., which is under discussion, critically," said Dombret, who is also a member of the Basel committee drafting new global banking rules.
The pile-on continued:
Roberto Gualtieri, chairman of the European Parliament's economic and monetary affairs committee, also criticized Trump. "Some first concrete confirmations of a new more unilateral policy stance by the new U.S. administration, including on sensitive financial markets regulatory issues, raise concerns and require both thorough reflection and action from the EU side," he told the committee.
Meanwhile, Draghi deflected accusations lobbed at him over the weekend by German finmin Schauble, who said not Germany, but the ECB and Mario Draghi, are responsible for the undervaluation of the euro:
Draghi rebuffed accusations by Trump's top trade adviser that Germany, the euro zone's biggest economy, is using a grossly undervalued currency to take advantage of the United States. He argued instead that economic weakness is the main reason for the weak euro.
Germany runs a massive trade surplus with the United States and Trump trade adviser Peter Navarro said it was now exploiting this to America's detriment, de facto accusing Berlin of currency manipulation. But Germany does not set monetary policy and has repeatedly complained that ECB policy is actually too easy, calling on Draghi to end its massive stimulus program.
"First and foremost: we are not currency manipulators." Draghi said. "Second, our monetary policies reflect the diverse state of the (economic) cycle of the euro zone and the United States." "The single market would not survive with continuous competitive devaluations," Draghi said.
But the ECB chief also said no policy tightening was coming as growth was still weak and faced with risks, while the inflation spike is still temporary, all indicating that monetary support is still needed. In other words, Trump may have sown the seeds of the next crisis, but the ECB will continue buying up roughly 0.3% of the outstanding stock of European corporate debt held in private hands every week, not to mention gradually nationalizing Europe's entire sovereign debt market.
"Our monetary policy strategy prescribes that we should not react to individual data points and short-lived increases in inflation," Draghi said. "We therefore continue to look through changes in (harmonized) inflation if we believe they do not durably affect the medium-term outlook for price stability."
Good thing the ECB is not "data-dependent" then.
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It remains unclear if this jawboning between Draghi and Trump, who are both effectively manipulated and played by the same bank, Goldman Sachs, is just a charade, or if this is setting up as a preamble to Trump accusing the ECB of manipulating the euro, perhaps preceding a similar crackdown on the Fed itself, as the Vice Chair of the Senate Financial Services committee Patrick McHenry hinted last week when he said that "It is incumbent upon all regulators to support the U.S. economy, and scrutinize international agreements that are killing American jobs."
If, indeed, this is nothing more than theater, we hope Trump is aware that his support level will vaporize should the S&P proceed to crash, something which many say is long overdue after the S&P never even had even one bear market for the duration of Barack Obama's tenure.