The monetary policy of the ECB leads to stagflation, since the European Central Bank, unlike the US Federal Reserve, does not even begin to take countermeasures
Although the US Federal Reserve (Fed) was a late start to tackling high and rising inflation by raising interest rates, it has at least begun to do so. Two months ago, the key interest rate was initially raised by 0.25 points through a first and very slight increase in interest rates.
United States: the largest increase in interest rates in 22 years
The key monetary policy rate in the United States was therefore in a range of 0.25 to 0.50% and no longer between 0 and 0.25%. It was clear to everyone that this was far too little and that it would not change the strong inflationary pressure. That’s why the FED took a bigger sip from the bottle last week. The US Federal Reserve raised interest rates by 0.5 percentage points. Going forward, it will now be in a range between 0.75 and 1%.
This is the Fed’s biggest rate hike in 22 years. However, this is unlikely to change anything to the high inflation. Inflation in the United States had already reached 8.5% year-on-year in March. This is the highest inflation rate for four decades. “Inflation is way up“said Federal Reserve Chairman Jerome Powell.
We know the difficulties caused by high inflation. “We will act quickly to lower them again,” he promised. That’s why further hikes of about 0.5 percentage points are expected at upcoming Federal Reserve Board meetings, Powell said.
It is in fact doubtful that the FED has really understood the difficulties that this high inflation means for ordinary people, who are losing more and more purchasing power and whose savings – if any – are devalued.
Fear of second-round effects
Because otherwise the FED would not have observed events for so long, which led to further impoverishment of ever wider sections of the population. There are more fears of second-round effects and persistently high and rising inflation, which is why the tide is turning in the United States.
In real terms, inflation has been high in the United States for a long time anyway. For a long time, however, it mainly manifested itself in the capital markets. Those who did not access the capital markets have been gradually expropriated as the bank has long ceased to pay interest but has long since been asked to pay massive sums due to negative interest rates and new costs.
The policy of zero and negative interest rates is now having fatal effects and, as far as the European Central Bank (ECB) is concerned, it has been criticized as counterproductive by the central bank of central banks in Basel for many years.
For nearly seven to eight years, the Bank for International Settlements (BIS) has also pointed out that these policies only artificially keep zombie banks and corporations alive. The stability of the financial markets has not been strengthened, as has always been said, but has weakened further.
Distribution of wealth from bottom to top
The low interest rate policy had fatal consequences. “This has led to a huge rise in property markets and stock prices following the interest rate cuts,” former Deutsche Bank chief economist Thomas Mayer said in a statement worthy of note. be heard. Deutschlandfunkinterview this Sunday morning. Hardly anyone has probably heard that, which is why we expressly refer to the content here.
“Anyone who hasn’t gotten close to these real estate prices and stock prices has been left in the dark,” Mayer says in no uncertain terms about the direction in which wealth was distributed, namely from the bottom up. . “What really separated the distribution of wealth were the low interest rate policies of central banks over the past few decades,” he says.
You cannot base a policy on the assumption that the inflation forecasts you make will come true. But that is exactly what the ECB is doing. It bases its interest rate policy on inflation forecasts one to two years into the future. However, it cannot really anticipate inflation, or rather not at all correctly.
However, it remains formulated in a very diplomatic way. The ECB Lagarde forecasts have been so absurd for a long time that you are either dealing with “crazy people”, as Nobel laureate in economics Paul Krugman once judged on the policy of the International Monetary Fund (IMF) to save the euro, when Lagarde was still at the head of the IMF, which dictated the “rescue programs” for countries like Greece.
Or there is a will behind it, a consciously implemented policy. It is to be assumed and it must also be assumed that the ECB has sunk itself deeply into an impasse.
In fact, under Lagarde’s leadership, the ECB squandered its own absurd forecast that inflation would come back very quickly in the spring. On the other hand, it is reaching new records in real terms, despite the constant flow of new crisis measures. But you don’t want to learn a lesson from it.
On the contrary, the ECB keeps coming up with new excuses. The Russian invasion of Ukraine therefore came at the right time to now present it as an engine of inflation. Even before the war, inflation was constantly breaking new records. The aim is to hide the fact that the glut of money from central banks is at the root of the high rate of inflation.
The ECB is aware of all this. Otherwise, why did they create an argument base in Frankfurt last summer to be able to continue the agitation? At that time, no war in Ukraine was foreseeable, but the growing national debt through ever new aid programs was evident. This must be “inflated” in part by higher inflation.
This applies in particular to heavily indebted countries, such as Lagarde’s home country of France, which of course also continues to receive hidden public funding via the ECB. The ECB therefore moved the inflation target from “just under 2%” to 2%.
Much worse, however, the central bank now also wants to accept “steeper upward or downward deviations” and “over a longer period of time”. For the ECB, even official inflation close to four times higher than the target is obviously only a “wider gap”.