ECB with a turnaround in interest rates: a failure with an announcement

The turnaround in interest rates is finally here! Is it really her? For the first time in 11 years, the ECB is preparing to raise rates again, by 25 basis points to – now get this – 0 percent. No jokes. This act of desperation alone makes it clear how incapable and haphazard currency watchdogs are in Frankfurt. They have nothing to counteract either historically high inflation or current crises. Ammunition has been completely depleted in recent years. The financial crisis, the euro crisis and, more recently, the crown crisis have pushed the ECB further into a corner. At the same time, they also began working in secondary war theaters, such as the green transformation with the Green Deal. The answers to each of these crises have always been the same: printing money and cutting interest rates. The keyboard was played in an extremely inflationary way. Bottom line: The constant printing of money has inflated the ECB’s balance sheet to a whopping € 8.81 trillion, which is about 84% of the eurozone’s economic output (GDP).

Total assets of the ECB

The result is a historically high inflation rate of 8.1% in the euro area and 40% of the public debt is on the ECB’s balance sheet. At the same time, governments are up to their necks in debt and need inflation more than the ECB feels comfortable inflating its debts at the expense of citizens. Because they are footing the bill with rising prices, because the purchasing power of EU citizens is being taken away more and more at the same time. Hand in hand, the asset price bubble has increased with the ECB’s balance sheet in recent years. Stocks, classic cars, works of art, real estate, etc. they continued to swell in euros. This only reflects the loss of purchasing power. For example, if you bought a property ten years ago, you now receive twice as many paper certificates for the same property, whether renovated or not.

The property has not doubled in size or doubled the size of the property, this only shows that the purchasing power of the ECB paper banknotes has halved in value and we have all de facto lost purchasing power. According to the Federal Statistical Office, since the euro was introduced in 2001, the euro has officially lost more than 35 percent of its purchasing power. But if you take a more objective equivalent value, such as the price of gold, we have a loss of purchasing power of over 90 percent, which comes very close to reality when you see what real estate prices, stock markets, etc. are like. . developed. The ECB has thus made the rich richer and the middle class poorer in a socialist planned and organized economy. We have seen nothing but what I had predicted to be the greatest transfer of wealth in human history from the bottom, the center and the top up into the hands of fewer and fewer. This is the Cantillon effect, which unfortunately works like a clock. The seemingly ridiculous ECB rate hike, which seems timid and uncertain, does not do justice to either the 8.1 percent inflation rate or the debt burden.

The next crisis is already inevitable!

As always, the ECB reacted too late and too little. It cannot significantly raise interest rates, otherwise the southern states of Europe will collapse one after another. The ECB is caught between fighting inflation or saving the euro and southern Europe and keeping it alive. Everything together doesn’t work. The next big crisis is already looming. A look at government bonds in the euro area clears up the dilemma: government bonds are already spaced out again. Italy currently has to pay out 2.5% more capital market interest on the new debt than Germany. For a country with a debt-to-GDP ratio of nearly 150 percent, every percentage point is painful.

The ECB is in the final game

In Germany, we are seeing a 50-year high of the inflation rate of 7.9%. To blame all this on the war in Ukraine is too easy. Even before that, we had inflation well above 5%. In this chart you can clearly see how high inflation rates have been fought with rising interest rates in the past.

Reference rate against inflation

This time around the European Central Bank has the problem that the interest rate is 0 percent, which means that the ECB’s room for maneuver in Frankfurt is more than limited. But this is not the only problem: because we also have war in Europe, the collateral damage of the Crown crisis such as broken supply chains, an impending recession and blockages in China, and an energy crisis that was partly caused by a transition. wrong energy yes. All this points to a serious crisis.

So the ECB now has to decide between plague and cholera: fight inflation and then end the euro experiment and bankrupt zombie states or save them and risk hyperinflation. No matter how you turn it and turn it, they both lead to the same result: the end of the euro!

Marc Friedrich is a six-time bestselling author, financial expert, sought-after speaker, pioneer, free-spirited and founder of the paid consulting firm Friedrich Vermögenssicherung GmbH for individuals and companies.

His new bestseller was the Most Successful Business Book of 2021: The Greatest Opportunity of All Time – What We Need to Learn Now From the Crisis and How You Can Benefit from Humanity’s Largest Transfer of Wealth

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