Inflation: “The longer you delay the problem, the harder the consequences”

The ECB’s monetary policy 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) belatedly began addressing high and rising inflation by raising interest rates, at least it has begun to do so. Two months ago, the reference rate was initially raised by 0.25 points through a first and only slight increase in interest rates.

USA: Biggest interest rate hike in 22 years

The key monetary policy rate in the United States was therefore between 0.25 and 0.50 per cent and no longer between 0 and 0.25 per cent. It was clear to everyone that it was too little and it would change nothing of 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. In the future, it will now be between 0.75 and 1%.

This was the Fed’s largest rate hike in 22 years. However, it is doubtful that anything will change regarding high inflation. Inflation in the US had already risen to 8.5% yoy in March. This is the highest inflation rate in four decades. “Inflation is very high‘Federal Reserve Chairman Jerome Powell said.

We know the difficulties that high inflation causes. “We will act quickly to lower them again,” she promised. That’s why further hikes of about 0.5 percentage points are expected at upcoming Federal Reserve Board meetings, Powell said.

It can actually be doubted that the Fed has really understood the difficulties this high inflation entails for ordinary people, who are losing more and more purchasing power and whose savings, if any, are being devalued.

Fear of second-round effects

Because otherwise the FED would not have followed the incident for long, which led to the further impoverishment of ever larger sections of the population. There is more fear of second-round effects and persistently high and rising inflation, which is why the tide is turning in the United States.

In real terms, however, inflation has been high in the United States for a long time. For a long time, however, it was mainly evident on the capital markets. Those who did not make it to the capital markets were gradually expropriated, as the bank had not paid interest for a long time, but it has long been asked to pay large sums due to negative interest rates and new fees.

The zero and negative interest rate policy has now had fatal effects and, as far as the European Central Bank (ECB) is concerned, it has been criticized for many years as counterproductive by the central bank of the central banks in Basel.

For nearly seven to eight years, the Bank for International Settlements (BIS) has also emphasized that these policies artificially keep zombie banks and companies alive. As a result, the stability of the financial markets has not been strengthened, as always claimed, but has been further weakened.

Distribution of wealth from the bottom up

The low interest rate policy has had fatal consequences. “It has caused real estate markets and stock prices to rise tremendously due to interest rate cuts,” says former Deutsche Bank chief economist Thomas Mayer in a statement worth hearing. Deutschlandfunkinterview early this Sunday morning. Hardly anyone has probably heard of it, which is why we are referring specifically to the content here.

“Anyone who hasn’t come close to these real estate prices and stock prices has been left in the dark,” Mayer says in clear terms about the direction in which the wealth has been distributed, namely from bottom to top. “What has really disrupted the distribution of wealth has been the low interest rate policy of central banks in recent decades,” he says.

You cannot base a policy on the assumption that the inflation predictions you make will come true. But this is exactly what the ECB is doing. It derives its interest rate policy from inflation forecasts one or two years into the future. However, it cannot really anticipate inflation, or rather, it cannot anticipate correctly at all.

Tommaso Mayer

However, this is still very diplomatically worded. Lagarde’s ECB forecasts have long been so absurd that either they are “crazy”, like Nobel laureate in economics, Paul Krugman, once judged the policy of the International Monetary Fund (IMF) to save the euro , when Lagarde was still in charge of the IMF, which dictated “bailout programs” for countries like Greece.

Or there is a will behind it, a consciously implemented policy. This is to be assumed and it must also be assumed that the ECB has maneuvered itself into a dead end.

Absurd forecasts

In fact, under Lagarde’s leadership, the ECB squandered its absurd predictions that inflation would fall very quickly again in the spring. On the contrary, it is climbing to new record highs in real terms, despite the steady stream of new crisis measures. But you don’t want to learn a lesson from it.

Rather, the ECB keeps coming up with new excuses. So the Russian invasion of Ukraine has come at the right time to describe it as an engine of inflation. Even before the war, inflation was constantly setting new records. The aim is to hide the fact that excess central bank money is at the root of the high rate of inflation.

The ECB is aware of all this. Why else did they create a base for discussions in Frankfurt last summer in order to continue the hustle and bustle? At that time, a war in Ukraine was not foreseeable, but the increase in the national debt due to ever new aid programs was evident. This has to be “inflated” in part by higher inflation.

This is particularly true of highly indebted countries, such as Lagarde’s hometown France, which of course also continue to receive hidden state funding through the ECB. The ECB therefore moved the inflation target from “just under two per cent” to two per cent.

Much worse, however, is that the central bank now also wants to accept “stronger deviations up or down” and “over a longer period of time”. For the ECB, even official inflation nearly four times the target is obviously just a “stronger deviation”.

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