The ECB's Maltese fulcrum

So today we have the ECB and its head Mario Draghi at the podium announcing their selection in the 2015 Easing Draft.

To give you a look at how bad the European economy is doing, Europe’s central bank is charging its banking system 0.2% on money deposited at the bank.

By all accounts the next time Europe’s economic numbers are tallied, the slow growth of the last 6 months will further weaken to move into no growth and edge closer to a recession.

So the eyes and ears will be on Draghi’s post press conference in Malta to see if the ECB is thisclose to hiking on its $1.2 trillion EQE program.

Again, as I said plenty of times on this blog QE is not the answer to improving an economy. Not here or there. QE allows banks to stay open with their impaired balance sheets.

None of the money the central banks create for QE will get in the hands of the 99%.

You may see a bump in you portfolio — if you are among the 20% in the market — but the asset bubble does not allow wages and lending to rise from QE.

That’s by design. You will payoff the increased debt taken on by the ECB or the Fed, but you will derive no monetary gain directly.

The reason is simple, if the Fed or ECB allow that money to have velocity — or go directly into the economy through wages and increased lending — inflation would raise its ugly head.

Now the Fed is constantly harping on the fact that inflation is low, but that’s what they need.

Because if inflation rises, then the central bank has to raise rates to control that and the impaired banks would suffer greatly since a rise in bond rates decreases the price of those bonds, and that would make the banks balance sheets that much weaker.

The above is a critical reason we are stuck a zero rates for the last 7 years. But no one will tell you that.

It’s always about the crippled banks. Just follow the money.

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6 thoughts on “The ECB's Maltese fulcrum

  1. Michael,

    Very insightful. I understand they don’t want rates to rise for the reasons you outlined above. But I assume they don’t want deflation either. Is it possible to have some added inflation without raising rates?

    And. . .is there a way to find out how much each bank is paid from interest on excess reserves (free money)?

    Thanks,

    Tim H.

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    • Gas is the biggest factor in the deflation question. But there is plenty of inflationary price pressures elsewhere to keep deflation at bay.

      Finding the total paid to banks is the proverbial needle in the balance sheets. It’s tucked in with other elements without a clear breakout.

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      • Michael,

        If debt is money. Is the $18T of public debt a concern?

        I have heard some say that to pay down the debt would not be wise because debt is money.

        and. . .

        Is the way “we” create money a sound system? Is there something better?

        I know these questions are somewhat off-topic from the blog. . .but I appreciate your insights and I am trying to piece a lot of together.

        Thanks again!

        Tim H.

        Like

  2. Pingback: Welcome to Wonderland | GRAY'S ECONOMY

  3. If we printed the $18T that is our current debt level, we would be dealing with runaway inflation, but that’s not the case. Much of the $18T would not figure into the US money supply as it resides in treasuries sitting on the Federal Reserve balance sheet.
    We owe the money, but our debtors aren’t looking to be paid any time soon.
    An asset-back currency would certainly be better than our present system.

    Like

    • If it is on the Fed’s balance sheet. . .and we cannot audit the Fed. . .can they expand their balance sheet forever? Is there a limit? If so. . .what triggers it?

      That is my last question.

      Thank you!

      Tim H.

      Like

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