Time to toss yet another “conspiracy theory” on the composite heap of “theories that became fact.” A recurring theme we have pounded the table on over the past nearly 8 years is that central bank policy has been the primary driver leading to not only a record wealth and income divide, but to such manifestations of populist (and nationalist) fury as Brexit, the gradual collapse of the Eurozone and, of course, Trump.
Moments ago, ECB board member Benoit Coeure, speaking in Rome, said that “low forever” rates would risk tearing up the social fabric. Translated: if extended indefinitely, the ECB’s monetary policy risks the collapse of not only the Eurozone, but also could lead to social unrest, violence and even civil war.
Quoted by Bloomberg, Coeure said that “moving from interest rates being ‘low for long’ to being ‘low forever’ would severely limit the room for maneuver for conventional monetary policy tools, but even more worryingly, it would threaten the contract between generations as well as risk tearing up our social fabric.” Which is a more polite phrasing of what we have said all along: that it is central banks themselves, and their idiotic policies that have led the world to the current unstable state, when mass shootings and/or terrorist activity has become an almost daily event.
Couere then adds that “if fiscal and economic policies do not in fact play this role, we risk being trapped in a low growth, low interest rate equilibrium.” What Couere does not say is that it is the ECB’s policies – again – which enable governments to avoid engaging in politically costly and potentially career-ending structural reforms, if not so much “fiscal policies”, which ultimately are nothing more than issuing more debt, something which the status quo delights in, yet which merely kicks the can just down the street.
The unexpected bashing of national governments continues, when Coeure said they “need to live up to this responsibility: economic and fiscal policies need to be used more decisively so as to reduce structural unemployment and boost potential output growth in the euro area.” He concluded that the EU finds itself in a “difficult phase,” needs a “clear and consistent path of integration to avoid half-built houses.” Or insolvent banks with trillions of derivatives on their books?
And in the pinnacle of irony, as Coeure was warning listeners about the potentially deadly risks of the ECB’s ruinous monetary policy continuing far too long, at the same time Mario Draghi was addressing European lawmakers where among many other things, he admitted that he is fully aware that “low rates “penalize” savers, but they also benefit “whoever borrows money” and the latter effect “more than offsets” the former.
Hear that savers: the frout of your many years of labor may generate no income (or may be even negative in some cases) but your sacrifice is a noble one: it is for the greater good, especially as it benefits those who live beyond their means and – of course – those market speculators who just have to “BTFD.”
Pressed on this issue, Draghi said that it’s not just the ECB’s fault but also the economy: “we have to accept the fact” that low interest rates are “a symptom of low growth” and not a pure creation of central banks.
The otherwise glib ECB head, however, had nothing to say about Deutsche Bank: he has refused to comment on Europe’s largest bank crashing to all time lows.
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