Europe Resorting to Voodoo to Avoid Becoming Japan
Post on: 16 Март, 2015 No Comment
Europe Resorting to Voodoo to Avoid Becoming Japan
32 Jun 5th, 2014 | By Shah Gilani
Its a mixed-up crazy world, especially when it comes to figuring out economics.
Just look at European stock markets. Many of them are making new highs today.
Why is that crazy?
Because stocks making new highs has nothing to do with economics unless were talking about voodoo economics.
Apparently, things in Europe are so bad that the president of the European Central Bank (ECB), Mario Draghi. announced in a press conference today that the ECB was cutting the base lending rate from 0.25% to 0.15% and taking other stimulative measures.
Thats why stocks went crazy and made new highs.
Why is that crazy?
Because the ECB is resorting to desperate, never-tried-before measures to stem a Japanese-style deflationary spiral that could sink European economies, tank the euro. and destroy the European Union .
In other words, things are so scary in Europe that the ECB feels it has to take extraordinary measures to prevent another recession or worse.
And stocks are making new highs on account of how desperate the outlook is?
Sure, its voodoo economics. Pump money into the system, and stocks rise. Its bubble-icious.
It gets worse, though. Read on, and Ill tell you exactly how crazy all this is
Whos Watching the Dam?
Dropping the base lending rate to a historical low isnt that big of a deal. Its what else The ECB is going to do thats really crazy.
Since 2010, the ECB has been bailing out European countries by buying up their distressed government bonds when no one else would. This is when rates were rising to a point where if they were to go much higher some countries would have literally imploded.
However, the ECB insisted, this wasnt quantitative easing. It was adamant the Europeans werent going to be as reckless as the U.S. Federal Reserve and engage in an experiment that could unleash massive inflation.
So that its bond purchasing program would not be viewed as quantitative easing, the ECB engaged in sterilization. Sterilization is basically a neutralization program that takes as much money out of the system as the ECB is pumping in when it buys government bonds and pays with cash. Theoretically, that then floats around in the economy.
To take money out, which it put in to buy bonds, the ECB paid interest to banks to park money at the ECB. That made sure that whatever money the bank flooded the system with was then taken out of the system and parked with it.
Thats gone by the wayside now. As of today, the ECB isnt going to sterilize any more.
In fact, to flood even more money into the system, not only is the ECB not sterilizing by paying banks interest to leave money with them, it is now going to charge banks to park money with ECB!
The big brains at the ECB are now moving its deposit rate to negative 0.1%.
And thats the sensible stuff they are doing.
They are also doing something crazy. The ECB will be taking in asset-backed securities, basically anything thats asset-backed, including junk and distressed and underwater securities, as long as they are asset-backed and lending against that collateral.
Seriously, how desperate are things across the Atlantic?
The Fed did the same thing in 2008 when the financial system was about to melt down. Is Europe there now?
And stocks are making new highs?
And U.S. stocks keep making new highs?
Its raining money.
As the lyrics of one of my favorite Led Zeppelin songs go, If it keeps on rainin, levees goin to break.
32 Responses to Europe Resorting to Voodoo to Avoid Becoming Japan
- 3Cpath_to_url%3E&r=G /% b terfloth says: June 5, 2014 at 1:39 pm
when the dams break where will the water go
will the river take it or will it water dried out valleys
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Im just waiting for the collapse then try to stay out of the camps. FEMA camps.
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Shah, A newsletter several years ago during the crisis said the difference between the USA and the Eurozone was we had the Federal Reserve and Office of Controller of the currencyh because our banks are all part of our country. The Eurozone on the other hand was made up of sovereign countries so their banks used a self regulating organization type of regulatory body. That body assumed their was no risk in sovereign debt therefore they didnt have to reserve for their holdings in each other countries bonds leaving all their capital for loans to make money on. The letter said several years ago that if all european banks marked their soverign debt holdings to market their would probably not be a solvent bank there.The recent recovery in bond prices has certainly helped the situation. Do you agree with this idea.
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Excellent but who can stop the deluge?
It looks like we wont ride it out and givernments will begin seizing assets for whatever pretense they can find.Look what is happening to Americans with foreign bank accounts. With FATCA, the government admitted it had not properly informed holders of foreign funds abroad as to the consequences of their actions and so if you reported your position, they would grandfather you in. They sure did. They immediately went to work to take what you hadthey dismissed their offer and used your data to grab not only your funds but levy fines and fees to take what you had in the states too! If you had stashed your funds in foundations, you are the first to really get it!
I wondered why GEs great CEO, friend to Obama, was telling the world that he wanted GE to become a french company. I dont think this new maneuver will exemptGE from having the USA seize all its overseas funds. I am waiting now to hear how Gates and Buffet escape the taking of their foundations abroad ,their manuever to protect their take from the manipulating games they played.
We kave lost our world and the criminals are in charge, hiding under Islamizatio9n as they take everything including what some thought they had make fail safe.
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I hope all the levies break soon, I have too many RED numbers in my portfolio!
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I still see the big problem and the biggest reason for a collapse is the currencies. Countries,large corporations and individuals are replacing currencies with other forms of trade. This trend continues around the world. Governments have been forced to start laws that protect the banks and there fore the currencies but following these laws by corporations and countries is being resisted. They are looking for and have found systems to do business without using currencies. I believe this will grow much larger in the future.
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The times they are a changing and the piper will have to be paid. The only game in town is printing money and the accompanying debauchery of greed hoarding and corruption.
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Fed tapering (NOT) Paul Craig Roberts (mainstream guy) pointed out that Belgium bought tens of billions of bonds 1/2 year ago at the beginning of the tapering hoax..They obviously do not have the means to do so on their own. so Roberts surmised that the Fed was laundering money through foreign banks. This was supposed to be to offset large sale of US Bonds from an unnamed country
Of course the tapering will not be completed if it is happening at all as neither the stock market nor bond market can withstand that stimulus removal.
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Next step is Free Money. Back up the truck.
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The wick is lit. Fingers in ears and eyes closed. When the financial market blows its lid this time around, it is going to be one hell of a bang! run for cover! Stock up on Silver!
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The madness continues.
So, those banks are gonna magically find a bunch of good credits to lend to who have great plans to use the money profitably?
Well, no, because presumably, when you, as a bank, are borrowing money for practically nothing already, youd have to guess that anybody who was creditworthy and had a solid business plan would have already been financed. Honestly, if a 1/4 point deters you from lending, thats quite commentary of the paucity of investable ideas/borrowers.
So, are we back to lending to anyone with a pulse, never mind the credit worthiness? Do we just endlessly misallocate money? I guess so.
So, it keeps on raining.
Now if you can tell me WHEN the levees gonna break, Id be much obliged. That is shall has been beyond question for a long time.
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Shaw; One of John Naisbitt ,11 Mindsets says,Resistance to change fails if benefits are real.
If their levee does break they will change for the benefits in their future.
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JPK,See something good is alerday coming out of this project. It would be very interesting indeed to see why the CFA has survived for so long. I have two preliminary ideas. 1) The CFA franc has actually been devalued at a number of occasions. 2) There is not real fiscal issue that most of the public expenditure in any West African is funded by foreign donors. But I look forward to getting back to this.
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We are being led by the crazy and the desperate. The ECB has joined the Fed in a doomed attempt to maintain the delusion that we can live beyond our means for ever (?!). Incomes and buying power must relate to productivity and profitability otherwise all the stimulation, manipulation, persuasion and confident utterances can only end in disaster. Maybe not of the big bang variety, more likely a slow and painful economic decline a-la-Japan. Whatever, we in the rich world will become relatively poorer as those countries whose economies and standards of living are firmly attached to growing productivity will become richer.
There is no great mystery to this.
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Raining money only if you are Rich! Been rather dry, with, drought conditions on Main Street, where I live. All rules of Classic Capitalism, Free Markets; Monetary Restraint — gone! Call me, Chikin Little; but this mess in Europe & the U.S. is not going to end well.
Concur. Both Continents at the Edge of the, Slippery Slope of Deflation — then Depression — if GOP captures the Senate. The Print, used for entirely the wrong reasons — in my opinion. Yes, it may have postponed the, Reset; but, no one outsmarts the Invisible Hand of the Free Market. The Piper will have to be paid soon! The Bubbles arent so delicious, for many of us Minion Muffins — as W/S likes to call us.
don
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Is this the beginning of the end of Capitalism? The entire worlds economic system is hybrid and phony but maybe that is how it has to be. There are too many mouths to feed and that need water. Much too little of the latter. Mario is trying to forestall the great catastrophe ahead that is looming over all of us and it is valiant but hopeless effort. Robots of the world unite you have only testicles to loose. Like those poor infants in Ireland we are going into the cesspool, get in line.
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I agree with you. But I think the propaganda and investor greed will overshadow any warnings. It almost always does. Governments will never acknowledge any responsibility for their actions. And most investors are too unsophisticated, too greedy and too interested in jumping on the bandwagon. The money managers (Wall St. and big bankers, domestically and overseas) are all too eager to sell whatever others will buy. So I dont see any pull back or realization until the crisis comes and it will.
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OMG! Shah Gilani and Led Zeppelin! Ahahahaha!
Thats fabulous man! You just went up 20 points in my estimation!
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Very astute observation! Bottom line is this way of thing will bankrupt us all!
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Very astute observation! Bottom line is this way of thinking will bankrupt us all!
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What are the assets? Voodoo.
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In the meantime, money can probably be made investing in Europe.
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The difference between foresight and hindsight will soon become very apparent to the myriads of ostriches who have their head in the sand.
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Interesting article. Also a Led Zeppelin fan my kinda guy!
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I love your articles, your common sense, the way you explain things.
Should we all sell our stocks until things get more sensible?
I am afraid of the market correction once everybody realizes we are relying on fake economics.
Thank you,
Mirit
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The ECBs measures cannot mirror those of the Federal Reserve. For one, the ECB is not engaged in the creation of money in the same sense that the Fed has been since the financial crisis of 2008. The ECB must manipulate the existing money supply and is not engaged in the printing and expansion of the supply, as we are in the U.S. Stock markets in Europe are interpreting the lowering of the ECBs base lending rate as an action akin to the drop in the Feds discount rate and the bull market that ensued. This explains the rally in European stocks as an initial reaction to the news. This will likely be a short lived rally, as European economies across countries are not uniform entities, as are the individual United States. The ECBs plan to follow US Fed policy will not pan out as they may be forecasting.
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Is there any sense left in the world. The are like all jumpimg of a high cliff, and prending this is normal. I ask you, is it. I dont think so.
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The Mechanism of Money is representative of an abstract function which theoretically has the same dimensions as Energy, $(x,y,z,t) = E (Mass.Lenght^2Time^-2)
Fiat currencies are backed by nothing other than the mendacious weasel words of politicians and banksters, which are in essence worthless.
Accountancy must ultimately Thermodynamic and not Monetary.
Do these mindless cretins truly believe that they can defy the Laws of Physics and specifically the Second Law of Thermodynamics.
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Some 40 years back an engineer who was doing some programming for me, if I recall right said after a visit to Singapore the place was booming because they didnt tax income, they taxed how much money was held at years end.
Correct or not? Charging interest on deposits should have the same effect a booming economy.Would it also be deflationary?
As a retired senior I would welcome deflation my life savings would last better, providing of course the tax on my money wasnt greater than deflation! It seems to me something in between like 0% interest & no tax might work well for society and the economy. How to finance governments is the problem.Where is my genie??
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Were used to our retirement funds making little or no money. Were now happy with the illusion that our money is still there. So I cant see the interest policy making any difference because it is not the business that wants to borrow but the d*** bank that wont lend that is the problem. The banks are happy to get by with service charges and normal fees for funds transfer. No need for staff and very little risk. Those of us with large capital vs income ratios are screwed because we will never sell. A new and successful business will be designed with no capital and perfect demographics.
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Yes, capitalism is over. Not only because it can no longer work since the cost of labor was an essential element of capitalism and very soon we will have robots doing all the manual work without pay and we humans are no longer needed. How we going to maintain a 7 billion people plus population unless we have socialism world wide? But take heart the happiest people on this planet live in socialist/democratic countries. Maybe we should do what the Norweigens did and nationalize our natural assets, oil, gas, etc. and sell then to the oil companies, mining companies and take the royalties and support the socialist state. We will have a Luddite Revolution otherwise. I am too old for this society but it has got to happen
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the € is steel 1.25 to the dollar! what happened to your dam break prediction? Face it! your doomsday prediction is flat wrong! the developing world is not growing as it used to, so now we will see why the Euro is not dissolving, nor breaking, nor imploding, nor ending. the ECB is doing the right thing, Jean Claude trichet should have done what Mario Draghi is doing now, that would have avoided much of the problem and the western problem will be seen now through the rearview mirror.
the joke is on the developing world that has been pumped with cash since the late 2008 most of that cash will be repatriated.
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