At the beginning of June, the ECB and EU walked down from targeting Italy with excessive debt procedures. And now, lovey Dovey Christine Lagarde takes over where Mario Draghi left off.
Crucially, for Italy, it’s not a German central banker at the helm.
Happiest Man in Europe
Italian 10-Year Yield at 1.6%, Salvini must be the happiest man in Europe… Confronts the EU and EC, and sovereign bond yields halve.
Spain and Portugal at 0.2%… All very “fundamental” (irony) But the ECB says there is a need for more stimulus… pic.twitter.com/t27K3Q9gOP
— Daniel Lacalle (@dlacalle_IA) July 4, 2019
Expect More Balance Sheet Wonders
#ECB balance sheet has jumped by €9.9bn due to a revaluation of Gold reserves to €4,692.6bn, near record high and equal to 40.5% of Eurozone GDP. I am sure that under Lagarde the ECB will restart the bond-buying program again & the balance sheet will hit new highs above €5tn. pic.twitter.com/ZX5XCVED8U
— Holger Zschaepitz (@Schuldensuehner) July 4, 2019
German 10-Year Yield
WOW! German 10y yields fall below #ECB deposit rate in historic move as investors bet on policy easing. Move to more deeply negative yields supports the view that Europe may be following in the footsteps of Japan’s troubles to revive low inflation & growth https://t.co/NkHGBP8CKm pic.twitter.com/ciJs29Xiss
— Holger Zschaepitz (@Schuldensuehner) July 4, 2019
Long Term Prognosis
Add half the Eurozone.. https://t.co/r7SajwoGg3
— Daniel Lacalle (@dlacalle_IA) July 4, 2019
Changing of the Guard
I agree with the above Tweets by Daniel Lacalle.
Meanwhile please note the changing of the guard: Winner France: Germany’s Time Has Come and Gone
Mike “Mish” Shedlock
Italy’s government is openly discussing plans to issue a new currency, and it doesn’t take an economic central planner to realize this means Italy will eventually leave the Euro currency (assuming the end of Macron / Merkel doesn’t end the Euro first). Whether Italy defaults or Italy sets a ridiculous conversion rate to the new currency is just word play. Economically it has the same effect.
Since Italy isn’t going to pay their Euro debts, it really doesn’t matter what interest rate the ECB decrees for the bonds
Dow 30,000!
This is a huge mess. If somebody wants to follow a really really good lecture on the German / EU Banking system and how it is collapsing, the implications it has on society I can only encourage you to see the lecture from Dr. Krall (Austrian Economics). Unfortunately, there is no English version. You will have to follow it with subtitles.
“The ECB and EU elected to ignore Italy’s debt and soon to be a monstrous deficit”
The Gilets Jaunes. Those running the shows are worried about civil unrest from a day of reckoning. They all try to keep kicking the can to evade it.
” And now, lovey Dovey Christine Lagarde takes over where Mario Draghi left off.”
More of the same that doesn’t work. Einstein called that insanity.
Why the expectation for growth? The industrial revolution is long over. The great core inventions have played themselves out and there is nothing new on the horizon. Populations that exploded and are now stable or in decline. The world has massive material abundance. We’ve run out of space to put stuff. Today there is far more money than any possible investments can absorb. Interest rates should be at zero. Negative interest rates just means you can’t give the stuff away.
“The great core inventions have played themselves out and there is nothing new on the horizon.”
There is always something new over the horizon. Stock touts are always talking about the next BIG thing.
What the industrial revolution did was two vital, inter-locking functions: simultaneously decrease the cost of stuff to pennies on the dollar, and create an order of magnitude increase in the needed number of workers. This created a massive increase in the general standard of living. There is nothing on the horizon that will remotely re-create that environment.
“Why the expectation for growth?”
Because there are still people out there who do not yet have everything they could possibly want. And, more problematically, they don’t even have much of the stuff some others take virtually for granted. Something as trivial as a few thousand square feet of high quality covered space, is more than many currently have. Simply getting everyone to that level, would entail massive growth pretty much everywhere. Just as it did the last time indentured medieval serfs were freed from similar government enforced bondage.
But we’re not talking about the world here, just Western Europe. And people do have pretty much everything they could possibly need (if not want). And in a world of low productivity growth (due to a lack of real innovation), most folks cannot possibly have everything they could possibly want. The resources just don’t exist.
Now that doesn’t mean you can’t see dramatic increases in growth in wealth in India or Africa as we’ve seen in China, but that will primarily benefit those people, not people in Europe or the USA. Individual companies may experience growth, but there is no reason to assume that said growth will impact anyone positively outside of the company’s shareholders.
Even in Western Europe there are plenty of people still living in comparative squalor. And it’s not as if massive growth in potential demand from abroad doesn’t also benefit Western Europeans as well. Diminishing returns does pretty much guarantee that returns to effort will decrease over time, which is another way of saying growth will slow as the low hanging fruit gets picked. But we’re a long way, anywhere, from where the growth curve needs to get even close to horizontal.
Instead, the current lack of growth is rather do to the same factors which gave the same result in the Soviet Bloc: Lack of individual freedom; all resources redistributed to regime lackeys instead of flowing naturally to where returns are highest. Rebranding party members, apparatchiks and arbitrary dictats as “Democratically Elected Leaders”, “Investment Professionals”, “Private Equity Managers”, “Judges”, “Lawsuits” and “Laws”, doesn’t magically make planning and resource allocation by Regime insiders and sycophant any more efficient than by retaining the now less fashionable nomenclature the Soviets used.
Get over that, currently popular, fascination with rebranded Caudilloism and rule-by-officially-granted-privilege, and the West will be back in the races in no time.
“The world has massive material abundance.”
Only if you talk about manufacturing capacity, the resources are being depleted, and fast.
“Today there is far more money than any possible investments can absorb. Interest rates should be at zero.”
Sorry, you’ve got it backward. There is a massive amount of liquidity due to monetary interventions, and lowly interest rates. Raise the rates, and the money will disappear.
There is no such thing as everybody having what they want. If the rising water lift all boats, all is well, instead many are drowned by rising water.
“Why the expectation for growth?”
I believe you mean to say “why the desire for growth by the central bankers when there is no expectation of it?” The answer is that bankers chiefly make their living off the growth, i.e., productive labor of others. So, when the situation stagnates, the bankers stomp their feet and say “we need more stimulus!” when actually we don’t. As you say, we are at a stagnate period and there is nothing wrong with that, as far as every non-banker is concerned. In fact, our latest internet boom really didn’t create too many new things to have, but rather replaced many older things with a few newer things.
Seems like the operators are pulling the control rods out of the monetary reactor, just like they did at Chernobyl reactor 4. At Chernobyl they didnt get any more power, so they pulled more rods out, and the Central bankers are not getting any more inflation, so they are pulling their controls out.
I wonder what will happen next?