Following a two-day marathon in which “Spitzenkandidat” Failed and Merkel’s Plan A and Plan B Dumped Lagarde will now head the ECB and give up her job at the IMF.
Nearly Perfect
It’s rare to find someone who is consistently wrong on everything. Christine Lagarde, whom the EU just anointed as the president of the ECB, comes close.
To emphasize the point, Negative Interest Rates Benefit the Global Economy, Says IMF Chief Christine Lagarde.
Subzero interest rates in Europe and Japan are “net positives” for the global economy, International Monetary Fund chief Christine Lagarde said Tuesday, though she warned that the side effects of unorthodox central-bank policies should be closely monitored.
“We see the recent introduction of negative interest rates by the ECB and Bank of Japan —though not without side effects that warrant vigilance—as net positives in current circumstances,” Ms. Lagarde said.
Compromise Candidate
French President Emanual Macron proposed Lagarde as the “compromise candidate”.
https://twitter.com/Holbornlolz/status/1146123860875644928
Even Lower
Yield on the German 3-month bond is -0.556%. Yield on the German 10-year bond is -0.373%.
“Net Positive” Nonsense by the Numbers
Negative interest rates
- Keep zombie corporations alive
- Punish savers
- Foster economic bubbles
- Foster income and wealth inequality
- Encourage leverage
- Punish banks by charging them interest on excess reserves
Diminishing Returns
If negative interest rates did any good, why are Europe and Japan in such miserable shape?
Yesterday, I noted the BIS Warns of Diminishing Returns of Monetary Policy, Zombies, Junk, Complacency.
BIS Comments
- “Fundamentally, monetary policy cannot be the engine of growth.”
- “As mutual funds and other institutional investors have increased their holdings of lower-rated debt, mark-to-market losses could result in fire sales and reduce credit availability.”
- Low interest rates “crowd out resources available to more productive firms.”
Globally
Globally, central bankers are hell bent on pursuing the same bubble-blowing policies that led two huge economic busts.
This third bubble is the biggest of all but they do not see it.
Meanwhile, there is no impetus for change anywhere, except in the wrong direction!
Wrong Cake
The appointment of Lagarde is icing on the “If it doesn’t work, we will keep doing it, until it does” cake.
Rules, Rules
The ECB is running out of sovereign bonds to buy, by current rules.
Lagarde will also face a test regarding budget deficits and debt in Italy and the deficit in her own country, France.
How many rules will Lagarde break?
Mike “Mish” Shedlock
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The Federal Reserve has become the great enabler. It is responsible for allowing the world to embark on a huge and rapid expansion of debt and credit during the last decade. This could not and would not have occurred without the Fed being totally complicit and in agreement.
A key role of a reserve currency is to force other currencies to toe the line or pay a stiff price. Ignoring this economic reality translates into pain for those holding the currency of any country that abuses this economic law. It has been the Fed that decided to allow the dollar to be used as a global prop.
Trump’s desire to manipulate the dollar lower to boost exports would take the world down a very slippery slope. The article below explores the problems it could cause.
And the new Captian of the Titanic is…
How much does that smug parasite rake in on a montly basis and taxfree? .. Of course she doesn t mind negative interest rates !
I will be all for negative interest rates, just as soon as I can work out how to get a loan incurring those negative rates. I am willing to sacrifice myself here to help the economy even more, by taking on a loan at double the negative rate that German bonds are paying, in fact I am prepared to go far more negative than that.
OK, where do I sign up?
Legarde often talked of a RESET so how you think she will proceed ? she had many videos about this https://youtu.be/RLvLY3E7eUY
The bankers are not trying to stimulate the economy, blow bubbles, increase asset values, punish savers or any number of putative policy objectives. They have only one goal: Winning some more time.
“Meanwhile, there is no impetus for change anywhere…”
There never is, until the torches and the pitchforks come out. Would Macron have rescinded the fuel tax without the Gilets Jaunes?
“Diminishing Returns
If negative interest rates did any good, why are Europe and Japan in such miserable shape?”
Pushing on a string has never worked. They all know that, just as they know 1+1=2 . Yet they are doing it anyway.
And let’s not forget that Sovereign Bonds of Eurozone members are considered “risk-free” assets, according to BIS capital adequacy rules. Risk-free, except for the money you KNOW you’re going to lose every year. LOL….
Christine Lagarde praises poverty. The richer the rich are getting, due to her policies, the poorer the rest are becoming.
The Aaron Spelling mansion just sold for a record $120 million, while the homeless population in the same city, just rose another 16%.
Oh, and there is this from Zero Hedge, today: “France’s Richest People Have Seen Their Net Worth Rocket 35% This Year”
Negative interest rates are misleading. The coupon rate isn’t negative. It’s the yield to maturity that’s negative. It’s because the price of the bonds went up. The only things buying at a negative yield are central banks who aren’t buying as an investment. They are sopping up whatever they can to force money back into the economy. It’s not working as most of the money is going into equities, real estate, etc… instead. They have mastered the art of blowing bubbles.
When the explicit goal of all policy, is to keep theft beneficiaries (governments and their privileged deadweight sycophant army of banksters, ambulance chasers, idle “asset” owners and other dregs) in charge of all wealth and influence; despite darned near none of them having earned any of it; of course policy makers will have “love affairs” with any policy which facilitates further theft from productive people. Theft is their sole and only livelihood. Remove that, and they’d be flushed down the toilet almost overnight, as they should be. Literally, if necessary.
Mish, remember this and the “disastrous love affair”?
When you have a bit of cash on deposit, 1% rates (like Australia has now) is a disaster. Already got a little gold & silver, sold the last of my stock to buy bitcoin – Is under the mattress the only place left?
More mal-investment, more debt based consumption and economic growth, more zombie companies, more government debt…
Enough people believe it is better to a little money through negative yields than to lose a lot elsewhere. Central banks are just going along for the ride.
Enough people only “believe” so, because the alternatives have been stolen by Central Bankers and totalitarian governments in the first place. It’s not as if it’s some naturally occurring “belief” just popping out of nowhere.
Subset of punishing savers: Keep old workers working. That way they continue paying taxes in instead of withdrawing state pensions. Because they’re at the top of the pay scale there’s even more revenue over if you were to bring in young workers just starting out.
States and municipalities will have no choice but to keep older workers working considering the dismal prospects for so many pension funds. So glad I’m not young anymore.
“Because they’re at the top of the pay scale there’s even more revenue over if you were to bring in young workers just starting out.”
Top of what pay scale, after being forced out for younger workers so the company can save money on payroll and health insurance costs?
Top of what pay scale, after the factory has been closed down and moved to China?
Mish: “This third bubble is the biggest of all but they do not see it.”
I am done giving central bankers the benefit of the doubt on this. I think they see this is potentially a bubble. Where they fall short is that they think asset prices can be made to continually go up with the right mix of CB policy, and they have enough hubris to believe that they can bring this about without any serious adverse consequences. It will only be a bubble in hindsight, if they fail.
I think they are effectively stealing via counterfeiting, but they do not see it that way since they can plausibly argue that their actions help the economy in the long term, that the economy will eventually grow to match the additional credit in circulation, and that they can also withdraw the additional credit at some point when markets stabilize. They are devious, not unobservant.
A CB sponsored ramp in asset prices is never a bubble unless it pops. Mystery solved.
Also, they don’t pay a price. Guaranteed pensions, index linked more often than not.
“That the economy will grow to match credit.” Hardly, since the recipe to grow the economy is more credit. If they thought that, they would be certified stupid. Try this: they try spur inflation to wipe out the real value of credit. The issue is, they are so incompetent, they only managed to create the mother of all bubbles.
The end game for a debt based monetary system is complete collapse for one of two reasons:
Result is the same
I think the process ends when the underlying economy simply cannot pay the bills. If Japan is any guide, central governments and central banks will acquire ownership/control of most productive assets prior to a complete currency collapse (assuming nobody starts a big shooting war).
The balance of power has shifted West and East.
Germany could often rely on the UK in the EU Parliament
Now the voting beneficiaries (x-UK) are France and Spain that will largely side together.
The result – less influence for Germany.
Socialist & Green Germans probably ok with that.
What about the others?
The others don’t have a clue or interest. In some eastern block countries, only around 20% voted in EU elections. As you said, until the Titanic hits the iceberg.
Should have posted West and South.
Mish, in your 1-6 you missed 7.
Demand matters.
Germans will be softened up even further to go along as a matter of “solidarity” as they become further financially repressed.
Bank losses were socialised. This time sovereign debts across EU will be socialised with the “social” part being the Germans. They’ll be happy so long as the Euro is lower than the DM would have been, until the Titanic finally meets its fate and it’s everyman for himself.
France wins again.
They’ve been steadily preparing the public for negative interest rates for a few years. This isn’t idle chatter, they fully intend to move well into NIRP territory soon. Europe and Japan first, with the US to follow.
I read somewhere months ago that central bankers were crowing about “safely” going as low as -4%. It’s completely bonkers, but after all this talk can anyone be surprised?
It’s a good season for Phd theses, and Nobel prizes in e-con-omics. I am sure both have papers in the pipeline about how negative interest rates can do wonders. Praise the king.
“Side effects that warrant vigilance” That’s a tad bit of understatement when pouring gasoline on a fire.
A lovely irony then that the new, negative-rate-loving head of the ECB is the burnt-to-a-crisp Madame Lagarde