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ECB Panic Money Printing to Save Euro-zone from Economic Collapse as BrExit Looms

Interest-Rates / Negative Interest Rates Mar 11, 2016 - 05:24 AM GMT

By: Nadeem_Walayat


A little over a month on from the Bank of Japan's panic announcement of negative interest rates and money printing. Now it's the turn of the ECB to PANIC by firing it's own inflation bazooka in what is commonly termed as the currency wars (competitive devaluations) as nations attempt to import inflation and export deflation by means of manipulating exchange rates. This weeks ECB PANIC followed euro-zone inflation turning negative again (CPI -0.2%) and with virtually the whole of southern europe in a permanent economic depression, with debt mountains continuing to balloon in a perpetual state of imminent bankruptcy of the whole of southern europe as ALL central banks ONLY really have ONE objective which is to INFLATE debt mountains away for which they CREATE INFLATION by means of MONEY PRINTING and so without inflation the debt cannot be serviced.

And so the ECB cut already negative interest rates further from -0.3% to -0.4% for deposits held at the central bank, i.e. it costs the banks money to park their deposits at the central bank. Whilst also cutting the main financing rate to zero, thus allowing the banks to borrow at 0% from the central bank. And lastly to increase the amount of QE money printing from Euro 60 billion to Euro 80 billion per month mainly aimed at buying corporate bonds on top of government bonds (debt) thus forcing market interest rates lower by flooding the markets with billions of freshly printed euros (electronic) each month.

So what's going to be the REAL consequence of the ECB announcement ? We'll look at the stock markets, look at the housing markets because as has been the case for ALL QE announcements so will it be for the ECB's of INFLATING ASSET PRICES! Which means the perma bears are likely going to waste another year banging their heads against easy money driven bull market brick walls.

However, the problem at the heart of the euro-zone remains as I have literally voiced for the whole of this decade for the fundamental fact that the whole of southern europe and even France cannot compete against Germany without competitive currency devaluations which they are unable to do because they all use the SAME currency and so their economies are relentlessly being ground into dust, the only real solution is for the euro-zone to breakup into several smaller currency blocks. Whilst the alternative to this is for a full fledged political union which the euro-crat elite favour so that transfer payments from the likes of Germany take place to virtually the whole of the rest of the euro-zone in perpetuity, something that the German people are very unlikely to allow to happen for the obvious ultimate hyperinflationary consquences.

11 May 2010 - E.U. $1 Trillion Bailout, Detonates Nuclear Option of Printing Money to Monetize PIGS Debt


This, first of a series of money printing debt monetization bailouts puts the Euro firmly on a trend towards high inflation as are all fiat currencies, i.e. the fundamentals of the Euro block composed of many small weak economies that cannot devalue internally against highly competitive strong economies will still remain. The only possible solution is for a Euro II, i.e. split the Euro into two currency blocks one for the weak that suffer higher inflation and interest rates and the more competitive countries as part of the Euro II block (could just be Germany on its own?) which would act as a safety valve in times of economic crisis that demands internal currency devaluations.

29 Jun 2011 - Bankrupt Greece Blackmails Europe, Bailout or Euro Zone Dies, Global Financial System Collapse

Which means the tax payers of Germany and France are effectively trapped into a lose, lose situation, where the only solution is for either collapse of the euro currency (savers wiped out) or for total political, economic and monetary union which means permanent financing of states such as Greece by means of internal transfer payments as occurs in nation states where wealthier areas are taxed to subsidise the poorer areas (UK example - London / South East subsidises most of the rest of the country).

And it is into this never ending saga of the european union jumping from one panic to the next where each results in more centralisation that the REMAIN referendum camp wants to drag Britain deeper into, a european union / euro-zone that have been teetering on the edge of collapse for 8 years now! Constantly adopting ever more panic measures and powers in the hands of un-elected officials so as to try to keep kicking the can further down the road that once more illustrates that the european union / euro-zone is utterly dysfunctional and ultimately heading for a very messy breakup which is one of the key reasons why Britain needs to vote to exit the european union as soon as possible, before the SHTF as illustrated by my recent series of videos (click to watch) -


And as I voiced many months ago, will the european union even survive until Britain holds it's referendum? Or will the EU go bust un spectacular style as a consequence of one Panic measure too far.

23 Sep 2015 - Poland, Czech, Slovakia and Hungary Refugee Hypocrisy After Flooding UK with 4 Million Economic Migrants

The bottom line is that the migration crisis as did just a few weeks ago the euro debt crisis illustrate that the European Union is BROKEN and is trending towards an apocalypse of sorts the magnitude of which cannot be discerned at this point in time. So this is a wake up call for the people of Britain to vote to LEAVE THE E.U. before it starts to disintegrate in unpredictable and probably very violent ways!

Again take this very seriously that the Euro-zone really could collapse even BEFORE Britain's referendum!

And remember that BrExit will not just mean freedom for the people of Britain but also the start of freedom for the peoples of the whole of Europe as BrExit should mark the start of the END of the European Project before it fully morphs into a EUSSR superstate.

Whilst my in-depth analysis of early February covered the prospects fro UK interest rates for 2016 and 2017 -

06 Feb 2016 - UK Interest Rates, Economy GDP Forecasts 2016 and 2017

UK Interest Rates Conclusion

Therefore the overwhelming picture is one of the Bank of England continuing to kick the interest rate can down the road for the whole of 2016 and probably for the whole of 2017 too, even if inflation rises to above 2%. Where even a BrExit induced mini-sterling crisis is unlikely to prompt the BoE to shift on UK interest rates. Especially as I expect the UK economy to significantly weaken to an average GDP of 1.6% per annum that compares against BoE expectations of 2.6% per annum.

The bottom line is that a paralysed BoE remains terrified of its banking brethren that could yet go bankrupt again, especially given Britain's continually expanding debt mountain, and thus will only hike rates when it is faced with an even worse crisis. In fact odds probably favour a CUT in interest rates rather than a RISE, maybe even going negative, though negative interest rates just do not work because they act as a tax on the economy instead of a stimulus.

Ensure you are subscribed to my always free newsletter (only requirement is an email address) for the following forthcoming analysis -

  • US Interest Rates 2016
  • US Dollar Trend Forecast
  • Stock Market Trend Forecast 2016
  • US House Prices Forecast 2016 and Beyond
  • Gold and Silver Price Forecast 2016

By Nadeem Walayat

Copyright © 2005-2016 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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