The ECB decided to cut interest rates by 25 basis points on the same day it raised its own inflation estimates for 2024 and 2025.<\/p>\r\n\r\n\r\n\r\n
If anyone wants irrefutable proof of the lack of independence of central banks, this is it. The ECB has only one mandate, price stability, and it has violated it for nearly four years. Why;<\/p>\r\n\r\n\r\n\r\n
The aim is to finance the biggest expansion in the size of governments since the start of the euro and to maintain the illusion of a public debt bubble. We must remember that the ECB has not implemented a restrictive policy at all.<\/p>\r\n\r\n\r\n\r\n
He retained the anti-shard tool, which masks the real risk of sovereign issuers and should be called an anti-market tool. This allowed governments that increased their fiscal imbalances to maintain an artificially low risk premium over the German bond.<\/p>\r\n\r\n\r\n\r\n
In addition, the ECB continues to buy back some of the bond maturities and the EU launched the Next Generation Fund, which is another massive money printing process. The ECB only used interest rate hikes as a real restrictive tool. Due to higher funding costs, families and small businesses had to bear the brunt of the negative impact of ECB policy.<\/p>\r\n\r\n\r\n\r\n
Meanwhile, governments haven’t curbed money printing through deficit spending, nor have they simply consolidated the 2020 emergency spending. In some cases, they’ve even increased spending beyond this “single” amount.<\/p>\r\n\r\n\r\n\r\n
The problem of inflation<\/strong><\/p>\r\n\r\n\r\n\r\n Inflation is neither accidental nor fatal. It is a policy, because the government is the biggest beneficiary of the steady rise in overall prices. It’s worth remembering that the consumer price index (CPI) is not ‘inflation’. It is a measure of inflation.<\/p>\r\n\r\n\r\n\r\n Inflation is the loss of purchasing power of a currency. Eurozone CPI inflation rose to 2.6% in May, according to Eurostat. In fact, all measures rose from April levels, especially services, which are growing at an annual rate of 4%. In addition, eight euro area countries reported annual CPI inflation rates above 3%.<\/p>\r\n\r\n\r\n\r\n This means that the accumulated level of inflation from 2020 will be over 23%. Despite the previously mentioned data and an upward revision of its own inflation estimates, the ECB decided to cut interest rates.<\/p>\r\n\r\n\r\n\r\n What the data really says<\/strong><\/p>\r\n\r\n\r\n\r\n The ECB is trying to convince itself that everything except the mass issuance of more currency than private sector demand is the cause of price increases. However, the only thing that can cause aggregate prices to rise, stabilize that rise and continue to rise, albeit at a slower rate, is the destruction of the purchasing power of the issuing currency by issuing far more than its requirements sector.<\/p>\r\n\r\n\r\n\r\n The most extreme interventionism holds that inflation indicates a deficit in output rather than an increase in the quantity of money.<\/p>\r\n\r\n\r\n\r\n It is a lie of such magnitude that it should not even be discussed. The state produces a huge amount of money and even if production increases, it cannot stop anything we import, from components to raw materials, from costing us much more in local currency.<\/p>\r\n\r\n\r\n\r\n No. A broad increase in output does not eliminate inflation if the government continues to consume new currency units to artificially increase its weight in the economy.<\/p>\r\n\r\n\r\n\r\n Why are there proponents of inflation?<\/strong><\/p>\r\n\r\n\r\n\r\n This is the most effective method for the government to exert its influence on the economy and seize the resources produced by the productive sector, using an increasingly devalued currency. Inflation is the equivalent of a default on debt. The state issues a payment bond and returns it with a declining value.<\/p>\r\n\r\n\r\n\r\n Why the reduction in interest rates is not justified<\/strong><\/p>\r\n\r\n\r\n\r\n There was no evidence on the path of inflation in May to justify a rate cut.<\/p>\r\n\r\n\r\n\r\n 1.<\/strong> The latest ECB monetary note suggests a significant increase in the amount of money in the system.<\/p>\r\n\r\n\r\n\r\n In addition, the calculation of the total amount according to the Murray Rothbard (True Money Supply) method, which includes monetary funds in financial figures, shows that the quantity of money has not decreased at all since September 2023 and will probably increase significantly in 2024.<\/p>\r\n\r\n\r\n\r\n The annual growth rate of the euro area’s broad monetary measure, M3, rose to 1.3% in April 2024 from 0.9% in March. If we calculate the real money supply, the rate would be +4.5% in April 2024, consistent with an inflation rate of 2.6% and a cumulative 23% from 2020.<\/p>\r\n\r\n\r\n\r\n 2. <\/strong>Lowering interest rates is an incentive to continue increasing government imbalances in countries that refused to control their deficits and, above all, took advantage of inflation to collect more taxes.<\/p>\r\n\r\n\r\n\r\n 3. <\/strong>Lowering interest rates is an incentive to increase the total amount of money in the system and the rate of growth in the monetary base.<\/p>\r\n\r\n\r\n\r\n 4.<\/strong> The Eurozone’s problems are not caused by interest rate hikes.<\/p>\r\n\r\n\r\n\r\n The eurozone was already stagnant with negative nominal interest rates, was in the middle of the Juncker Plan and remains stagnant in the midst of the EU Next Generation Fund.<\/p>\r\n\r\n\r\n\r\n 5.<\/strong> It makes no sense to cut interest rates when the supply of credit has not decreased (in fact it is increasing) and credit demand remains stable.<\/p>\r\n\r\n\r\n\r\n In April, the annual growth rate of loans to households increased by +0.2%. Credit to non-financial corporations increased by 3%, according to the ECB.<\/p>\r\n\r\n\r\n\r\n The first impact of the ECB rate cut has been a rapid fall in the euro-US dollar exchange rate, which will make citizens poorer and imports more expensive.<\/p>\r\n\r\n\r\n\r\n The eurozone economy is not stagnant because of interest rate hikes. It is stagnating due to wrong fiscal, industrial and energy policies.<\/p>\r\n\r\n\r\n\r\n What is the reason for the reduction in interest rates?<\/strong><\/p>\r\n\r\n\r\n\r\n Only one. Cheaper funding for fiscally irresponsible states. The government promises free stuff and charges you more with less purchasing power, higher taxes and impoverishment. There is no such thing as a comprehensive monetary and fiscal policy. It is the recipe for stagnation.<\/p>\r\n","protected":false},"excerpt":{"rendered":" The ECB decided to cut interest rates by 25 basis points on the same day it raised its own inflation estimates for 2024 and 2025. If anyone wants irrefutable proof of the lack of independence of central banks, this is it. The ECB has only one mandate, price stability, and it has violated it for … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[754,55,752,44,27],"class_list":["post-2157","post","type-post","status-publish","format-standard","hentry","category-economics","tag-christine-lagarde","tag-ecb","tag-euro","tag-inflation","tag-interest-rates"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2157","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=2157"}],"version-history":[{"count":2,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2157\/revisions"}],"predecessor-version":[{"id":2161,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2157\/revisions\/2161"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=2157"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=2157"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=2157"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}