Updated October 11, 2021, 8:44 a.m.
The Morning Briefing by Gabor Steingart – controversial, critical and humorous. Know what is being discussed politically. Today: rising inflation.
Good morning, dear readers,
inflation is rising and the central banks now also know that the inflation will not only be temporary. The responsible ECB director Isabel Schnabel is currently setting world records in rowing back.
In the classical doctrine of the old world, a shortage of liquidity would immediately occur – if only to protect the assets of the citizens:
- 1. By quickly ending the direct money injections by the central banks, which only dilute our means of payment more and more.
- 2. By gradually increasing the interest rate, whereby the money would get its price back.
But the old world has come to an end. The classic theory of money supply control no longer applies.
Unmoved, the USA continues to pump 120 billion US dollars and the ECB 60 to 70 billion euros of new liquidity per month into the markets. The announcements made by the Americans to reduce their purchase programs have so far been vague. As a precaution, the ECB is not announcing anything. And an interest rate hike that offers more than symbolism is currently out of the question for the Fed and the ECB.
The central banks are the prisoners of their own money flooding policy. Like a drug cartel, they made the world dependent on cheap money and now they don’t know how to organize withdrawal. So it will continue to be injected.
Three major risks have built up which, when added together, can lead to escalation on the global financial markets:
1. Money creation
Through the creation of money, the states were allowed to go into debt on historically favorable conditions and did so. Globally, debt has increased by about $ 40 trillion to about $ 300 trillion since 2020. The debt ratios are as high as they were during the Second World War.
It is unclear whether the private capital market would continue to support excessive debtors such as Italy, Spain, Venezuela and Japan in the event of a failure of central bank financing. The dominoes are still standing, but without the help of the central banks they will begin to wobble.
2. Flood of money
The flood of money has called the speculators on the scene. This year in the US sales of risky options – leveraged products that mean a bet on prices – rose for the first time above sales of normal stocks. Since the option traders have to hedge themselves by buying the stock underlying their speculation, they drive the stock price.
It’s coming, analyzes asset manager Dr. Jens Ehrhardt, on artificial demand that has nothing to do with the fundamental data. That means: the speculators’ appetite for risk fuels irrational exaggerations. If the cheap money is missing, the bubble on the stock market may burst.
3. Zero interest rate policy
The zero interest rate policy has helped the financial investments a lot overall. The tech giants in the USA in particular have taken off. Apple has grown by 373.1 percent in the past five years, Tesla has achieved more than 1,600 percent since October 2019, and Alphabet has increased by 230 percent since 2016.
An end to the stock market boom would hit high earners and the wealthy in Germany (who are politically considered fair game and therefore do not really count in the calculations of the CDU and SPD), but in America with large pension funds, the pensions of small people also depend on the stock market. The government and the leadership of the central bank will therefore do everything possible to prevent a crash. In case of doubt, the flooding continues, which means that the risk of a sharp course correction does not disappear, but a) increases and b) is postponed.
The governments have generously ordered the world to be saved from the central banks: Whatever it takes. But only to quickly pass the bill on to the savers: For your account and risk. This is how the division of labor in the Modern Monetary Theory works: The central bankers bear the responsibility – and the savers bear the risk.
I wish you a peaceful start to the new week. My warmest greetings
Oil and gas are getting more and more expensive. Consumers notice this in their wallets too. How expensive it will be and when an improvement is in sight. (Teaser image: imago images / localpic / Rainer Droese) © RTL Television