Is the ECB ready to flood Eurozone with freshly printed money?

Jyrki Katainen, Vice-President of the European Commission in charge of Jobs, Growth, Investment and Competitiveness, (on the left) and Pierre Moscovici, Member of the EC in charge of Economic and Financial Affairs, Taxation and Customs, gave a joint press conference on the autumn economic forecasts for 2014-2016. A weak economic growth for the rest of the year 2014 in both the EU and the euro area was expected. Real GDP growth was expected to reach 1.3% in the EU and 0.8% in the euro area for 2014 as a whole. (EC Audiovisual Services, 04/11/2014).

Jyrki Katainen, Vice-President of the European Commission in charge of Jobs, Growth, Investment and Competitiveness, (on the left) and Pierre Moscovici, Member of the EC in charge of Economic and Financial Affairs, Taxation and Customs, gave a joint press conference on the autumn economic forecasts for 2014-2016. A weak economic growth for the rest of the year 2014 in both the EU and the euro area was expected. Real GDP growth was expected to reach 1.3% in the EU and 0.8% in the euro area for 2014 as a whole. (EC Audiovisual Services, 04/11/2014).

The insatiable appetite of the global financial system for more free cash from central banks has now reached the Governing Council of the European Central Bank. After the American central bank, the Fed, announced last month that it discontinues its quantitative easing policy, under which it has supplied the US banks with around $ 4 trillion, the Bank of Japan took over and offered more yen trillions to bankers free of charge (at zero interest rate cost).

It seems though that the BoJ is not able alone to cover the vacuum left by the Fed and the pressures now mount on ECB to participate in the party. Over the last two weeks the world securities markets, aka banks, have conveyed severe warnings to the monetary authorities, by abruptly diving  and climbing wildly according to news about less or more free cash from central banks. The meaning is clear, either the central banks continue to feed the major world banks with free cash or the chaos will reign in all and every market.

They gave in after 48 hours

The monetary authorities resisted the pressure only for forty eight hours. Just two days after the Fed said it will stop to feed the bankers with tens of billions of dollars every month, the BoJ took over and gave out more yen trillions, widely increasing its already generous handouts of free money to bankers and financiers. This is not just quantitative easing, it touches the limits of robbing the real economy. Nevertheless it’s not enough. So it seems it’s the turn of ECB to enter the circle of ‘donors’. This prospect tough has already produced strong reactions from the German central bank, the Bundesbank, the last bastion of financial orthodoxy in the developed world. It’s certain then that ECB’s Governing Council meeting of today will emit pertinent messages.

Bundesbank rejects QE

According to Reuters Jens Weidmann, the governor Bundesbank has created a strong team of Eurozone central bankers. Reportedly, they are ready to resist any attempt by ECB’s President Mario Draghi to follow the example of BoJ and start flooding the market with freshly printed euros, through purchases of corporate and government bonds. This source says that the Weidmann team in ECB’s Governing Council includes Yves Mersch, Sabine Lautenschlaeger as well as governors from Netherlands, Luxembourg, Estonia, Latvia and possibly Slovakia, Slovenia and even Austria. They also charge Draghi for setting very high targets for ECB’s purchases of covered bonds and Asset Backed Securities.

As a result, the scenery in ECB’s Governing Council is not at all clear, so today’s meeting is very important. On top of that it’s also difficult to decipher if the German government is ready to back Jens Weidmann to the end, as he resists the policies of more free euros to bankers (at almost zero interest rate cost). Not to forget that Berlin has to take care of the German crumbling banks too, which are clamoring for free cash from ECB.

Merkel has to choose

Chancellor Angela Merkel has repeatedly tried to act as an impartial mediator in the Draghi-Weidmann long lasting hostilities. Two years ago in 2012, when the ECB was pondering to buy Greek, Irish, Portuguese, Italian and Spanish government bonds in the secondary market, Merkel had taciturnly backed Draghi in his confrontation with Weidmann. As it turned out Draghi was absolutely right in announcing this policy, because Eurozone securities recovered without the ECB to spend one euro. The announcement was enough.

It’s worth recalling more details of the 2012 crisis. In August 2012 the Bundesbank head had even threatened to resign on Draghi’s famous July 2012 statement to do “whatever it takes” to save the Euro. The Berlin government had backed Draghi in this affair. Weidmann had gone too far. It was not only the existence of euro that Bundesbank questioned then, but even the survival of the entire Western financial system, and this in the name of financial orthodoxy.

Berlin versus Bundesbank?

Possibly the disagreement between the Berlin government and Bundesbank goes far beyond the Eurozone borders and touches the structure of the global financial order. Apparently, the function or even the very survival of the world securities markets nowadays hedges on central bank financing. According to OMFIF (Official Monetary & Financial Institutions Forum) central banks and governments have invested anything around $30 trillion on stocks and other securities. If this is correct, then in reality the sovereign states are subsidizing all that paper and digital faulty kingdoms – which constitute today’s global financial system – with taxpayers’ money.

This may also mean that all stock, bond and other financial markets are just bubbles, which may burst at any moment. Only a few years ago it was unthinkable that the NYSE main index DJ INDU could close on 5 October 2014 at 17.484,53. Yet the financial markets spearheaded by banks have managed to convince the political elite to use taxpayers’ money to support ever increasing indexes and volumes in the main world stock and bond markets. Is this a free market economy or a perversion of state capitalism?

State wealth in private hands

Yet this colossal wealth, despite being subsidized with taxpayers’ money, is privately managed and controlled by a small number of people, namely the shareholders and the managers of the major world banks and financial institutions. It’s sinister to observe that after the 2008-2010 financial melt-down the same persons still own the major US, European and Japanese banks along with the other big financial companies. The last financial crisis proved beyond reasonable doubt that those financial institutions were practically all bankrupt and their own capital was just an illusion. Still, their owners managed to replenish their own capital holdings with state subsidies. Now they can even pay back what they took free of charge.

It was money handed out by American and European governments and central banks that the bankers usurped and thus managed to retain control of their institutions. It is as if the ‘owners’ of the global wealth want to freeze the picture of the shareholders’ list in the present ‘enstantane’. Their weapon is that governments and voters are paralyzed by the fear of the Armageddon that a crisis of the kind of the 1929 crash may release. But until when can this setup hold the world as hostage?

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