Photo by Ehud Neuhaus on Unsplash
One after the other, all the major central banks of the world follow the regrettable example of the Fed and the ECB in reversing their efforts to contain the greed of the financial mammoths. The American central bank, the Fed, and the European Central Bank will continue feeding the giant financial conglomerates with $4.5 trillion and €2.7 trillion and more respectively at zero or super low interest rates. The efforts to restore order in the western monetary system are being blocked by politicians of the kind of the US President Donald Trump. With his help today global debt is double than in 2008.
He was elected on a ticket to take care of the ‘left behind’ working millions and instead his prime worry was to make sure the New York financial mammoth banking conglomerates continue feeding on the flesh of the real economy. To recall the 2008-2010 financial meltdown was caused by the unruly ‘investments’ of the American banks.
Just ‘Lehman Brothers’
Only the super negligent and extravagantly imprudent ‘Lehman Brothers’ was left to go bankrupt. The rest of the New York banking gang was bailed out for free by the Fed with $4.5 trillion from working people’s money.
Judged from the results, this is not a monetary operation. It’s a ripping from the flesh of the real economy. Real workers and real small and medium businesses labor hard to turn out wages and profits. Real people break their backs to give real value to paper dollars. Not the New York financiers, they just ‘invest’ what they receive for free from the Fed.
The ECB follows the Fed
The same pattern was repeated in the Eurozone. The ECB has transferred €2.7 trillion at flat zero interest rates to the Eurozone banks. Unfortunately, the efforts of the euro area central bank to start charging some interest and finally call back some of this money bonanza is now almost fully reversed. Actually, the ECB has introduced a new monetary ‘instrument’ to replenish the banks with cash again at zero interest rate cost.
This is a full U-turn of monetary policy in the short interval of a few months. From the timid initiative to regain normality last December (with capping of the unseen before zero interest rate trillion refinancing of banks) back to the extraordinary measures of 2010-2017.
A global slow down
The reasoning behind this policy reversal is that this year the global economy is losing its growth momentum. Washington has crippled international trade and order as we knew it during the past thirty years. Add to that the global political volatility, including the Brexit stalemate, and the global economy is again heading to an output and employment stagnation.
In the latest developments, the American aggressiveness against Iran has driven the prices of oil above the benchmark of $70 a barrel. The negative impact from the oil hike on global economic activities and growth will be felt sooner rather than later. This is the new reality the monetary authorities have to confront and that’s why they are again resorting to super accommodative measures willy-nilly favoring the financial sector.
What is the neo-liberal solution?
There is a problem though. During this past decade, the extravagantly accommodative monetary policy of central banks favoring exclusively the financial sector with free trillions became a new reality. As if this policy is panacea to combat weaker growth or stagnation. The neo liberal politicians have exorcised all other policy options to combat recession and fuel growth. For example, the time cherished practice during the last century of taxing the super rich people and companies, undertaking infrastructure projects and raising wages is not an option any more for policy formulators.
In short, it’s a win-win situation for the banks; the working millions are damned by the neo-liberals to sweat more to produce more and more to feed the banks with new profits at times of growth. Otherwise, the central banks have to subsidize the financial sector with free trillions at times of stagnation. If they are not fed, financiers threaten us all with more and more meltdowns. Everybody pretends the Franklin D. Roosevelt’s New Deal never existed.
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