Wednesday, February 5, 2020

ECB: The Other Central Bank

Christine Lagarde has taken over the reins of power at the European Central Bank (ECB). Her first comments were, "The bank will be highly accommodative." She probably had a strong sense of conditions within the EU and elsewhere since her last post was running the IMF. However, sometimes being a Monday morning quarterback and actually being the quarterback are two different things. This leads me and us to this:

Scariest Omen...

Lagarde has been behind the desk now for a month. She has had time to catch-up on the real conditions of the European economy as well as how it pertains to the global community. She has probably touched base with Powell of the US Federal Reserve. Then, she made this statement, "We should be happier to have a job than to have our savings protected."

Do you understand what this means? It means that your money in the bank is not yours anymore!
She has thrown the first rock at traditional banking. She has germinated the seed that occurred at Cypress when the bank took ownership of citizens deposits. There are many educated people out there who besides the writers of this blog, have pointed out the dangers of fiat money. This danger was reached when bonds that were issued with negative interest hit the market. The numbers exploded to $18 trillion and rising as writer's like myself screamed that this is the proof that fiat is a failure! The banks got worried that maybe the masses would wake up to their financial crimes. Since then, the value of negative bonds has been reduced to $13 trillion. We did not win anything. Lagarde's salvo says that negative interest rates will be the norm in the future. She, along with central banks will come up with a plan. It will probably be related to capital controls. Banks will limit your withdrawals. They already have features that report sums of $5,000 and 10,000. They cite the usual suspects which in some instances is true: terrorism, money laundering and drug traffic. This is really against you the citizen.  They are taking away the tried and true aspect of life: save for a rainy day. In their world whatever you put into a savings account, it is their money. To prove it, they will give you back less than you put into the account with negative interest. I predict the return of putting your money under a mattress as the safest place in town.  

Prediction coming true...

and ahead of schedule. The two largest Swizz banks have seen many of their largest depositors taking out their money in masse. We all should know that Swizz citizens are smart with money and finances. They still are! They are first in line to realize that they do not want any part of negative interest rates.

2cd Scariest Omen...

was issued by the new head of the IMF. Kristalena Georgieva took over for Lagarde. She too has had time to digest the current economic situation. This is her first stated comment, "We are in danger of another Great Depression." She cited the usual suspects, but her last reason could be the one that could cause the most trouble. By that I mean it could be the catalyst that begins the negative contagion. Here are her thoughts: too much debt, oversized evaluations in stock markets, excessively high real estate in many countries while at the same time those same nations have an aging society along with wage stagnation and finally, disruption of industries with new IT innovations.
Dear Reader, e-commerce is disrupting retail. Robotic systems cause fewer workers, electric autos need less workers. Keep in mind that every store that closes, one needs to multiply the workers involved. There were over 10,000 stores that closed in 2019. Together, the numbers will effect the economy. These changes to an economy are slow and they are not realized until boom. Her last point is very valid which makes her comments very scary.