Imagine living under one of the 19 nations in Europe who share the same currency and have little to no autonomy over their own monetary policies. Then, making matters worse, the latest inflation reading comes in at 8.6%, forcing the European Central Bank (ECB) to invoke a rate increase!
In the words of one expert on CNBC:
For the first time since 2011, the Bank has hiked interest rates and did so with a bang.
It was announced on Thursday that the ECB:
…surprised markets by pushing its benchmark rate up by 50 basis points, bringing its deposit rate to zero.
That’s not a typo, they increased rates to 0%. As explained:
The ECB had previously signaled it would be increasing rates in July and September as consumer prices keep surging, but it was unclear whether it would go as far as bringing rates back to zero. The bank’s deposit rate is now 0%.
This is the world we are living in, where rates can be increased to zero to “fight inflation” at 8.6%.
North of the border, Canada recently increased rates by 100 basis points (1%), bringing rates to 2.5% to fight its latest inflation reading of over 8%. According to the Bank of Canada, these high inflation readings are still everyone else’s fault, explaining:
Global inflation is higher, reflecting the impact of the Russian invasion of Ukraine, ongoing supply constraints, and strong demand.
Very rarely does “strong demand” get the attention it deserves. When it’s mentioned, it’s in name only, but hardly explored in-depth, which is a shame since money creation and increase in demand go hand-in-hand.
And this Wednesday, Chair Powell of America’s central bank will raise rates; there is no question about that. The real question is, “by how much?” The CME Group has a Countdown to the FOMC tool, showing the current Fed’s target rate at 1.50 to 1.75 percent, and currently assigns a probability of 76% that rates will be raised to 2.25 to 2.50 percent.
Even if rates are 2.5% a few days from now, it’s still historically low. (Price) inflation will still be historically high. To reiterate my position once again: when the stock market falls below some indeterminate threshold, or housing prices across the country collapse, the rate hike to “fight inflation” talk will be abandoned to support a new narrative.
Meanwhile, in China, it appears that tanks are positioned outside of a few banks… in order to “protect banks.” This has been largely absent from the mainstream media, but can be seen on social media and lesser known news sources. According to one outlet:
The Chinese government has deployed tanks on the streets to protect the banks after the Henan branch of the Bank of China declared that the people’s savings in their branch are now ‘investment products’ and can’t be withdrawn.
If the wealthiest nations in the world can barely get their houses in order, it gives little hope that the rest of the world will ever be able to do the same. We’re seeing zero percent rates to fight inflation in Europe. We’re seeing 2% rates to fight inflation in Canada. And in America, no one wanted to raise rates last week, or the week prior, but this week will do. All the while, the other world’s superpower, China, is freezing customer deposits because they asked for their money back.
Maybe all these little cracks here and there are manageable at the moment, but eventually it will all come to the forefront; the world is not there yet, but that time is coming soon. When the next crisis hits, we’ll enter a Brave New World of monetary policies, and more civil unrest, since all global monetary policies are destined to fail.
