This week, the ECB Governing Council has approved to continue with the asset purchase programs (buying government bonds from countries), but also increasing the amount in the third quarter. In other words, not only is it not being reduced despite the fact that the economies are returning to normal, but the purchases are increasing!
The sole purpose of these government debt purchase programs is to keep governments up to their eyebrows in debt in order to maintain their long-term stability, possibly at the cost of creating a much bigger problem in the medium and long term.
The ECB’s balance sheet has approached 80% of the Eurozone’s GDP, and increasingly looks more like the Bank of Japan than the Bank of England or the Fed. Since Draghi made the famous “whatever it takes” announcement in 2012, ultra-expansionary policies (which can be translated as printing money) have continued unabated.
It is a very serious problem, since it has led to practically all the eurozone states paying negative rates on their public debt in some tranche, encouraging governments to continue borrowing and not undertaking the necessary structural reforms.
Currently, the ECB buys practically all of the new Spanish public debt, and this is a very serious problem, because at some point these privileges will end (when Germany and the Netherlands say enough, and with good reason) and when that happens the indebted economies they will not be ready to face what is coming. Debt purchases, in short, are going to create a very severe crisis.
As if the above were not enough: The ECB will revise its inflation targets upwards.
I will explain it in a simple way that anyone can understand.
Printing money (in any form, such as a debt purchase program) in large quantities causes inflation. Since its creation, the ECB has set a target of 2% (until now, it was stated that it was desirable to be close to that level but below it).
Well, now that its policies are causing that percentage to be exceeded, it would be logical to reduce the policies, right? Well, if that is what you think, reader, you are not fit to be a member of the ECB or a governor. Adjust the inflation target, and continue with a free hand to print money, and if you adjust it to 3 and it is exceeded, change it to 4, and then to 5 and so on until you do not have to take a single unpopular measure.
It will now be possible to exceed 2% inflation without having to modify central bank policies.
One more corset that is eliminated in its actions, and one more burden for citizens, since the fact that inflation increases every year by more than 2% impoverishes us all, no matter how much it is painted as a social policy. Have you ever seen anyone at the supermarket celebrating the fact that their shopping basket has increased by 2%?
While the cost of living increases for citizens, the ECB is dedicated to other policies such as the fight against climate change, through a complex of authoritarian sovereign who thinks he can do everything at will, the institution will be in charge of fighting climate change instead of focusing on the problems that should really face, such as rising prices or the indebtedness of governments resulting from their policies.
Wozniak, Microsoft and Bitcoin.
For those who don’t know him, Steve Wozniak was Jobs’ right-hand man at Apple, and the brains behind the Apple company, as Jobs is in charge of marketing.
This week, Steve Wozniak has stated that “Bitcoin is the most amazing mathematical miracle”.
Meanwhile, Microsoft launches decentralized identity application in Bitcoin.
Privacy protection is one of the most sensitive issues of today, even more so with China gaining more and more power. The entry into the so-called fourth industrial and technological revolution has not resolved this issue for the benefit of Internet users. In that sense, Microsoft took the first step in a decisive way by basing its project on the Bitcoin data processing network.
Using Bitcoin’s blockchain technology, the tech giant’s message with its ION project, is clear. “If Bitcoin’s goal is to eliminate centralized institutions over money, ION’s goal is to do the same with virtual identity.”
There is still hope: Hungary, Estonia and Ireland stand up to the OECD cartel.
In the face of the agreement ratified by practically all developed countries to establish a minimum tax on companies as a whole, three countries have emerged that have flatly refused such collusion.
We are talking about Ireland, which overcame the severe financial crisis mainly by reducing taxes and attracting companies, and Estonia, whose successive tax and economic reforms have brought its GDP per capita to Spanish levels. Lastly, Hungary, which, although it is true that in many respects they are not an example to follow, is implementing very effective measures in the economic field and in terms of promoting market freedom.
The idea of the OECD is that companies that invoice more than 750 million dollars and have a profit margin greater than 10% are subject to a reallocation of tax bases that will impose obligations in different countries where they operate, with the minimum rate of 15% for reference.
What does the coming week hold?
Apart from announcements from central banks in smaller economies such as Turkey and Canada, no major announcements from monetary authorities are expected for some time.
We will have Jerome Powell’s two appearances in Congress and the Senate.
The second quarter earnings season begins in the United States. The big banks such as Citi, JP Morgan, Wells Fargo etc. will present their results and the market expects good data. They are expected to be 15% higher than the Q2 2019 results, so the US banks’ share price is expected to rise.
We will also have on Tuesday the US inflation data, estimated at 4.8-4.9% y/y.