Nel Day After il Bce Day, the criticisms against Christine Lagarde are wasted:
yesterday the Governing Council of the Eurotower announced yet another rise in interest rates by 50 basis points, making Italians (and all of Europe) already grappling with the the sting of mortgage rates.
Various alerts have returned to fill the front pages of financial newspapers, amplified by interventions on various radio stations.
Dal Premio Nobel Stiglitz to the leader of the League and Minister of Infrastructure and Transport Matthew Salvini, a veritable chorus arose against the Eurotower led by Lagarde.
The former Economy Minister also took the field John Tria.
Yet someone, Christine Lagarde, defended her: they were Mohamed El-Erian, President of Queens’ College in Cambridge and Advisor of Allianz who, interviewed by The Corriere della Seraapproved the umpteenth monetary tightening announced by Frankfurt:
“The 0.5% rate hike by the ECB is a courageous choice, supported by solid economic considerations according to which, in this context, interest rate policy should be directed towards controlling inflation and other tools for financial stability. The ECB was right not to mix the two. I hope it will be an example for the Fed’s decisions next week,” said the former Pimco number one.
According to El-Erian, who repeatedly warned Jerome Powell’s Fed of the need to raise US rates not by 25 basis points, but by 50 basis points, “the initial push of inflation has been allowed to linger too long and as a result, it migrated from some products to the services sector, passing through the goods sector as a whole. This transition makes inflation stickier and less sensitive to interest rate hikes.
Mohamed El-Erian also commented on the case drama Credit Suissewhich bowed the markets before the salvation announcement of the Central Bank of Switzerland, the SNB (Swiss National Bank).
According to the economist, that liquidity made available to the Swiss giant however, it does not resolve the issues relating to Credit Suisse’s business model.
The Nobel Prize for economics Joseph Stiglitz, interviewed by The Republic, instead he warned only the ECB but also Jerome Powell’s Fed recalling that, in his opinion, it is not by raising interest rates that inflation is fought.
“I won’t tire of repeating it: rate hikes are the wrongest way to fight inflation. They are just the most direct and surest route to recession”.
Former adviser to US President Bill Clinton said:
“The ECB was in a sense obliged to raise rates to reduce the gap with America and therefore contain the increases in the dollar, which have been far too many. As for the Fed, maybe we can credit them with a minimum of resipiscence because it looks like he will hike rates by 0.25%, half what he expected. It’s already something.” What the Fed does not forgive are the loopholes in the regulatory and supervisory system… the ones they did not impose on the medium-small banks of effective and stringent stress tests“.
And here the reference is to that Pandora’s box that has been opened with the Silicon Valley Bank (SVB) crash the California start-up bank that fell from grace after suffering a massive loss on the sale of its crammed portfolio of US Treasuries and mortgage-backed securities.
It was precisely that crash that repeatedly brought down stock markets around the world, at the end of last week and, again, last Monday, despite the intervention by the US federal authorities, Federal Reserve in primis, to secure the depositors of the credit institution, but also of the other bank that crashed, the crypto bank Signature Bank. A choice that was considered essential by the US Treasury led by Janet Yellen, to stem the crisis of confidence triggered by Silicon Valley, after the failure of the its capital increase plan.
And the problems must be quite common in that world of regional banks to which the former US president Donald Trump seems to have given carte blanche, exempting him from a lot of checks to which he had been subjected up to that moment.
The consortium of banks set up to save now too First Republic, in which eleven banks have decided to participate, including JP Morgan, Goldman Sachs, Citigroup confirms that Silicon Valley Bank is not exactly an isolated case, at least in the small and medium-sized credit institution industry.
And in this regard Janet Yellen herself has already made it clear that saving depositors of Svb and Signature, more than the rule, it will be confirmed an exception.
Returning to the ECB and the Fed, in his interview with the newspaper The Republic Stiglitz cautioned central banks for the massive flood of liquidity they poured into financial markets with the extraordinarily accommodative monetary policies launched in recent years, before the jump in inflation growth forced them to make a sudden about-face, ushering in the season of rate hikes.
“Meanwhile all this money must have never been put into circulation – pointed out the Nobel Prize winner – A decade of zero interest rates and accommodating monetary policy on both sides of the ocean have given the green light to the most unscrupulous and risky financial adventures. We have clear examples of this in these days” (precisely).
And here the comments are obviously aimed at the other exploded case that brought the markets to their knees: the #CreditSuisse case, not a US regional bank like Silicon Valley, but a real systemic bank that, with its eventual failure, really it would infect the whole world banking system.
Given the criticisms of central banks, Stiglitz, now a professor at Columbia University, questioned the very effectiveness of monetary tightening as an antidote to inflation.
“Inflation, now that it has inevitably arrived, is fought with completely different methods. The slowdown of activity due to the end of the great post-pandemic euphoria and the unfortunate war in Ukraine, it is by itself an anti-inflation factor. And then the more rational and sensible productive investments, capable of spreading even a certain degree of optimism such as environmental ones, must be encouraged”.
No to rate hikes, according to the Nobel Prize which are the surest way not to bury the flame of prices but to fall straight into recession.
For his part, in an interview given to La Stampa, theex economy minister Giovanni Tria si is expressed as follows:
“Frankfurt held the point. On the other hand what could he do? Who rules the game is the US Federal Reserve which continues to raise rates. Also to try to stabilize exchange rates and limit the increase in imported inflation I don’t think the ECB could have done anything else”.
On the Svb case, Credit Suisse and the risk of a new banking crisis, Tria underlined that, “in reality, when rates rise, banks do more business: just see the enormous profits recorded in the last year by Italian banks“.
“Institutes, if anything they complained when rates were negative – continued the former minister – It was well known that there were problems for Credit Suisse, Silicon Valley Bank paid for management choices. Of course, by raising rates there is a tendency to depress bond values which are part of the banks’ assets. However, negative rates are not normal, especially since the real ones, ie considering inflation, still are. The reality is that the ECB has been left alone”.