ECB and Lagarde, the end of inflation is still far away: analysis
When you read articles that say: “Our banks increased their quarterly profits by more than 60% compared to the previous year” something is probably wrong and if they were making profits with interest rates at zero now that the interest rate is at 3.5%, we saw the result right away.
Request: could the cause of all this be inflation? How many types of inflation do we know?
1. Creeping inflation with sustained price increases (<10%)
2. galloping inflation with a rapid and irrepressible increase in prices
3. hyperinflation with a particularly sustained increase in prices (>50%).
Currently hyperinflation is hitting Argentina again, which has to deal with 104%, while for Europe and Italy they oscillate between 9 and 6%, the data reported may undergo rapid variations (+ and -) because they are subject to a series of stimuli from from materials or products for energy and transport and lastly we have inflation caused by the increase in interest rates. The latter causes, for those who have exposure to banks or financial companies, an increase in payment installments and, having no counterpart to deal with these increases, the most affected seem to be families.
Production and service companies can update their price lists, but with the consequence of seeing reduced consumption. And here comes the problem of monetary circulation. The Irving Fisher equation tells us all: MV=PY (Money x Velocity= Prices x Product Quantity) ergo we need to circulate money quickly rather than draining savings which, in this period, have dwindled. Then, all the European nations are involved which, in the presence of new issues of public debt securities, are forced to increase interest rates (in addition to adjusting the outstanding securities to a variable rate). Does all this create inflation upon inflation?
Question: How do we get out of this? For inflation from goods and services it has been demonstrated that the market absorbs everything by itself, while for that caused by continuous rate hikes, again as has been demonstrated, there is no remedy for an antiquated monetary policy in clear contrast to the real economy. Example? The FED cuts rates to zero, the ECB copies; the FED raises rates and what does the ECB do? Copy! Are the US and the EU the same thing? I would like to remind you that copyism is a religion founded by a 19-year-old on 28 April 2012. Is the ECB based on this new religion?
So, the final questions arise: how do you coordinate the economic and financial budget of the various European countries if the financial part is not manageable? When does any company ever, in preparing its budget, lack coordination between the financial and production or service parts? How does the EU make the various countries respect the parameters set if it is not able to manage the rates? By any chance, would it not be the right time to review the coordination between the ECB and the EU? To close, I have one last question: aren’t we in the presence of Kafkaesque theater of the absurd?
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