It is unnerving watching our Central Bankers forecasting inflation. Smart investors know that it is almost impossible to predict what will happen to the prices of housing, shares, energy and food, and yet these economists at Central Banks come out with numbers that are based on the daily work of the hundreds of them and other “experts” who roll out numbers based on their best estimates.
These estimates are at best completely useless and cast a shadow of doubt on the competence and very reasons for the existence of central bankers because their actions with Quantitive Easing and their forecasts are probably downright dangerous and bad for our economic health.
Just look at the pronouncements from Lagarde over the last few months when we now know that inflation is closing in on 5% and 7% in Europe and in the USA!
“Our new staff projections foresee annual inflation at 2.6 per cent in 2021, 3.2 per cent in 2022, 1.8 per cent in 2023, and 1.8 per cent in 2024” – December 2021
“Still, Lagarde stressed that the ECB’s Governing Council continues to see inflation dropping below the 2 percent target. “Despite the current inflation surge, the outlook for inflation over the medium term remains subdued,” she said – November 2021
“We continue to see inflation in the medium term below our 2% target,” Lagarde said. – October 2021
It is projecting that the rise in 2021 will prove temporary, with inflation falling back to 1.5% in 2022. Its 2023 inflation forecast is 1.4%. Core inflation, which excludes energy, is forecast at 1.1% in 2021, 1.3% in 2022 and 1.4% in 2023. – July 2021
Quantitive Easing (QE) is pumping money into banks and into the economy. Banks are making huge profits from buying Europe’s national state bonds from the issuers and selling them to the ECB with interest rates way below inflation.
Banks are also able to sell new bond issues for themselves and their top corporate clients and other public bodies to investors well below inflation. It is a license to print money for banks and borrowers, while ordinary folk are asked to see prices shoot up for food and energy, while the value of their savings diminish because interest rates are lower than inflation!
The ECB is also lending huge sums of money below market rates to banks – to help the poor dears to lend money to the real economy at market rates, which they really do not do that much. Most of that cash goes for pure and simple trading to boost bonuses!
We are seeing inflation that we have not seen for the last three decades.
Both of the above activities are pumping money into the economy in ways never seen before and the result alongside government payments to companies suffering from lockdowns is inflation that we have not seen for the last three decades. And to top it all is Lagarde’s statement made the other week:
“The Bundesbank has remained faithful to its mandate of maintaining price stability. This has been the key to the Bundesbank’s success – and we have inherited that rich tradition at the ECB. Price stability is the North Star that has helped us navigate through some extremely turbulent times.” Can it be true that she not be aware of the latest inflation figures in Germany and in the rest of the EU?
Such generosity from the ECB to support private banks cannot be justified. Most of the EU’s economies are booming and banks are making record profits… this is not right and central banks need to be reigned in. They are taking the role of financing national governments and supporting banks, many of which are still in bad shape because of poor management, while others are paying themselves fat bonuses because they are able to magically produce huge profits – profits which mainly are rooted in ECB subsidies to these banks.
Photo from ECB archives