“The ECB prefers recession to inflation! » Editorial by Charles SANNAT

“The ECB prefers recession to inflation!  » Editorial by Charles SANNAT

My dear impertinents, dear impertinents,

After a month of absence, I am very happy to have you back to comment on the exciting and rich news. Also happy to try to share with you analyses, reflections, anticipations in order to enlighten you in your choices, your strategies, and to help you improve your personal resilience.

I obviously have a lot to tell you and to tell you about this start of the school year, let’s say more precisely in this pre-start!!

I suggest that we talk quickly about inflation. We will have plenty of time to detail all this in the coming days.

“For the ECB, inflation must be fought, even at the risk of weaker growth and higher unemployment”!

The conclusion is simple.

The ECB prefers recession to inflation.

Finally in theory.

Let’s start from this article of capital here.

“Faced with ‘the path of caution’, we must defend ‘the path of determination’ which consists of ‘reacting more forcefully to the current surge in inflation, even at the risk of weaker growth and a higher unemployment”, pleaded Saturday August 27 Isabel Schnabel, member of the executive board of the European Central Bank (ECB) during the meeting in Jackson Hole, in the United States. Three factors plead in favor of this option, she explained during the annual high mass of central bankers in the American West: “uncertainty about the persistence of inflation, threats to the credibility of the central bank and the potential costs of acting too late” against rising prices, according to his speech posted online by the ECB. Banque de France Governor François Villeroy de Galhau also defended determined action by the ECB.

“We can take a gradual approach, but we must not be slow and delay normalization (of monetary policy, editor’s note) until higher inflation expectations force us into aggressive rate hikes,” he said. he explained. “Bringing inflation down to 2% is our responsibility; our will and ability to deliver on our mandate commitments is non-negotiable,” the governor said, according to his speech obtained by AFP. On Friday, US Federal Reserve Chairman Jay Powell warned that a return to price stability “will take time” and “will lead to a long period of weaker growth”. The rise in consumer prices in the euro zone reached a record level of 8.9% over one year in July”.

The FED is raising its rates fairly quickly and the ECB should finally follow suit more quickly than it would have liked. Moreover, rumors are now rife of a 0.75% increase in ECB rates at its next meeting.

We will see.

So will this be enough to break inflation?

Probably not!

Why ?

Because if prices go up, it’s not so much because there’s a strong demand, but because there’s a lack of supply.

When there is no more sunflower oil, prices soar, the same goes for gas.

Raising interest rates will not change the fact that we refuse to buy Putin’s gas and that we still need to heat ourselves and keep our factories running…

So that won’t change anything about the inflation rate, whatever the ECB mammouchis say, who only saw temporary inflation when I said it would be long-lasting.

“If a central bank underestimates the persistence of inflation – as most of us have over the past year and a half – and is slow to adjust its policies accordingly, the costs can be considerable,” Ms. Schnabel said. For François Villeroy de Galhau, the neutral key interest rate, compatible with balanced long-term growth, “is probably between 1% and 2%”.

While acknowledging that “at least for Europe, growth prospects for next year have been revised downwards due to energy and gas prices as well as exchange rate developments”, the governor of the Banque de France does not rule out a rise in rates beyond the neutral level. “Have no doubt that at the ECB, we will raise rates if necessary beyond normalization”, assures Mr. Villeroy de Galhau in his speech “.

If the ECB increases rates too much for too long then it will quickly trigger a movement of insolvency, in particular of States and in general of all economic players who are heavily indebted, not to say far too indebted.

It is already too late, but all is not lost.

Prepare yourselves !

Charles SANNAT

“Insolentiae” means “impertinence” in Latin
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