Tags: global | central bank | wars | target

Global Central Bank Wars Make You the Target

Global Central Bank Wars Make You the Target
(Dollar Photo Club)

By Wednesday, 15 June 2016 08:13 AM Current | Bio | Archive


The central banks that allegedly promote prosperity are instead attacking it with increasingly bizarre monetary policies. Now the banks are turning on each other.

If you are a commercial bank, negative interest rates in Japan and the Eurozone are pure poison. They make normal banking – i.e., pyramiding deposits into loans – almost impossible. Hence we see banks trying unusual things to compensate.

I recently mentioned how Spain and Portugal’s large banks want to weasel out of mortgage contracts.

That’s strange and outrageous, but it gets stranger.

One of Germany’s top private lenders, Commerzbank, is reportedly planning to store physical cash in vast quantities in order to dodge the -0.4% “interest” it would pay for holding cash reserves at the European Central Bank.

Storing cash isn’t what banks do.

Under normal circumstances, banks keep as little cash as possible. Their profit comes from lending money at interest, not storing it in a vault. The only reason a bank would stockpile cash is if it can’t find any creditworthy borrowers. Commerzbank apparently can’t… which likely means other German banks can’t, either.

The ECB’s years of quantitative easing and zero/negative interest rates were supposed to kick the European economy back into gear. They are instead doing the opposite: freezing it in a state of economic entropy.

Last week ECB took its QE program into new territory by purchasing corporate bonds. Bank chief Mario Draghi is essentially paying Europe’s largest companies to borrow money directly from their central bank.

In other words, Draghi is cutting out the middleman. Anheuser-Busch InBev and Siemens reportedly accepted the deal.

Will those companies use the cash to stimulate Europe’s economy? No. They will buy back their own shares, expand on other continents, or replace human workers with robots. None of these will help European workers or consumers.

So what is Draghi thinking? Your guess is as good as mine.

Embattled Deutsche Bank (DB), which at this point has little to lose, struck back at the ECB last week.

A research note signed by Chief Economist David Folkerts-Landau, but surely approved by top management, said the ECB is “threatening the European project as a whole for the sake of short-term financial stability.” He then compared Draghi to a willfully blind hedgehog.

More than a few Europeans will be glad to see the “European Project” collapse. I think that’s the inevitable outcome here. Next week’s Brexit vote in the UK will start the process.

As desirable as it may be, an EU breakup will mean short-term pain for a lot of people.

They won’t all be European, either.

As we saw in the last century, European wars tend to become American wars. This time the war is between bankers.

We are all in the line of fire.

Patrick Watson is an Austin-based financial writer. Follow him on Twitter @PatrickW

To read more of his insights, CLICK HERE NOW.


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PatrickWatson
The central banks that allegedly promote prosperity are instead attacking it with increasingly bizarre monetary policies. Now the banks are turning on each other.
global, central bank, wars, target
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2016-13-15
Wednesday, 15 June 2016 08:13 AM
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