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Live By QE, Die By QE. The ECB Will Do What It’s Gotta Do. Forget About It!

Summary

Just when he thought he was out, events have pulled Mario Draghi back in.

America-EU trade negotiations are a significant obstacle to further ECB monetary policy easing.

Consolidating the Eurozone banks is an essential part of the process of transferring money from the ECB’s balance sheet to national exchequers.

Italian “mini-BOT’s” are not a threat to Eurozone integrity until if/when Italy asks for its gold back from the ECB.

President Trump’s latest “well timed” trade move gives “Germany First” et al some “fuel” for thought.

(Source: CPS Chatter, caption by the Author)

As Don Mario Draghi seeks to leave the syndicate, that controls the money printing racket in the Eurozone, data and global turf wars are pulling him back in. Said events are also pulling the ECB back in, just when it thought that it could normalize monetary policy. It all seems so unfair, but live by QE die by QE as the central banking men of honor say!

Hoping that he will be made up, to the next level in the mob, ECB Family member Don “Preudhomme” de Galhau framed the latest Governing Council meeting in reference to global trade related gang wars. Said hostilities are, in his opinion, the greatest threat to the Eurozone economy. Suggesting that Eurozone banks should actively pursue consolidation, he also signaled that the ECB will shake down the Eurozone banks with more of the ZIRP/NIRP racket in the future.

(Source and caption by the Author)

A previous report noted the stagflationary headwinds, associated with climate change, making inroads into ECB monetary policy. “Preudhomme” recently opined this stagflationary shock; and suggested that the ECB’s new monetary policy framework should factor it in.

The Governing Council of ECB Goodfellas underwhelmed, at their latest meeting of the national family Dons, as did ECB Boss Draghi with his press conference. The ECB Family repeated its sworn vow of death to disinflation; but Mr Market questioned Draghi’s sincerity and the ECB’s credibility, based upon the lack action.

After the underwhelming Governing Council decision, Draghi was forced to mitigate the fallout by providing “granular” contextual analysis of the meeting. Such granules illustrated a healthy debate, over the merits of easing further, in addition to the consensus view to leave policy unchanged.

(Source: pixmypix, caption and editing by the Author)

The underwhelming was however done by Draghi, with the strategic intention that his successor and his henchmen will overwhelm with the next phase of monetary policy easing. He presciently warned that his successor will need to “do whatever it takes”.

Even the information regarding TLTRO III Racket was presented by him, in a way that just keeps things ticking over until Mr Disinflation Expectations is given an offer he can’t refuse.

Draghi is trying to bow out gracefully and leave the next chapter of Eurozone monetary history to his replacement. Unfortunately President Trump is raining on Draghi’s parade, possibly forcing him to do something more definitive in his last act as ECB Boss of Bosses.

Doing something definitive, in the current atmosphere of trade tensions, would invite intense scrutiny from America’s trade negotiators. The consummate Globalist Draghi is aware of these sensibilities; and thus prefers to let the trade negotiations close first before the ECB starts to weaken the Euro again. By then the Fed will be easing again in any case, so the whole issue is moot in any case, as the great race to the bottom of the currency pool begins in earnest.

His successor will have to hit the ground running, but Draghi has clearly illuminated the drop zone and removed all sharp obstacles in the way of the objective. Draghi may have to do a little more than prepare the drop zone however. He may have to battle on against disinflation, before he is relieved of his command.

Speaking as Draghi’s co-pilot on this occasion, Baltic Family Boss Governing Council member Bostjan Vasle gave the engine a little more verbal throttle in relation to the fuel injection of TLTRO III. Vasle opined that it should be sufficient to keep the Eurozone going until the next ECB president hits the ground. In the unforeseen circumstance that it is insufficient however, he assured his audience that the ECB is ready to go full throttle.

(Original photo: eonline, editing and caption by the Author)

In the scramble, “Rehnfeld” was the first HALO jumper out of the plane. Speaking in the accepted gangster vernacular of his boss, he put his cap into the ring to get upped. In response to Draghi’s warning, like his anointed successor, “Rehnfeld” then Tweeted that the next ECB president has “gotta do what’s gotta do, as needed”. His Tweet may also have had something to do with Mr Market’s underwhelming response to the ECB’s underwhelming decision at its recent meeting.

Mr Market replied to “Rehnfeld” what, so what, now what? “Rehnfeld” was thus forced to elaborate in detail on the limited characters in his emotive Tweet. Apparently the ECB could “do” stronger forward guidance, cut interest rates and or more QE “as needed”. “Rehnfeld” sees the current trade wars as prolonged. He would also like to do more to help the banks.

The Eurozone banks, who are being shaken down by the ECB Family with the ZIRP/NIRP racket, will also need to be kept alive. If they go under, the ECB Family will have nobody to shake down. Thus far the ECB Family has extorted over 20 billion Euros from the banks with ZIRP/NIRP. The ECB Family has then shared this booty with the EU Family, by paying dividends to each of the families who control it. No wonder “Rehnfeld” wants to help the banks. Business is business, so that he who helps the banks also helps the ECB and EU Families as well as his own chances of being upped.

To keep this banking cash calf fattened and alive, the ECB Family has suggested that the Eurozone banks merge together. This can be done by force, through letting some banks fail. Bloodshed is however bad for business; so the ECB Family may bribe a few merger candidates to get married, by giving the favored banks tiered interest rate risk mitigation if they take the plunge and merge. Some of that 20 billion being extorted will thus find its way back to the banks that play ball.

The Baltic Family Boss and Governing Council member Vitas Vasiliauskas, was clearly worried that Mr Market had read Draghi’s baton passing speech too bearishly. He therefore interjected that, even though inflation is not as bad as is being currently discounted by the market, Mr Market has “underestimated” the ECB’s credible commitment to ease again if things deteriorate.

German Family Boss Jens Weidmann was slow to respond and thereby gain the initiative for his own prospects of replacing Draghi. This did not however prevent him from belatedly commenting that Draghi’s can-kicking was “appropriate” guidance. By classifying as “appropriate”, he thereby inferred that it was a formality as part of the hand-over from Draghi to him. Weidmann’s commentary looked less than “appropriate”, in comparison to the Bundesbank’s coincidental slashing of its 2019 and 2020 German growth and inflation outlook though.

Weidmann then appeared to completely ruin his chances, of being upped to ECB Family president, with a declaration of his intentions and capabilities. He believes that there is no point in “needlessly” postponing the ending of the money printing racket known as QE. He thereby indicates that he would like the ECB Family to go straight and legitimize their operations by ending the QE racket. Such a move would lead to a gang war within the ECB Family itself.

The ECB Family’s foot-soldiers, quaintly named Staffers, aren’t waiting for the Made Men on the Governing Council to give them their orders on the Inflation Numbers racket that drives the QE racket. The Staffers are swiftly coming to conclusions of their own, generally interpreted as a fear that the corpse of inflation expectations in the Eurozone is becoming de-anchored and falling to a new floor. The ECB Family has certainly weighed this corpse down well with the concrete boots of a single inflation mandate. Inflation swims with the fishes, so that the Family racket of money printing has a healthy future ahead of it.

The various ECB Family bosses then all weighed in, with varying degrees of threats to move inflation expectations and address any further weakening in the Eurozone economy.

(Source: earthrider.com, editing and caption by the Author)

Italian Family Boss Don Ignazio Visco is so concerned about inflation expectations, that he is going to make them an offer they can’t refuse. Talking at the global meeting of G20 Crime Inc, he announced that the ECB Family will “certainly” act with more money printing if the Eurozone economy weakens further.

(Source: diariodeponteverdra, editing and caption by the Author)

Don Ignazio’s threat, to use some monetary policy muscle, was then almost repeated verbatim by Spanish Family Boss Don Luis de Guindos.

(Source: diariodeponteverdra, editing and caption by the Author)

“Preudhomme” threatened the political bosses in the EU Family, to get their house in order, before he is ready to make a move on the inflation expecters again.

(Source: diariodeponteverdra, editing and caption by the Author)

Recently upped Estonian Family Boss Madis Muller preferred to use the threat of implied force rather than overt force. His implied threat came as the observation that there is still “some way to go” to achieve the ECB Family’s inflation target.

(Source: diariodeponteverdra, editing and caption by the Author)

Central European Family Boss Peter Kazimir believes, that the ECB Family’s TLTRO III threats already demonstrate the intention and capability to make inflation expecters an offer they can’t refuse in the future. He now expects the inflation expecters to capisce and start expecting higher inflation. In his opinion, everything in the Eurozone is hunky dory and there is no threat of recession or deflation.

(Source: diariodeponteverdra, editing and caption by the Author)

ECB Family French Executive Board member Benoit Coeure adopted the veiled threat line of Muller and Kazimir. In his view, QE bond buying to date is still creating a strong economic tailwind that will continue into the future after ends. The implication is, that if it ain’t broke then don’t fix it with more QE yet.

One is struck by the thought that those making veiled threats are simply playing for time, until a newly elected ECB Family president can deliver with the QE offer that cannot be refused by inflation expecters.

(Source: rarehistoricalphotos, caption by the Author)

The Italian Family is experiencing internal power struggles, which threaten its overall position in the EU Family. The government branch of the Italian Family thinks that it has discovered a new racket, to pay workers in the state owned sector with IOU’s called “mini-BOT’s”.

The intent is a trip down memory lane, to the times when Italy periodically added another zero or two (or three!) to its Lira currency when its public finances ran into deficit. The trip may however degenerate into a trip down the memory lane of the Weimar Republic on its way to Fascism. Perhaps this is what some Italian right-wing politicians really want.

The ECB Family is in control of the Euro money printing syndicate, so if the Italian Family intends to muscle in on this racket it will have to leave the Eurozone and start printing its own currency. Italy’s Euro debts would then immediately trigger a balance of payments crisis, which would drive the country into the arms of the IMF and/or its Eurozone creditors.

Italy would then try to convert all its Euro debt into worthless “mini-BOT’s”. Neither set of creditors would be kind to Italy, if it were to try and stiff them with “mini-BOT’s”. The political blow-back could either undermine the Populists or destroy them. Perhaps this is a clever plot by the Italian Far Right to usher in their own political solution. They would be wise not to gamble on this strategy strengthening their position with the Italian voters though.

After the threat to print “mini-BOT’s”, from Italian Family Co-Boss Matteo Salvini , his partner in crime Luigi di Maio tried to extort the EU Family’s blessing to cut Italian taxes further.

It would appear that the Italian Family is just threatening “mini-BOT’s”, with the implied risk of leaving the Eurozone, to make the EU Family and the ECB Family believe that this will break the Euro money printing racket. It is bluff and brinkmanship worthy of Mussolini. The Italian Family may ultimately get a piece of the action, by the EU Family allowing it to go further into debt in order to break Stability Pact rules even further. This would be a classic Eurozone political compromise.

(Source: Bullionstar, caption by the Author)

A previous report noted that it doesn’t really hit the fan for the Eurozone, until one country asks for its gold at the ECB back. Said gold is part of the collective backing for the Euro. Any redemption of such gold would then be seen as serious attempt to break the Euro.

The Italian Family has got nearly twenty per cent of the Eurozone’s reserve monetary gold. The Italian Family has hinted at asking for its gold back in the recent past. If it asks for the gold back now, to back its own “mini-BOT’s”, then one can start taking the Italian threat. The first thing that the IMF and the EU Family creditors would do however is seize said gold at the ECB, before it was shipped to Rome, in lieu of conversion of Italy’s Euro debts to “mini-BOT’s”.

The “mini-BOT/Gold” exchange rate, applied to the Italian gold seizure by its creditors, would take all of Italy’s gold reserves and then some. Italy would then have lost any backing for its “mini-BOT’s”. It would then have to invade its neighbors and ransack their central banks of gold and make their peoples work as slaves in Italian industry. Alternatively it could make all the immigrants on Italian soil work as slaves. Germany did something similar twice in 20th Century history when it couldn’t pay its creditors.

These hypothetical, but not entirely unprecedented, illustrations are used to show the futility of the current Italian Family’s fantasies; rather than as serious predictions of its expected actions. Posturing like a mad dog may however work to get some kind of compromise on deficit busting from the EU. President Trump has used this mad dog tactic rather well, but he has got the biggest button in the world. Unfortunately, the Italian Family does not have such a button.

Ultimately the EU Family and Italian Family will reach a compromise that avoids bloodshed. Bloodshed and the collapse of the EU rackets are bad for business for all the elite families in the Eurozone. Their little spats are only business and nothing personal after all.

Italy has recently expressed its intentions and capabilities to remain in the ECB Family, so it is doubtful that it wants to leave the EU Family. When Mario Draghi steps down, the Italian Family will lose all representation on the ECB Family’s Executive Board. The Italian Family is thus in cahoots with the French Family to have a Frenchman replace Draghi; in return for an Italian being upped to the Executive Board, to replace a Frenchman being upped to become ECB Family President.

The feud with Italy should be placed into the context of the wider ongoing feud within the EU Family about merging its fiscal operations. The latest EU Family meeting of Financial Consiglieres once again failed to find any consensus on deeper fiscal integration. Neither was it able to create consensus on how the family budget should be financed, or used pro- or counter-cyclically.

The ECB Family is also on alert for a turf war with the Fed Family over the global currency debasing racket. The Fed Family has recently endured some setbacks, in the form of economic data and blow-back from the global turf war over who controls trade between the American Family and the Chinese Family. The market expectation is now that the Fed Family will start to debase the US Dollar again. The ECB Family has therefore put the word out on the street, that it will not tolerate any moves by the Fed Family that may weaken the US Dollar and strengthen the Euro.

(Source: the Author, caption by JFK)

The previous article observed the American Family and the European Family in a turf war for the hearts and minds of the German Family. The Americans and the Europeans would like to convince Germany that its exports have a healthier market in their respective blocs. The Germans have adopted what was termed a “Germany First” position, in the hope that they can extract better terms from the two combatants.

The European Family appears to have blinked first. After ostracizing Germany, for pursuing “Germany First” over a common EU Family agenda, France is changing its tune. President Macron has made it known that he would support Angela Merkel as the next EU Family Boss “if she wants it”.

Merkel now has something to go back to her people with, to try and re-align them with the EU Family once again. The problem is that Macron isn’t exactly flavour of the month in France. His poor domestic credibility directly creates a loss of credible commitment to the EU Family. He is thus cutting cheques he cannot guarantee. Merkel may therefore take his offer at significantly less than face value if at all. She should be in no doubt about the American offer. President Trump hasn’t blinked. He hasn’t even Tweeted. In fact he has in fact growled.

President Trump has given Merkel some fuel for thought. In response to Germany’s recent trip, back down the old Molotov-Ribbentrop memory lane with Russia, the President will garrison a new battalion of foot-soldiers in Poland. He will also put tariffs on the black stuff that greases the wheels of Russo-German diplomacy.

(Source: Wikipedia, caption by the Author)

Meanwhile, at the southern-end of the German Family’s new Volga-Archangel-Astrakhan line, the Russian Family is threatening to make further inroads by choking off gas supplies.

(Source: Bloomberg, caption by the Author)

After brandishing his stick, President Trump then waved the carrot of US Shale oil and gas to replace Russia’s liquid pro quo for the non-aggression pact with “Germany First”. As luck would have it, simultaneous terrorist attacks in the Gulf of Oman were making American oil and gas look very attractive in comparison to Middle East grades. Further luck was on offer, as Japanese diplomats were also on the spot in the region; allegedly trying to mend fences between America and Iran. President Trump sure has an uncanny sense of timing.

The Japanese mission thus failed to mend fences, however it did highlight the strategic relative value of American hydrocarbons. Almost too perspicacious to be coincidence one might think. According to the Dallas Fed, Permian Shale is now profitable all the way down to 23$/barrel. This puts OPEC and Russian crude in the shade. President Trump’s hydrocarbon carrot looks very tasty; and his timing impeccable once again.

President Trump’s strategy in Europe is also winning friends in the Baltic, in addition to Central and Eastern Europe. US foreign policy literally “trumps” ECB Family AML and KYC regulations and compliance in the Baltics. The Baltics have adopted the Euro currency, but very little of the EU politics and governance that comes with it. “Germany First” should take note, as should the European Family in Brussels.

If the European Family won’t spend money on fiscal stimulus, to win the hearts and minds of these EU smaller nations, deeper fiscal and political union looks impossible. “Germany First” has no intention of such spending; and has gone behind these neighbors' backs to deal with their Russian nemesis. The door is open and the red-carpet is therefore rolled out for President Trump.

(Source: Godfather III, caption by Michael Corleone)

The EU Family’s geostrategic problems, in addition to its internal family squabbles, could not have come at a worse time for Don Mario. Just when he thought he could retire, to tend his garden and write his memoirs, events have once again conspired against his best laid plans again.

Does Don Mario have one last “do whatever it takes” left in him?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.