After more than a decade of expansionary monetary policy having resulted in the creation of several trillions of dollars and euros, it is perhaps time for the main Western central banks to go to the cash register. And the bill is likely to be very salty.
It is indeed obvious for any economist with a minimum of historical hindsight that the current inflationary surge on the commodity markets and in the real economies, is falsely attributable to the Russian-Ukrainian conflict which has a good back these days. The latter is in fact only a catalyst. A way like any other to clear Mario Draghi’s “whatever it takes” to save the Euro, and the hijacking of American political power by an irresponsible and hypertrophied banking system through the “Too big to fail” .
The zero interest rate policy implemented by the FED and the ECB since the 2008 crisis ended up confirming an elementary rule in economics: “When money is cheap, everything is expensive”.
Boosted by free money, or even offered through negative real rates, the financial markets found themselves very quickly after the 2008 crisis in levitation, via speculative bubbles, which until then had spared the real economy. Economic growth was weak but there, unemployment was apparently decreasing at least, and inflation was low, even desired a few years ago. As for the European and American governments, the purchase of sovereign debt on the secondary market by the ECB and the FED made it possible to feed recovery policies through an increase in sovereign debt at very low rates.
Then the Covid parenthesis went through there. Risk of crisis you say? No problem, the printing press is still there, and here we go again for a round of monetary illusion through new expansionary monetary policies: the liberal logic of the free market will once again be set aside, direct and massive aid to households and businesses will be put in place through debt, and no business will have to go bankrupt, “whatever the cost”.
However, and to take up a parable from the Gospels, is the prudent man who built his house on a rock comparable to the foolish man who built his house on sand? Of course not. For the last, “the rain fell, the torrents rushed down, the winds blew and the house collapsed entirely”.
Economies based on debt and money illusion can only crumble at the first crack in this fragile edifice. Current inflation is therefore a symptom of a deeper evil.
Faced with the eternal return of reality, what can central banks do? Raise key rates sharply to curb inflation? The immediate effect of such an initiative will necessarily lead to a financial crash in favor of safe havens such as gold, certain stable currencies, or even bitcoin, due to the significant addiction of financial markets to easy money and free. Similarly, such an initiative will necessarily lead to a massive sovereign debt crisis, particularly in Europe, through a significant rise in interest rates on the latter.
Doing nothing would amount to letting this inflation take hold over time, with the consequences of a deep and lasting economic recession, with all the risks of social uprisings and political instability that will result.
Or, go gradually through several small successive rate increases? The FED can at the limit afford such an approach despite its exorbitant cost, as long as the Dollar continues to enjoy a quasi-hegemony at the level of world trade. This is not necessarily the case for the euro zone, where the risks of a break-up have never been greater since the debt crisis of 2010-2012.
And given the current geopolitical context through the energy standoff between Brussels and Moscow, it is not excluded that it is partly an American maneuver, with a view to weakening one of its main rivals. economies, namely the European Union. A strategy which, through a communicating vase effect, will benefit and is already benefiting the Dollar, which continues to appreciate to the detriment of the Euro, as much as the American economy, which will continue to drain more and more capital, detriment of an increasingly unreliable and stable Eurozone.
The Euro sacrificed on the altar of the Dollar as a way out of the crisis? I wouldn’t be surprised by American strategists who have the repulsion not to hesitate to let go of an ally, as soon as it benefits in one way or another their vital interests, in this case the Dollar.
Thus, by pushing Europe into a proxy war against Moscow on a military, economic and energy level, the United States aims to kill three birds with one stone: engulf European markets, save the Dollar to the detriment of the Euro, and isolate a strategic enemy, Russia.
In the meantime, in the face of this war of the titans, the rest of the world continues to suffer, hoping for an outcome, one way or another, for better or for worse.
Rachid Achachi, columnist, CEO of Arkhé Consulting