The European Central Bank now competes in the roller-coaster stakes, building a “death ride” to rival Kubota’s “doom ride”

If Kubota is Abe’s Shaman, then Supermario Draghi is Angela’s witchdoctor, come to save her from the inability of the German (democratic) political system to understand the needs of the German Empire; to bail out the hedge funds full to the brim of Southern European debt at nice prices to create “inflation” there and presumably revive “demand” for German exports.

Russian sanctions and the death of the Russian market, which Angela Merkel seems to view with equanimity despite the fury of German industrial giants, makes this necessary. The Russian business is entirely about claiming Eastern Europe for Germany. Not that the angry little Poles and Lithuanians are ever going to become friends with the Russians anytime soon, but the pull of the East with China rising was changing the centre of gravity, and the Czechs and Hungarians were definitely having second thoughts, not to mention the Serbs. US and German (Imperial) interests coincided nicely here, although German democratic society grumbled, and a new  “curtain” was erected in the financial Swiftosphere.

Now the problem (especially with Syriza’s win in Greece) is Southern Europe’s depression. So the European Central Bank (ECB)’s Draghi decided to purchase a staggering $1.24 trillion of existing sovereign bonds and other debt securities in Europe during the next 18 months. Draghi says ” Today’s monetary policy decision on additional asset purchases was taken…..(because) the prevailing degree of monetary accommodation was insufficient to adequately address heightened risks of too prolonged a period of low inflation.” So we are seeing a repeat of Kubota’s inflation fantasies, with potential long term disastrous consequences.

As we wrote earlier in “The fundamental significance of the Chicago Mercantile Exchange’s 10-K filing with the Security and Exchange Commission”, since 1985 the world economic system has been rigged not to show inflation in the real economy, but to channel it continuously and entirely into financial assets [see on: http://different-traditions.com/?p=2244].

The disclosures by the Chicago Mercantile Exchange (CME) that it has central banks as major clients and gives them volume discounts for the trading of futures means that Western Central Banks are leading the investment banking community on Wall St and the City of London into massive intervention in futures markets across the board on a continuous basis. We are no longer, since the 1986 “Big Bang” in London, the 1999 Gramm-Leach-Bliley Act, which removed Depression-era laws separating banking, insurance and brokerage activities (repealing Glass-Steagall), and the 2000 Commodity Futures Liberalization Act, in a free market. On one side of the market there will always by a concerted group of central banks, who unlike ordinary mortals can magic money out of thin air.

The central banks are particularly keen to bet against a rise in the prices of gold, oil, base metals, soft commodities, and anything else that might be deemed an indicator of inherent value, in order to eliminate any reliable benchmark against which to measure the eroding value  of fiat currencies.

The whole purpose of this policy since 1985 has been to allow profligate Western governments to switch from funding themselves through methods that increased high powered money and therefore lending in the real economy, to funding themselves through bond issues which, through manipulation of inflation statistics and now through manipulation of commodity prices, kept yields (interest rates) low and bond prices high. Driving the banking system to become a system for speculation in the securities markets, rather than a system for lending to normal business, by ensuring an unbeatable lucrative carry-trade through ZIRP (zero interest-rate policy), meant that a carousel was formed where government bonds were always funded and bankers became rich.

But this ZIRP, otherwise known as financial repression, has had massive costs in ripping off savers in the real economy, only partially offset by the benefits borrowers have had, which benefits anyway have involved driving up house prices to the cost of upcoming generations (the youth that have to pay the taxes which fund the retirees), and which are conveniently left out of the inflation numbers.

So the question is: if the system is rigged to keep statistical inflation down, and channel it uniquely into securities markets, how can the likes of Draghi and Kubota think that inflation can be stoked up by intervening in government bond markets? Note that not only is the real economy being crushed by the increasing weight of the financial sector on top of it, but the private sector element (the stock market) of this is getting smaller and smaller due to share buybacks encouraged by ZIRP. The financial sector has truly lifted off into the stratosphere, not just price-wise but substantively.

So we are back ironically to the 1970’s problem of public sector “crowding out”.