Lagarde Capitulates As the Euro-Zone Divides
I know you probably get tired of me saying this but the Euro-zone is headed for a massive crisis. On Thursday, June 9th, the ECB came out with its policy statement, less than one week before the next FOMC meeting statement (June 14th).
It was a doozy. Christine Lagarde attempted early on to project that soothing calm central bankers are supposed to exude even when everything is collapsing around them.
But, truly this was Lagarde’s ‘Baghdad Bob’ moment. She stood up there and read the ECB’s policy statement off the teleprompter like she had something caught in her throat, likely the remnants of what is left of her conscience, because even she couldn’t swallow the bullshit she was slinging.
We have inflation under control. We will still grow in 2022 (BWAHAHAHA!) and growth will accelerate in 2023 and 2024. These people haven’t gotten one quarterly forecast right in … forever, and yet they project this idea that they have any clue what GDP growth will be in 2024?
But, as Zerohedge pointed out, Lagarde then reversed herself during the press conference, trying to resurrect the ghost of Mario Draghi, saying that she stands ready to do ‘whatever it takes’ to stabilize the situation.
From ZH:
She notes there are existing instruments with the reinvestment capacity under the PEPP.
“And if it is necessary, as we have amply demonstrated in the past, we will deploy either existing or new instruments that will be made available.”
Lagarde states that “within our mandate we are committed to preventing fragmentation risks within the euro area.”
So some kind of asset purchase scheme for peripherals? The vagueness is intentional as it appears Lagarde is trying to pull off a Draghi ‘Whatever it takes’ moment while keeping her foot on the hawkish pedal.
As The IIF’s Robin Brooks pointed out:
If the ECB says to markets: “we will defend Italy’s spread,” markets will for sure test that statement. So – in effect – what the ECB did today is to raise the odds of markets trying to force its hand.All this is avoidable. Don’t hike. The Euro zone is going into recession…
The end result was obvious to anyone with ears to hear, we are reluctantly following the Fed’s lead in ending QE hoping that someone will still think that Italian BTP’s trading at 65 bps above US Treasuries of the same maturity is a ‘good deal,’ and invest in a country that now carries increasing redenomination risk.
If it wasn’t so over-the-top moronic, it would be funny. Now with the horrific US CPI print red-pilling a whole lot of investors that the Fed has the green light to be even more hawkish, the mad scramble is on to figure out where to park that money that’s been frozen by the clown show that is US domestic politics.
The Fed’s in control here, but not in the way a lot of people think. The next level of insight that should begin to take hold, especially if the next CPI print is equally awful, will be what I’ve been saying for a year now….
The Fed isn’t raising rates to combat inflation. The Fed is raising rates to break the ECB and Davos.
Spread Eagled ECB
Two months ago Italian debt, thanks to Lagarde’s lying and everyone’s front-running her trades, was trading at a premium to US debt. Um, Chrissy, you’re going to need to see that spread vs. US debt be more like 650 bps (6.5%) rather than 65, if you want to attract even the average NFT investor at this point.
The bond markets are all now moving away from the monetary experiments Lagarde inherited from Mario Draghi and she has neither the experience nor the gravitas to carry this charade off any longer.
The big takeaway, and the reason why the euro had a mild bout of myocarditis Thursday Morning before collapsing on its way to the bathroom, is because Lagarde is open to creating a new, improved, QQEternity, alphabet soup program in the future if this ending QE ‘experiment’ doesn’t work.
With the Fed now secure in its role as European liquidation agent, there’s nothing Lagarde can do other than follow the yellow brick road make the best of a terrible situation getting worse by the day.
That said, I have to ask the serious question, are they really worried about Ital
Article from LewRockwell
