Let’s dive into the latest ECB press release, specifically focusing on the main reason behind their decision to cut rates by 25 basis points today:
“Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.”
Wait, did the ECB just say inflation is expected to rise? Yes, according to their own words. But fear not, President Lagarde was quick to reassure us: it’s just algebra, not a reflection of the fact that life is becoming increasingly expensive in Europe.
Here’s the catch: a year ago, inflation’s growth had a brief cooldown. Now, today’s inflation rate will accelerate simply because last year’s numbers were lower. Prices didn’t drop a year ago—they continued to climb—but the growth rate slowed momentarily. As I explained in “After Japan, Now It’s Europe’s Turn to Sacrifice Itself to Keep the US Market Bubble Alive Until the Elections”, not only is the ECB relying on manipulated data to fit a narrative that suggests everything is fine for consumers (and governments), but they also depend on their own forecasts, which have been consistently wrong—and they’ve even admitted this!
Considering all this, how much trust would you put in their statement that, “Inflation is expected to rise in the coming months, before declining to target next year?” Personally, I’d trust it about as far as I can throw it. Not because inflation will actually decline in the real world—who cares about reality?—but because you can count on Eurostat to make the numbers say whatever they need them to say.
Now, let’s examine the second sentence in that ECB statement: “Domestic inflation remains high, as wages are still rising at an elevated pace.” If we combine this with the previous discussion, the result is exactly what I pointed out five months ago:
“So, according to the ECB, European employers suddenly decided to become social benefactors and raise their employees’ salaries at a higher rate than inflation, making them wealthier. From a political perspective, this sounds beautiful, doesn’t it? Unfortunately, it is not what’s happening in reality, since the real inflation rate in the Eurozone is much higher than 2%, and even cats and dogs know it.”
The most incredible part of all this is that Christine Lagarde contradicted herself a few weeks ago in an interview with Jon Stewart on The Daily Show (video). Here’s the transcript starting from 11:50, where her words speak for themselves:
- JS: How do we get labour to benefit more efficiently from all that money [printed by central banks]?
- CL: You have two components: capital and labour. You bring them together, and they both have to create value and be compensated. For decades, capital has been better remunerated than labour, and the labour share in value production has been reduced. That’s a matter of give and take. If the labour market is tight, as it is now, it’s up to labour to say, ‘Excuse me, I think I should be remunerated as well, and probably better than what’s been done for many, many years.’ It’s a question of negotiation, discussion, and persistence.
- JS: Right. Is there a better way? Because it seems like corporations don’t have to fight so hard, while labour has to fight just to get a seat at the table.
- CL: The balance of lobbying forces is clearly skewed towards one side in many countries.
- JS: Right, right, so you would recommend poor people get better lobbyists.
For years, everyone living in the real world has known wages haven’t been rising much in Europe, but the economists in the ECB’s ivory tower seem too far removed from reality to recognize this. They rely on statistical data that don’t make sense. Wages cannot rise at an elevated pace without inflation also rising at a similar or higher rate. Ironically, the ECB includes this contradiction in their own statement: “At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.”
So, they’re telling us that wages are rising and jobs are being cut at the same time. I’d love to hear Volkswagen’s German employees weigh in on this! (Volkswagen CEO defends job cuts citing economic pressures).
As if all of this wasn’t absurd enough, the ECB claims Europe’s economy is headed for a “soft landing,” despite delivering another rate cut—while Germany, Europe’s largest economy, has already crash-landed into stagflation: Germany reckons with another recession in 2024.
At this point, it’s clear that, much like the Fed (“FED ACTION TODAY MARKS THE BEGINNING OF THE END OF THE FIAT MONETARY SYSTEM EXPERIMENT”), the ECB is pursuing an agenda that has little to do with the real economy. They’re failing to grasp that cutting rates is not the solution. The root problem, particularly in Germany, is that companies’ profit margins are being squeezed by inflation, which is driving up production costs. Meanwhile, consumers—who don’t have the same access to credit as in the US—are already stretched to the limit and cannot pay higher prices on everything anymore.
On top of that, European companies have lagged behind in adopting new technologies and improving efficiency. Governments have been happy to subsidize these outdated industries, shielding them from external competition, especially from China. But as soon as governments had to cut back on these subsidies to rein in deficit spending and debt growth, these industries quickly fell into decline, now fighting for survival.
What Europe needs now are higher rates to contain rising costs and stop margins from shrinking—not looser economic conditions that will only ensure prices continue climbing from an already elevated level.
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