Is the European Central Bank about to ignite the worst financial crisis in modern history? Owning 40 percent of the euro zone debt might say so. As it now prepares to increase its borrowing rates from negative territory, the ECB might find itself trapped by its own, created device.
Backtrack a decade, on the aftermath of the financial crisis. To stop a global financial meltdown, the European Central Bank went beyond the American Federal Reserve, and other major central banks, by experimenting with unprecedented, monetary policies.
By dipping its key Interest Rates into negative territory, moving the deposit rate for any commercial banks to 'park' their money, (at the central bank) to the negative range of minus 0.4 percent, the ECB then began buying large amounts of government bonds.
ECB: Then, it began buying corporate, junk bonds
Leading to no stimulus in the economy whatsoever, the ECB now finds itself holding on to 40 percent of never-to-be-paid debt. What the average European citizen may interpret from it, is the certainty of becoming, once again, the one who shall pay it off.
It is relevant to point out IMF's reaction, on Wednesday, warning of nominal wage growth, (in most advanced economies), "markedly" lower than levels before the 2008-2009 recession.
Furthermore, the IMF states the shift to involuntary part-time work being the key forces behind sluggish, wage gains, across the world.
Have a pause, relax and connect the dots
As it all unveils, confidence, not quantity of printed money, is the critical factor in the matter.
As Europe pushes for expansion, adding more debt to its citizens, several political parties within Europe itself talk of Greece being pushed out of the block, for instance.
All the while, in the financial markets, all-time record highs in US indexes, (S&P500, DOWJONES and even the German DAX30), reflect and show what anticipation is all about.
Confined into a spectrum of uncertainty, investors put their money where they are sure to win. Where does this equation fit in? Investors are predicting and accepting, even, a possibility of total crash, in the European economic block.
What those indexes also represent is the core of society, with all of the major companies in it - which sell the products we all need -.
And what these investors are mentally preparing themselves for is the possibility, even if remote, of having European countries going back to their old currencies. Which, judging by the financial markets, would result in a win-win situation, for companies, not the citizens.
ECB: Spike it up and the bubble shall burst
Almost ten years have passed, with no inflation emerging. Negative interest rates have caused, almost every economist agrees, severe damage to society. Not only in pension funds, where the elderly were once able to support retirement upon interest income, but also into future generations, where no light at the end of any tunnel is to be seen.
Cornering the citizens into imposed, financial pain, to be sure, we are, that none of this will be on the hands of those who make the policies, at the top. As their mandates end, into wealthy retirement.
But mathematics are not opinion. And all bubbles burst.
