Tag: interest rates

13. Encouraging the Growth of Indebtedness Is the Crime Against Humanity

Posted on by Ana Nives Radovic

The years of recovery from the global financial crisis are characterized by the phenomenon of negative effects that point to the detrimentalities of the overall concept on which the monetary policy of the leading central banks in the world is based, with the European Central Bank leading in flaws.

All the shortcomings of the ECB’s movements are noticeable in their results, and under the mask of public goods funding, public money instead of funding public goods is diverted to corporate giants, with particular reference to certain industries where the level of risk is extremely high, whose costs grow exponentially, and whose earnings reinforce the position of these lobbies in the creation of public policies of EU member states in partnership with their governments that hire them to carry out public projects.

In the history of the economy, there are innumerable examples of exploiting the poor for the needs of the rich, and now it is systemic, strategic, and with the institutional help of the common central bank for countries. As it has been the case ever since money began to dominate human beings, the story is based on the belief that bad money is supposed to be transformed into good money, where the bad one is private money, acquired by exploiting the weak and the poor, and it is being fictitiously transformed into good public money. In the eye of taxpayers, this creates the image of how private money is purified when it is taken by the authorities and becomes public money distributed by the government.

In these circumstances, public money is without a doubt good since it is being spent to finance the common interest. The minds of the people are guided by this myth, and it is actually one of the most rewarding underminings of our power to understand how money circulates. In the eyes of citizens, private money is perceived as the dirty result of dishonest actions, while public money relieves, as, according to what governments are trying to explain, it creates more wealth than private money.

The whole theory is based on the idea that the return on the investment made by the state will be higher than that of private persons, adding that the state can do it by borrowing instead of violently exploiting its taxpayers, basing it on the hope that its return on investment will always be positive. The image of the private sector is completely different, starting from the fact that the ideas of an entrepreneur are always being described as selfish, as well as that any business may go bankrupt, and therefore the return on those investments may be negative.

The current situation in the Eurozone shows how a change in public expenditure and the consequent change in total income is being used to falsely justify each and every stimulus policy financed by the loan. This is also one of the most harmful misinterpretations of the overall benefits of the increase in the level of consumption since the money that is supposed to be spent is actually created from nothing, borrowed, or redistributed, creating a drawback on some other budget item, which results in the creation of economic depression and an increase in unemployment. The key problem is the decision to keep the Quantitative Easing program unchanged, despite strong growth data in Eurozone countries.

The ECB still injects 60 billion euros monthly into the markets to maintain interest rates low, destroying any anticipation of achieving visible return in the years to come. Besides that, the banking crisis is still menacing, while the level of indecisiveness is too high, and the European system is far from being restored. Considering the situation on the markets, it is very obvious how companies listed there are now too big and too incoherent for their shareholders to be genuinely concerned in decision-making, so a huge stock market bubble has formed.

Also, big capital gains are no longer on the stock market where central banks inject thousands of billions to boost prices, but before the IPO and even property in private equity transactions. This increases the wealth of the insiders whose money shattered by venture capital is increasing significantly over the past five years, explaining how the QE program actually enriches a narrow circle of the powerful elite, leaving the rest of the population deeply in debt. Therefore, the monetary system is currently being based on free credit and literally forcing the citizens to use those credits is actually a crime against humanity.

Thanks to the QE program of the ECB, the mass of credit is used to protect the system from bankruptcy, where the weakest link is the banking sector with dubious debts. When this is combined with multinational corporations that are working on harmful projects supported by the governments, i.e., financed by public money and the costly social spending in almost half of the Eurozone countries, it is not hard to imagine how hard the situation will be by the end of this decade.

What should be kept in mind is the logical fact that the debt cannot be unlimited since the remuneration capacities of people are limited and since their ability to work fades over time. If the ECB continues to base its activities on infinite debt, the European population will be enslaved by their credits, and creating any type of slavery that is contrary to human rights means being involved in committing a new kind of crime against humanity.

The process of making decisions in the ECB is often perceived as democratic, though it will not change an inconsistent monetary and financial system because of its lack of regulation, and being in command of the price of credit by the authorities will end in devastation. In a system as such under the ECB, the member states do not have to have power over the currency, the price of credit, or the control of the economy, while at the same time its goal is to protect the human rights of its citizens.

National central banks under the system of the ECB are perceived as more self-directed, while in practice, this autonomy is completely fabricated. Their decisions are essentially made in the interests of governments. By artificially lowering interest rates, central banks smooth the progress of public debt and by financing commercial banks lending to their governments, they pledge to the latter an almost unlimited source of income, despite their already oversized debt. Despite the changes that occur during this process and despite how much growth occurs, this progress is pervasive, since the only long-term outcome of this policy is the creation of debt slavery.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

11. The Latest Rise in the Price of Gold – a New Cause for Concern

Posted on by Ana Nives Radovic

While the price of gold continues to rise it is a sign that financial resources should be turned into gold, opening the question about the latest causes of this phenomenon and whether gold really still has the status of a “safe haven” investment.

This month’s trading on the global financial market was under the impact of the President of the United States, Donald Trump, who dismissed the director of the FBI. An ongoing investigation could lead to the opening of an exclusion procedure. This unavoidably had an impact on the value of the American dollar, moving investors to other assets.

On the other side of the Atlantic, the start of the monetary downturn from the European Central Bank, their decision not to add 80 billion euros every month but to reduce it to 60 billion monthly. The expectation that this situation will not be something that the banks in the Eurozone will be willing to accustom easily tempted a bigger awareness of the stock market, which so far has been pulled up mostly by banking shares.

Both of these situations have caused the rise in the price of gold. Besides that, two big countries, Russia and China, are the leading global importers of this precious metal and they are making efforts to arrange a new global financial system that is supposed to be completely autonomous and detached from the dollar.

The first half of 2017 was marked by several serious political events, including some of the most critical elections in the Netherlands and France. There are odds-on chances that the financial world is relatively distressed with the apparent outcome of a renewed demand for safe assets, where gold takes first place.

Another thing is that since 2015, the Chinese yuan is incorporated into its official reserves of the Central Bank of Russia, announced for the first time to have integrated, which until that time consisted of 44 percent of dollars, 42 percent euros, and a bit more than nine percent of pounds sterling.

At this time, China and Russia are increasing their gold reserves considerably, making an allowance for a progressively strict way of monetizing gold as the foremost mechanism of trade arrangement, particularly through their currencies now held up by gold and also within the structure of an exchange system analogous to that of the rest of the world still locked by a declining dollar.

Last year at the same time, demand for gold, supported by purchases of exchange-traded funds, was exceptional. With the uncertainties generated by the prospect of a possible Brexit, investors had massively taken refuge in the gold contracts during the first quarter of 2016.

Global gold demand continued to grow in the second quarter of 2016, marked by the deepening crisis with Brexit and worsening geopolitical factors by 15 percent. Demand for gold reached 1,290 tons in the first quarter of 2016, an increase of 21 percent compared to the first quarter of 2015, making it the second-largest quarter in terms of demand.

The price of gold has even augmented by 25 percent in this first half of the year, which represents its highest performance for more than 35 years, while on a twelve-monthly basis, global demand for gold fell by 18 percent, a plunge to be put into perspective given the exceptional demand last year, evoking that the first three months of 2016 correspond to the strongest first quarter ever in terms of demand. Gold demand, with a total of 1064 tons, reached a new record in the first half of 2016, surpassing the previous peak by 16 percent in 2009 that was present in the peak of the global financial crisis.

When it comes to the strongest political impacts on the global financial market, it was the election of Trump that pushed investors into a short-lived optimism. Regardless of the prospect of a stronger dollar and a rise in U.S. interest rates, there is still vagueness at the global level today, both economically and geopolitically.

Central banks remained strong buyers, buying 109 tons in the first quarter, while the supply increased by five percent. This increase was fueled by a massive influx of 364 tons of gold-traded funds, reflecting a huge escape from currencies into gold, since market participants are concerned about the global economy. Also, investment was the largest component of the demand for gold for two consecutive quarters.

There are two possible outcomes of the current situation, where the first one is reaching the global agreement to maintain the dollar’s status as the world currency, while the other one is related to manipulation with the price of gold. The global agreement is related to upholding the value of the dollar. Since the macroeconomic data of the United States are showing a decline from quarter to quarter, the dollar is no longer used as much in everyday life around the world. The central financial institution in the U.S. Federal Reserve continues the trend of printing money, opening the space for the deficit that became unmanageable. This made investors recognize that they have to look for alternatives to the green currency.

On the other hand, finding alternatives is not something that banks cannot practice. In this regard, the setback comes from the investment banks, creators of the gold and silver markets and its agents, which are looking for a particular advantage at the cost of investors, as it was the situation in the past. This is obtainable by spreading panic and transferring funds to others so they can take advantage of the upbeat period until the next similar occasion.

As this has happened several times during the past decades, those were the emerging countries, in particular China and Russia, that have benefited from buying gold at artificially low prices, expressed by all these manipulations, which explains the shortage of this precious metal, particularly because Chinese buyers do not return it to the market.

At the same time, it is Germany that does not consider publicly the fact that its gold is stored in the United States could be sold and therefore there is no asking for its repatriation. This is why this enthusiastic phase would last for a certain time based on the correction where the potential is considerable for the emerging countries to make further movements to not be allied to the dollar.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

9. ECB Is Hiding Public Debt Instead of Stimulating Growth

Posted on by Ana Nives Radovic

The European Central Bank has injected huge amounts of assets into the economy over the past two years in the course of rediscounting public debt of the Eurozone countries, which represents an exceptional monetary measure, referred to as quantitative easing is intended to bring back the rise of the inflation rate, which is itself supposed to neutralize the deflationary and recessionary forces that are affecting development.

While, in the beginning, the single European currency was weighed down by the proclamation of new measures to support the European economy, it has recovered against the dollar once the ECB suggested that a descent in interest rates should not necessarily continue for the foreseeable outlook. At that moment, investors began to distrust the efficiency of the monetary policy of the ECB and were increasingly worried about the collapse of solutions. The hope expressed by its leaders that rates should not go lower is not something that could restore their confidence. Subsequently, the dollar plunged to the lowest level since mid-February against the single European currency.

This situation emerged when the recession started to put pressure on interest rates, as investment requirements were extremely low, causing the quantity of money borrowed to fall by diminishing the interest rate. Following this, the ECB announced that it would lower its major interest rate to zero with the plan of infusing inflation and increasing growth.

These conditions have caused the creation of three major problems. Firstly, even though the ECB lowered rates, the growth of the inflation rate did not return. Secondly, the euro lost its value because there was plenty of ready-to-use money in the financial sector of the Eurozone. Thirdly, there was an increase in public debt, as it served as security for the money produced.

Furthermore, all of the liquidity boosters made the euro more plentiful, decreasing its value, primarily against the dollar. This caused it to become cheaper in terms of interest rates, while on the other side, these financial actions constituted access to the unsound environment of public debt. Conversely, any downgrading of the green currency makes dollar purchases of gold less expensive for traders with other currencies. This is a trend expected to uphold the price of gold, which also benefits from its category as a safe haven, boosted by these circumstances.

Without the refinancing of the ECB, this kind of debt would have suppressed the economy by collecting the money of individuals and companies through the balance sheets of banks and insurance companies. So, Eurozone countries found willing creditors for their refinancing at zero or even negative rates.

However, the two key features of this kind of indebtedness are that the total amount is equal to the aggregate of the sums borrowed by the country and the interest on the debt that the government has agreed to pay. On the surface, one might conclude that it is acceptable to practice financing by debt, though in this case, without bearing the burden of salaries. To repay this debt, the state has only one option: to charge a tax by forcing taxpayers to pay it, which also has its particular cost.

In cases where the central bank lends money to the government at a zero rate, the central bank makes pure monetary creation since it does not pay off. This creates market tension, especially due to the growing complexity of the repayment of the debt reinforcing the distrust of depositors.

The only subject in the Eurozone that has the privilege of monetary creation is the ECB, although the Treaty of Lisbon bans lending directly to the states. It explains that it might mean rescuing the countries that would be those who receive the money from other members at their own cost, as well as to avoid causing inflation. Consequently, those would be the Eurozone members that agreed to the massiveness of their public debts, slightly in the form of deposits made with credits where other members act as lenders.

The situation as such would generate an extremely high inflation rate. Besides that, there would be strong tensions on interest rates or stimulated outcomes that would further increase it, creating an environment completely insupportable, both for households and companies. It would strongly affect the poorest ones, as well as inflict a heavy blow on the middle class, whose purchasing power would decrease so rapidly that the income tax would be impossible to collect in the amount planned by the yearly budget.

These were the reasons why monetary creation was presented as required. However, it is inadequate to stimulate growth and inflation this way because its actual purpose is to hide public debt in the balance sheet of the ECB through insignificant interest rates. Besides that, these are the banks that make this possible through very low or zero interest rates, and whose savings will ultimately be cut off by inflation.

European contracts do not allow the ECB to buy new debts issued by Eurozone members. It could only purchase them on the secondary market, using existing savings rather than printing new money out of nothing. However, such public debts stay in proper balance sheets only as much as it is required to relocate newly issued money through the quantitative easing program, which made these public debts replaced by nonexistent monetary assets.

All of this is a subject of financial authoritarianism, representing a situation that leads to recession and a struggle against debt repayment. Financial repression is a context characterized by artificially low rates to reduce the burden of the public debt burden.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

7. When a Rescue Plan is an Obstacle to Recovery

Posted on by Ana Nives Radovic

The decision of the European Central Bank to keep interest rates during 2017 in the Eurozone under their historical minimum, with the key reference rate at zero, as well as to leave their substantial public and private debts accumulated since 2015 operational was followed by this institution’s decision to leave the marginal lending rate at 0.25 percent, allowing banks to borrow for 24 hours.

The central financial institution of the United States, the Federal Reserve, directs global finance, as well as a significant portion of the global economy. This is the reason why financial markets worldwide seemingly reflect unreservedly qualified prices, as they are entirely under the Fed’s control.

The highest position in the Fed’s regulatory system is the way it controls access to the American dollar, as currency is nothing more than credit. Therefore, money has become nothing more than an additional alarming factor in the flow. In processes such as these, ready money is guaranteed by the government, while credit is guaranteed by the banks. Hence, the Fed regulates the price of credit by setting the policy rate, and banks, Wall Street, and financial markets depend on these proceedings.

The regulations of the Dodd-Frank Act have altered their way of functioning, resulting in certain very specific changes. The Dodd-Frank Act, adopted after the 2008 financial crisis, aims to enforce capital inflow and annual stress tests on large banks. These tests are conducted to prevent risks to the global financial system by ensuring that these banks can withstand financial shocks. However, this act is currently under disapproval from the new American administration, which condemns the banking business guidelines it imposes.

President of the U.S., Donald Trump, stated that he hopes his administration will significantly reduce Dodd-Frank’s regulations because “some of his friends with beautiful companies cannot borrow money”. He explained that banks do not want to lend them money “because of the rules of the Dodd-Frank law”.

The entire process represents a significant challenge. Although the current administration does not have a strong stance on many of these issues, apart from trade and overcoming the Dodd-Frank Act on financial regulation, there is still a chance to achieve a compromise. The Dodd-Frank Act, on the contrary, provides a comprehensive framework that allows the Securities Exchange Commission and its commodity equivalent, the Commodity Futures Trading Commission, to assume responsibility for these financial instruments.

Since Trump became president and began talking about deregulation, the shares of the six major banks saw their prices rise by more than a third, led by the Bank of America with a spectacular 48.8% increase in one quarter. The exceptional debt of U.S. non-financial corporations rose to more than 13 trillion dollars, including around $3 trillion in debt since this act was passed in July 2010, though not all of it comes from bank loans.

As the Fed has trimmed interest rates to zero, the cost of borrowing has become extremely low in the capital markets. This situation encourages the use of ready money available. However, even if some of these debts come from the bond market, the guarantee of the debt itself is often controlled by the biggest banks.

There are several things that occurred this month that lead to wrong conclusions regarding plans of Trump’s administration. It does not act like a nation-state and is unwilling to correct its own mistakes, creating an apprehension of huge self-destruction. There is also a fear that, as is the case in many other developed countries, the middle class will be further downgraded, especially because growth is based on indebtedness. Thus, only credit sellers see the benefits of such “potential” where thousands of billions have been unsuccessfully redistributed.

From the Fed’s standpoint, there is a change in approach where, instead of using speed-up tools to stimulate the economy, they now let it step up, limiting it to the point where it completely holds up the accelerator. This practice still allows a sufficient amount of control, as well as the possibility to exploit market potential to strengthen the financial sector rather than truly stimulating growth. It is yet unclear at what phase of this process the American economy is at the moment, but it unquestionably took one more step towards the ultimate devastation when it started to practice Quantitative Easing programs and everything that was later meant to be the substitute.

The situation after those programs ended was led with a fictive increase in interest rates, which has caused even more confusion since the lower the rate, the more credit is available, while at times of higher rates, less ready money is available, allowing only banks to recover. These credits were primarily given to institutions significant for Fed’s success, combining the policies of the U.S. government and the leading banks, who then redistribute it to their partners at higher or lower prices, such as multinational corporations with top credit ratings, oil producers, other banks, and other governments, etc.

In a situation where Congress is not in a position to balance the budget or cut spending substantially, it is not even possible for the Fed to let monetary policy return to standard, since a huge amount of artificial credit facilitated by this monetary system flooded all tools of regulations, making them dysfunctional. Years of development of a financial system as such allowed cheap credit to go first to those with debt capabilities, such as the richest subjects, big corporations, and Wall Street magnates, instead of to those whose wealth stimulates spending, i.e. consumers. Since an average worker gives one hour of their limited time, where only 25 dollars could be brought, while a Wall Street insider could get unlimited credit at a price that is under the actual rate of inflation.

A huge concentration of these credits made them become bad debts which have a significant reflection on the Fed’s balance sheet. To solve that problem, there is a thought that they should be put back on the market, which created a remarkable concern since the collection of credit up to that point grew relatively fast. In the situation where the Fed revisits debt selling, it continues in return for the money, and therefore the amount of credit or currency diminishes instead of growing constantly. By doing so, the Fed risks the explosion of the bond bubble, as there will be fewer buyers for bonds so rates will go up.

One of the key arguments that Trump’s administration suggests is withdrawing all or part of the Dodd-Frank Act, besides the fact that it was created by the administration of Barack Obama is that it reduces bank loans. For the current American administration, this represents an obstacle to economic recovery. According to the Fed, all loans and leases over the last three years granted by US banks increased by 6.9 percent each year, while during seven years before the crisis, that rate was 7.9 percent. The central U.S. financial institution still preserves the option to restore a possibility for monetary discourse, indirectly showing that it will never take a chance of disturbing the markets.

There are several implications of such policies on the current financial policies of the U.S. that reflect on other central banks worldwide. One implication is that banks lent the companies about 80 billion dollars every year, where corporations had approximately two billion dollars of ready money that they could use to expand employment or growth. However, instead, they borrowed larger amounts of money than ever to convert their shares or to reimburse dividends. During this process, companies supported by banks disfigured the market equity by not allowing it to boost through actual investment or reasonable assessment of their companies.

Conditionally, and if the Fed keeps on with these policies, the equity markets will witness distractions, since there are many cases where trading items have seen an upward march. While reforms and major investments are slow to occur, they could take the threats very seriously. There is also a fear about the decline of many debt-dependent economies, keeping in mind that central banks have established themselves as major consumers of all kinds of bonds, but also as backers of available credit, both for the business sector and for governments. So, if they give up this position, the whole situation will be very difficult.

Besides that, banks involved in this process are mandatory to maintain an assured quantity of reserve requirements with the Fed. Having in mind that the quantity of reserves deposited with the central bank of the U.S. was close to the required reserves, but since the 2008 crisis, the amount of reserves overload deposited has reduced and it now stands at around two billion dollars. This means that it is not the Fed regulations on minimum reserves that bound bank lending, but that those are the banks that are limiting themselves because they fear future defaults.

This means that the Fed no longer performs quantitative easing officially in terms of not printing money to buy Treasury bills. However in reality, when a requirement it holds matures, they are buying another to roll the debt. Therefore, the Fed can reduce its financial statement, since its balance sheet would be subject to easier regulation. For the current U.S. administration, that is not a satisfying outlook because the Fed was certainly a shock absorber regarding its purchase of Treasury bills at times when the government became dependent on borrowing.

Another thing is that Fed figures demonstrate that business lending action has been stronger than it was supposed to be and that is why it is beginning to weaken. There was an immense credit spreading-out cycle with low-priced money created by central banks and ultra-accommodative monetary policies. However, the failures to pay and complexities in the credit sector were increasing.

At this moment, it is Trump’s administration that could relieve tension by transferring supremacy and money from one section to another. This, of course, would not be sufficient to change the system, and neither the Congress nor the Fed could stop the credit cycle at this moment. Unlike actual money, borrowed money is subject to the credit cycle that causes its boosts and falls. At times when the reduction is acceptable, the whole system is under threat.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

6. Zero Rates – a Symbol of Inefficiency and Nonsense

Posted on by Ana Nives Radovic

The decision of the European Central Bank to keep interest rates during 2017 in Eurozone under their historical minimum, with the key reference rate at zero, as well as to leave their substantial public and private debts accumulated since 2015 operational was followed by this institution’s decision to leave the marginal lending rate at 0.25 percent, allowing banks to borrow for 24 hours.

The assertion has been made that, with prevailing zero interest rates, banks gain the capability to self-fund at no cost from the European Central Bank (ECB). Consequently, banks are expected to reduce the rates they impose on customers who are indebted to them. The ECB’s historically low rates exert an automatic impact on short-term savings. As banks cannot afford to disburse substantial amounts in cash, they are constrained in lending at favorable rates without compromising their profit margins.

The ECB recently unveiled a series of monetary policy measures, including a reduction in its central rate to zero for the first time in its history and the introduction of an extended long-term loan facility for banks. The initial phase of this plan has unfolded mostly as intended. However, since the implementation of the ECB’s financial strategy, citizens across the Eurozone have observed a decline in average salaries.

In essence, when the ECB lowers its interest rate, it aims to stimulate credit activities and consequently boost investment. Conversely, an increase in the interest rate signifies a tangible risk of inflation, where an excess of cash circulates while prices surge rapidly, necessitating proactive management of the situation. In the current scenario, a political risk emerges as a primary challenge for the year. The ECB authorities are acutely aware of this and are prepared to take necessary measures to prevent market upheaval, even if their actions may exacerbate the situation.

While there are no imminent announcements of new decisions regarding interest rates, the initiation of monetary contraction seems untimely, especially considering upcoming key elections in various countries and a backdrop of escalating populist movements. The ECB is understandably reluctant to face additional uncertainties.

Given the ECB’s investment in short-term products, it is the capital that is predominantly affected by the zero rates, particularly commercial paper issued by corporations. Prolonged stagnation refers to a situation of feeble growth characterized by persistently low, or even zero, interest rates. Currently, there is a recovery of growth and inflation in progress. The demand deficit is not insurmountable, and as additional savings are anticipated to be reinvested, efficiency is expected to rise.

To address these economic dynamics, the ECB has opted to initiate an extensive asset purchase program, surpassing previous initiatives. The Quantitative Easing program, initiated in March 2015, involved monthly purchases of private and public bond securities on the secondary market totaling 60 billion euros. This decision was prompted by the collapse of inflation and the looming risks of deflation in the Eurozone. Furthermore, zero and especially negative interest rates are symbolic of absurdity, as zero in a range of values conveys the message that no other points exist.

Overnight deposit rates, which entered negative territory for the first time in June 2014, were maintained at -0.4% and strengthened last month, transitioning from -0.3% to -0.4%. A negative rate is intended to encourage banks not to leave excess money with the central bank but to lend it to their clients. This implies that banks have to pay a fee to the ECB for surplus cash held for 24 hours. There are significant differences in assets between rates ranging from one to five percent compared to those ranging from zero to one percent. The zero point is primarily due to the impossibility of dividing any number by zero.

In practical terms, a rate of 0% theoretically allows an economic agent to borrow an unlimited sum at zero cost. The zero point suggests a perception of unwarranted action, contributing to a substantial psychological aspect visible in investors’ behavior. The decline in borrowing rates used by the state directly impacts the income from funds on life insurance contracts, mainly composed of government bonds.

During times when the outcome is rounded, as insurance companies maintain debt securities acquired several years ago higher than newly issued debt, the ECB introduced a scheme where the threat becomes zero or unreal, and where the time value is zero. However, time does have value, demonstrated through scoring, distance, and its scarcity. Depository banks also increased their debt repurchase volume from 20 billion euros per month to 80 billion, extending the scope of qualified securities for these procedures.

There is no visible proof that the ECB’s aims, whether inflation targeted at the rate of two percent or economic growth in the Eurozone, have been realized. This economic oddity has never been adequately explained in economic theory. Simultaneously, the ECB strengthened its comprehensive debt exchange program, distributing 1,740 billion euros over two years. The range of securities eligible for debt repurchase has been expanded to include bonds issued by corporations in the Eurozone, excluding banks.

Recent increases in prices are primarily attributed to rising oil prices, significantly lower at the beginning of last year, and an increase in food prices, especially fruits and vegetables, caused by a harsh winter in southern European countries. Considering unpredictable elements, such as inflation generated by wage increases, will prevent it from remaining too low to account for any monetary contraction. However, as is often the case, common sense reminds us that when a strategy does not work, it is because the institutions have not done enough.

Securities purchased through the QE program may have a maturity of up to thirty years, arranged under a rule of proportionality to each government’s involvement in the ECB scheme. The securities purchasing practice should not encourage governments to lack fiscal discipline. All the procedures announced last month surpassed market expectations, which were anticipating increased debt repurchases and a decline in the deposit rate.

In this process, liquidity increases by 1000 in cash to continue playing, banks recover their positions completely, and the ECB recovers the decomposed risk and the risk of default. This is how billions of euros are being created fictitiously. In exchange for the debt held by various banks, the ECB simply credits its bank account with 1000 through a notional inscription of 1000 more.

This situation suggests that only this type of investment is supposed to be made hypothetically in an adjustable monetary policy. It has generated an influx of ready money invested in various shares, somewhat resembling fiscal deficits intended to enhance growth. When there was no visible growth, the deficits were not high enough, similar to the refinancing rate, which applies when a bank requires daily liquidity, unlike the refinancing rate, which is weekly.

The ECB managed the purchases of securities within the limits specified by the central banks of Eurozone members, covering 20 percent of the risk under the cohesion principle, with the rest under the responsibility of each central bank. Projected low rates were meant to encourage investments, stimulating growth based on positive actions by businesses and subsequently their stock market appraisal. In February 2017, for the first time in four years, inflation reached the targeted rate of two percent, surpassing the ECB’s target of a slightly lower price boost. At the same time, the Eurozone economy showed certain signs of strengthening.

A crossroads in the ECB’s position is not anticipated before the meeting expected in June. This allows enough time for opponents of the current ECB policy to propose alternative solutions that would stimulate lending, investments, and growth rather than zero rates that produce fictive results.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018