The application of parts of Modern Monetary Theory by not only the Federal Reserve in the US but even more so by the European Central Bank seem to be the new norm. This week why delay in rate cuts is not the end of rate cuts and what this can mean for your savings and the price of precious metals.
ECB Decision
Wednesday was an important day for the markets. Analysts assumed that ECB President Mario Draghi might us some of the “big guns" just before his departure to give the economy a new boost. Lower interest rates and perhaps a new stimulusprogram to fuel inflation. However, it was decided to leave interest rates unchanged and that decision was received as disappointing by the market. Stock prices fell and also show a mixed picture a day later as a result of the decision.
September
Investors are now hoping for September. The chance of not only reducing interest rates even deeper in negative territory (now -0.4%), but also "stimulating" the economy by starting a new buy-back program has been identified by the market as possibilities for the month of September.
The False Reason And Disastrous Consequences
Time and time again, a decision to lower interest rates and implement QE, a the lack of inflation is mentioned as argument. That inflation is determined on the basis of a basket of products and measured monthly. However, this way of measuring inflation can be influenced. An example is on the ECB's website and concerns cars.
“Example: Car prices may have gone up but new models often include, as standard, features that were previously sold as optional extras (for example, satellite navigation systems, air conditioning and airbags). In such cases, the price increase is due partly to an increase in quality and not only to inflation. If car prices went up, say, 5% on average but 1% of this were due to quality increases, then the HICP would reflect a 4% increase for this product.”
This example shows that inflation can be kept artificially low. In addition, some products are not included and therefore do not show a clear view of actual purchasing power. And that purchasing power is dropping if you ask people in the streets about their perceived reality.
So the population experiences the reality overy differently from the central bank. Price increases of, for example, living space, energy and basic necessities do not seem to be noticed or taken into account and the hunt for inflation continues.
Precious Metal Protects
In recent weeks and months, gold, but also silver and platinum have shown a sharp rise in terms of euros and dollars. We see that even more in the more than 70 currencies in which gold recently hit record prices. These currencies may be a bellwether of what is to come. That which is to come seems to be a collective response to, among other things, interest rate decisions by central banks that continue to hunt for inflation on the basis of pseudoscientific evidence and which are in fact, in reality are being felt by many for years.
In that case, the postponement of rate cuts, but the announcement of measures in the near future is also postponement but not a end of a further increase in the value of precious metals that have been protecting against the most extreme policy making for centuries.