We are no doubt faced with a situation where the miracle recipe of cheap money will no longer work.
Things are no longer happening as well as they used to in the stock market, one would be tempted to say. Since the financial crisis, central banks have ensured that everyone will finally get a lot of money on a small bet. It is enough to invest. There is not much to do and even an index product is generating revenue.
The euro crisis, the war in Syria and even the pandemic have failed to stop this extraordinary growth in the financial markets. And speculators are also welcome to leave the post-pandemic recovery of the global economy behind them (hopefully it’s done), along with all the difficulties in supplying global supply chains. They were also momentarily shaken by the war in Ukraine. But now there is sand on the tires. And it’s “only” because we’re all afraid that the time for free money is coming to an end. A separate but more important central bank is now taking matters seriously.
At the risk of inflation getting out of control in the United States, if not to say it has escaped, the Federal Reserve has no choice after much delay than to tighten its monetary policy. Even before the actual increase in interest rates, it had already generated intense nervousness and caused the first price corrections, but above all very sharp increases in interest rates at the long end of the yield curve. But when the U.S. central bank stopped joking, stock markets didn’t expect anything. Price corrections continued. Volatility, the measure for measuring the anxieties of financial market players, has returned to a level that likely reflects the harsh economic realities much better than the almost traditional recklessness in the markets. which we have experienced in recent times.
Whenever I have talked to clients or friends over the years, the question always comes up about the continuation of the zero interest rate policy. Many express reservations, because the “ordinary citizen” found the whole thing suspicious. And now that this unspeakable regime is finally coming to an end, everyone (and forgive me for this expression) is doing their thing. Today, the ten-year mortgage is again worth more than two percent and is likely to soon exceed the three percent mark. But let’s be honest, what does this represent in a long -term comparison? Nothing or not so much.
Even those most skeptical of unspeakable monetary policy of recent decades are beginning to realize the extent of the risk. Congratulations to the financial authorities who have thrown us all into such a hope that there is only one thing we fear today: rising charges. However, it is time to also raise interest rates in Europe, or at least to achieve the normalization of conditions of the monetary framework. Let’s remove the negative rate that, despite all the assurances provided by the central bank, has caused us nothing but bubbles and a fraudulent redistribution process.
Currently, however, our central bank has other concerns, particularly the arrangement of its presidential succession (or the new management composition), the excessive losses in the first quarter and the frightening compliance with conditions of the real economy, especially. an increase in inflation also in Switzerland and an economy exposed to international turmoil. China poses a new obstacle to international supply chains and Europe and the United States are still at risk of a recession.
We are no doubt faced with a situation where the miracle recipe of cheap money will no longer work. And yet the rags of Wall Street and Co. is already threatening an extermination and hopes that the bad environment of negative rates will continue. We can only hope, given the current situation of full employment and rising prices, that factor prevails and the financial markets do not dictate (again and as usual in recent days) their policy to the financial authorities. , complaining and threatening extermination.
Rising oil or gas prices clearly cannot be resisted effectively with rising interest rates. But this is on the other hand the case of dynamics where price increases affect the real economy. It’s still time for restraint, but it’s only a matter of time before the sharp rise in producers’ prices has fallen on consumer prices.
Should we really wait before acting? The price-wage spiral is already taking place in the United States and in Europe as well, politicians are doing everything possible and even impossible to maintain the purchasing power of voters. There, too, wage cuts are likely to be hot.
Message to the financial authorities: at the moment, act in the interest of the real economy and stop giving in to the demands of the cowards in this financial market. They have earned enough in recent years, but their greed knows no bounds. Unless you now assume your true mandate and you end this madness of getting rich only in money and not in work.