The flood of money will devalue the euro

Just like the Reichsbank in the 1920s, the European Central Bank (ECB) prints money without limit. In addition to well over five trillion euros in total assets, the Pandemic Emergency Program (PEPP) adds another 750 billion euros and trillions of dollars in loans. The flood of money is unstoppable.

Hyperinflation or currency cut? Anyone looking at the ECB's miraculous monetary expansion automatically feels transported back to Germany in the 1920s. Developments back then could repeat themselves.

Money flood like 1923

As a reminder, as 1922 progressed, more and more loans became non-performing and burst. Companies went bankrupt and more and more people lost their jobs. The supply of goods declined, people could afford less and less and became impoverished. With the "Ruhrkampf" (French and Belgians occupied the Ruhr to force delivery of outstanding reparations), industrial production came to a virtual standstill. To counteract this, the government of the Reich at the time printed more and more money in 1922 and 1923. Confidence in the mark eroded. Everyone tried to turn the worthless paper money into commodities as quickly as possible. Inflation went from a trot to a gallop – hyperinflation occurred, ultimately dispossessing millions of Germans because their savings were no longer worth anything. This eventually led to a currency reform.

This time it's not the "dysentery fight" but the corona virus . Unlike in 1923, the central bank no longer has to print banknotes, but simply generates money on the computer in any desired amount. This is much easier than in 1923. ECB chief Christine Lagarde , successor to what-ever-it-takes predecessor Mario Draghi sets the tone. In its blog, it described it in more detail: "That is why the Governing Council announced on Wednesday a new Pandemic Emergency Purchase Programme PEPP – with a total size of 750 billion euros, which will be available until the end of the year. This is in addition to the 120 billion euros we received on 12. March 2020 have decided. That's a combined 7.3 percent of the euro area's gross domestic product (GDP). The program is a temporary measure aimed at dealing with the unprecedented situation in which our monetary union currently finds itself. It is available to all countries and will remain in place until we consider that the coronavirus crisis has ended."

Eight trillion euros in total assets


The balance sheet total of the ECB Source: Daily Money as of April 2020. More than seven trillion now on the ECB's balance sheet. In the meantime, it is approaching (as of 2. July 2021) of the eight-trillion-euro mark

Loans in the trillions

As if that were not enough, the ECB provides banks with loans of up to around three trillion euros. The banks are virtually forced to lend out. Clearly, they won't look too closely at the creditworthiness of their clients. As Lagarde puts it so well, "We estimate that the last two rounds of corresponding targeted operations have led banks to lend 125 billion euros more than they would have without these facilities." The criteria are being relaxed to ensure that as many loans as possible are granted. These measures will make it more attractive for banks to lend to micro-businesses and sole traders, who generally have less access to credit, it said. All clear? ECB encourages banks to sell credit to less creditworthy customers.

Government financing without limit

As if that were not enough, the ECB is also buying up government and corporate bonds on a large scale, regardless of whether repayment is secured or not. "Thanks to our Pandemic Emergency Purchase Programme (PEPP) and our other asset purchase programs, we will be able to purchase more than a trillion euros worth of bonds by the end of the year." The ECB will also in the future no longer distinguish and buy more bonds from less creditworthy countries such as Italy and Greece. In ECB-speak, "… we can be flexible in the focus of our purchases, in terms of asset classes and countries".

In good German, it is bought everything without distinction. Whoever needs credit will get it. Whether they are then paid back again is of no interest.

"What ever it takes" 2.0

Lagarde thus continues Draghi's policy of "whatever it takes". Any limits on the volume of money they tear down. Now a truly gigantic flood of money is coming our way. As she says so well in ECB-speak, "To the extent that some self-imposed limits may impede the actions that the ECB needs to take to fulfill its mandate, the Governing Council will consider revising them to the extent necessary to keep its actions proportionate to the risks we are facing. The ECB will not tolerate risks to the smooth transmission of its monetary policy in all euro area countries." This means "whatever it takes" 2.o. Victim is confidence in the euro.

A scenario like 1923 still seems inconceivable, but the parallels are striking. Right now, oil prices are still holding down inflation, but if oil countries come to an agreement and oil prices rise again, the creeping loss of monetary value could accelerate dramatically . This does not bode well for the retirement savings of millions of retirees – retirement poverty will then become a mass phenomenon.

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