Europe And The ECB Have Officially Entered The END GAME

The ECB has cut interest rates into negative territory four times. It has also spent €1 trillion in QE bringing its balance sheet to a record high.

These are truly extraordinary policies. Keynesian shills usually claim that the reason their policies don’t work is because a Central bank hasn’t done “enough.” At FOUR NIRP cuts in two years and €1 trillion in QE the ECB has most certainly done enough.

And what has it got to show for it?

The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle.

http://www.telegraph.co.uk/business/2016/09/08/ecbs-mario-draghi-has-run-out-of-magic-as-deflation-closes-in/

We all know the ECB wasn’t going to achieve significant GDP growth. The ECB all but admitted this a few years ago when it suddenly changed its language to ignore growth and instead focused on “inflation” and inflation targets.

But now… the ECB is admitting it won’t hit it inflation target “THIS DECADE.”

It’s GAME OVER for the ECB and for Europe.

What’s coming will not occur quickly. I am in no way suggesting that Europe will break apart tomorrow. But the fact the ECB has admitted that even its extraordinary policies have failed to the point that it won’t achieve its goals for a decade indicates it’s the beginning of the end.

Debt deflation is the end game for Europe. Most EU nations are insolvent as soon as their interest rates spike even into the low single digits. And with EU banks leveraged at 26 to 1 with EU sovereign bonds being used as the senior most assets on their balance sheets, you only need a 4% drop in EU bond levels to render most large EU banks insolvent.

And we’re talking about a banking system that is north of $46 TRILLION IN SIZE.

This is more than TWICE the size of the US banking system, which nearly took down the world in 2008. So if Europe goes, it’s going to be exponentially worse than 2008.

Graham Summers

Chief Market Strategist

Phoenix Capital Research