Tapering Or Calibrating, The Lady’s Not Inflating

On the other side of the Atlantic, Europe’s central bank will be technically be doing the same thing likely at the same time. Except, Christine Lagarde said early last month on behalf of her ECB, “The lady isn’t tapering.” It was a cringeworthy reference to former UK Prime Minister Margaret Thatcher’s “the lady’s not for turning” which back in 1980 was all about radiating self-assurance in the latter’s agenda.

Make no mistake; Lagarde’s agenda is clearly to cut back on the pace of its purchasing yet weirdly she doesn’t want anyone to refer to it as “tapering.” What’s to be afraid of in a single word?

What we have done today early Sept ’21 ECB meeting…unanimously, is to calibrate the pace of our purchases in order to deliver on our goal of favourable financing conditions.

The oft-stated compatriot to “taper” is, of course, “tantrum.” Yet, nothing of the sort is in sight in European bond markets, just the same, typical Autumn meandering drift toward modest optimism being overly hyped by an aggressively supportive (of technocracy) global media.

If Lagarde’s not nearly as outwardly sanguine about the shape of European affairs as her American counterparts are about theirs, it’s because there are more visible reasons to be. As usual, Europe lags the world and it has nothing to do with COVID. “At least” the US has its unemployment rate (and unacknowledged participation problem “somehow” worse than before 2020).

The numbers for the ECB are truly staggering – and not in any good way. Start with European inflation which if only because of Germany’s VAT tax interference in July 2020 has begun to look more like the PCE Deflator in the US. But even with blasting energy prices recently and the huge base effects created by comparisons to the German tax holiday, Europe still falls way short (apparently no equivalent of Uncle Sam’s helicopter).

The year-over-year increase in September 2021 HICP was 3.4%, highest since 2008 (not a good sign). Base effects, however, accounted for 130 bps of that rate, meaning without them the annualized gain was just more than 2%. For core prices, about half in each.

Nearly €1.8 trillion added in various assets purchased, and inflation rates are all about oil, nat gas, and VAT. Where are these “favorable financing conditions?”

Here’s where they are not, which just so happens to be the one place they should be:

As to the latter of the trio, there’s absolutely no lending. Apart from panicked corporations desperate for liquidity during last year’s GFC2, loan activity to companies in Europe since has been more recessionary than inflationary.

Even overall lending (mostly to consumers) has been lackluster and clearly unaffected by QE’s, tapering QE’s, more QE’s, and now a promise to reduce QE without calling it a taper.

So far as QE’s second theorized channel, low rates, see for yourself how likewise zero effect:

It’s not what you see that matters; you see tons of ECB action now an unrelated pickup in HICP. What you don’t see is the basis for actual inflation, and thus why you also won’t see Lagarde display much confidence in tapering.

Calibrating indeed.