ECB Exits Negative Interest Rates, Hikes by 50 Bpts, Double its Promise, Bigger Hikes on Tap, Shows Off New Glue Gun to Prevent Sovereign Debt Crisis During Rate Hikes & QT

Raging inflation finally forces the ECB to abandon its reckless and absurd monetary policies and turn hawkish.

By Wolf Richter for WOLF STREET.

The ECB made two big announcements following its meeting today, July 21, 2022, and we’ll engrave this date into digital stone because it’s so important in the absurd NIRP fiasco:

One, the ECB finally exited its Negative Interest Rate Policy (NIRP) by hiking all its policy rates by 50 basis points, including its deposit rate, which was the negative rate, at -0.5%. This deposit is now 0.0%, and there are no more negative rates at the ECB.

And two, it showed off a new glue gun – the Transmission Protection Instrument or TPI – designed to prevent a sovereign debt crisis and keep the Eurozone together, even as the ECB hikes rates and reduces its balance sheet (quantitative tightening or QT) to fight raging inflation.

The rate hikes: RIP NIRP.

The ECB announced today that it would raise its three policy rates by 50 basis points.

These rate hikes were the first since 2011. And they were the biggest since June 2000 and November 1999, back when the ECB was still considered the guardian of a hard currency, rather than a reckless money printer, inflation arsonist, and NIRP-absurdist.

Effective July 27, the ECB will hike its:

  • Deposit rate, from -0.5% currently, to 0.0%. RIP NIRP.
  • Main refinancing rate, from 0.0% currently, to 0.5%
  • Marginal lending rate, from 0.25% currently, to 0.75%

The ECB also put more and bigger rate hikes on the table, the next set of which will arrive at its meeting in September.

The ECB had committed in its prior communications that it would hike its policy rates by 25 basis points today. So today’s 50 basis point rate hikes were labeled a “surprise.”

But they weren’t all that much of a surprise since there has been lots of talk about bigger hikes by ECB Council members, including ECB Council member Robert Holzmann who said on July 9 that a 125-basis-point hike in September might be needed, if the inflation outlook doesn’t improve. They’re all talking now about big rate hikes. They want the world to take them seriously.

So that reckless and absurd dovishness at the ECB is now out the window, given the explosion of inflation the ECB has on its hands.

Grappling with the raging inflation fiasco.

In the 19-country Eurozone overall, CPI inflation hit 8.6% in June, heading for 10%, the way things stand. But it’s even more horrible in a number of the member states: in nine member states, CPI inflation is already 10% or more, maxing out at 22%.

CPI inflation started raging in March 2021, nearly a year before the war in Ukraine, blew past the ECB’s target in July 2021, and continued spiking, and hit 5.9% in February 2022.

These are scary-crazy inflation numbers, and the ECB has been the most reckless central bank among developed economies, given how long it sat on its idiotic NIRP and continued money printing, even as inflation was raging and spiking and spiraling out of control:

TPI, the fancy glue gun to keep the Eurozone together while hike rates and doing QT,

If this glue gun works as advertised, it would allow the ECB to follow through with rate hikes and QT, and keep doing them until the inflation spiral is under control, without getting distracted by a sovereign debt crisis and the threat of the Eurozone losing a member or two because some hedge funds decided to have a go at it.

The fundamental problem in the Eurozone is that individual member states cannot print themselves out of trouble and cannot devalue their currencies to solve their homemade fiscal problems. They surrendered those functions to the ECB, and the ECB has to keep those 19 countries in the currency union, come hell or high water.

One way for the currency union to break up would be for a fiscally “weaker” country, such as Greece, Italy, or Spain, to lose the confidence of the markets, and be confronted with spiking yields on their sovereign debt, to where those countries have trouble borrowing new money to pay off maturing debts and fund the current deficits and interest payments, while yields on German debt would remain relatively low.

This is what happened during the Eurozone Debt Crisis, which was resolved by a “whatever it takes” money-printing and NIRP promise from the ECB.

Now there is a different problem, raging inflation: Greece (12%), Spain (10%), Italy (8.5%), and Germany (8.2%). The ECB has to tighten monetary policies to get this under control, which includes rate hikes and shedding assets (QT).

As soon as this tightening became clear a few months ago, the spread between yields on German bonds and equivalent Italian bonds began to widen, and fears arose of a “fragmentation” of the Eurozone, if for example the Italian 10-year yield were to go to 10% while the German 10-year yield would only go to 4%, and Italy could then no longer afford to borrow, would default on its debts, abandon the euro, and return to the lira or whatever.

To prevent this scenario from happening, the ECB has come up with its new glue gun: the Transmission Protection Instrument. It essentially says that the ECB can target the bonds that it allows to roll off the balance sheet, and the bonds that it buys, based on yields in the weaker countries.

For example, if Italian yields begin to blow out, the ECB can buy Italian bonds, but let German, French, Austrian, and Dutch bonds roll off its balance sheet, and still keep its overall QT on track.

There are some special features on this glue gun:

The ECB hopes that the mere presence of the tool will keep markets behaving so that the ECB won’t even have to use the tool. The tool is a way of keeping markets from going haywire.

But if the yield-spread blows out for reasons that the ECB thinks are due to “country fundamentals,” rather than just markets going haywire, it can “terminate” the bond purchases, and the country would have to figure out on its own how to get markets to have confidence again, to get yields down.

The ECB will accept a yield spread, for example between German bonds and Italian bonds, but within some limits, which has been the case throughout.

When the ECB decides to reduce its balance sheet as a policy (QT), it will do so even if it has to apply the TPC within the balance sheet reduction. This could mean that if Italian yields threaten to blow out, the ECB may buy Italian bonds, but let its holdings of bonds issued by other countries roll off more rapidly, so that the overall balance sheet reduction would still proceed as decided.

The ECB set forth a long set of rules and conditions when a country would be eligible for this TPC and when it would not be eligible. These conditions include that countries must keep their debts on a “sustainable” path, and must have “sound and sustainable macroeconomic policies.” And if the yields jump because of “country fundamentals,” the ECB can terminate the TPC asset purchases.

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  237 comments for “ECB Exits Negative Interest Rates, Hikes by 50 Bpts, Double its Promise, Bigger Hikes on Tap, Shows Off New Glue Gun to Prevent Sovereign Debt Crisis During Rate Hikes & QT

  1. Kerry says:

    And it begins…

    • andy says:

      Glad they fixed it.

      • Kenny Logouts says:


        “Hope the markets will behave themselves…”

        It’s going to be gamed hard because it can’t be this simple… unforeseen consequences will kick in, and the euro will break again.

        It’s fixed but I get this feeling they know it’s not.
        They’ll just try fix whatever breaks this time and hope it works.

  2. Wolf Richter says:

    Let me just repeat what I said in the article, in case folks missed it, because this is THE KEY ITEM:

    “If this glue gun works as advertised, it would allow the ECB to follow through with rate hikes and QT, and keep doing them until the inflation spiral is under control, without getting distracted by a sovereign debt crisis and the threat of the Eurozone losing a member or two because some hedge funds decided to have a go at it.”

    • 2banana says:

      The “Glue Gun” = printer goes Brrrrrrrr and buying up massive amounts of low quality sovereign debt instead of letting the market deal with it.

      In other works, more and more and more EU central banker debt. While raising rates.

      There is a word for that….

      • Wolf Richter says:


        The ECB will do QT just fine. That’s what this glue gun will ALLOW it to do.

        If yields start to blow out on Italian bonds, it will buy Italian bonds and shed more of the other bonds, all within its overall QT policy. So the balance sheet declines, and but the composition of the decline changes.

        The Eurozone has a problem in that countries are helpless if markets refuse to buy their debts. The US and Japan can just print themselves out of trouble. Italy cannot. That’s why this tool is needed, or else the Eurozone would get another debt crisis. You have to remember, these countries don’t have their own currencies

        So this is a good solution to the issues caused by hiking rates AND doing QT: namely the threat of a debt crisis. With this tool, there won’t be a debt crisis, but there will be higher rates and QT.

        • 2banana says:

          Greece looks at Italy…wow free QE money. No QT for us.

          Bulgaria looks at Greece…

          Spain looks at Bulgaria…


          You are expecting discipline and sacrifice when some irresponsible countries get massive bailouts?

        • Venkarel says:

          Does this not only work until the composition of the balance sheet is all PIIGS debt? Is that a possibility or is the starting pie so large and/or the reduction so small over time that it will never be a problem?

        • Cytotoxic says:

          “The US and Japan can just print themselves out of trouble. ”

          No they can’t. That doesn’t work, Zimbabwe and Argentina make that pretty clear.

          The prevention of Euro countries from printing to prosperity is a plus of the Eurozone, and a safeguard.

        • rojogrande says:

          Since using the TPI will effectively raise German rates and lower Italian rates, doesn’t it amount to a subsidy of Italian debt by German taxpayers? (I realize you can say the same thing regarding any EZ nation perceived was financially strong or weak).

          That may be fine if jawboning is enough and the ECB doesn’t need to use the TPI. However, if the ECB is required to use the TPI on a large scale, taxpayers in northern countries may become disgruntled and that might create its own problems. We’ll see what happens.

        • boikin says:

          I feel there are a lot of assumptions on the ECB’s part that might not pan out as the planned. As an investor you know what is going on which leads me to ask why would you ever buy the bonds from the bad countries which would cause the ECB to buy ever more bonds from the bad ones. At some point this could spiral to point where QT would have to stop because they can not buy enough bonds to keep the spread with limits. It may work but my guess is that unintended consequences will probably turn things upside down.

        • Augustus Frost says:

          That’s the theory.

          I think it will work, temporarily.

          I don’t see hardly anyone choosing to buy the debts of the beneficiaries at the below market rates permitted by this “ani-fragmentation tool”. It’s just another attempt at price fixing which is going to fail, like it always does.

          Agree with the above post that it will kill off whatever fiscal discipline remains. The country can blackmail the ECB by threatening to blow up the Euro. Why not, it’s free money at someone else’s expense.

          What is the ECB going to do then?

        • Not Sure says:

          Seems like sovereign bond yields only face the risk of blowing out for countries perceived to be risky investments. That makes this glue gun sound a lot like QE for less stable economies and QT for the more responsible members.

          Sugary treats for the irresponsible problem children and a cold slap in the face for the kids that saved their lunch money and did their homework. All of this in a classroom where the kids already dislike and distrust each other with a long history of getting into really messy brawls. This should go well.

        • Venkarel says:

          From what I understand, Germany benefited from an enormous wealth transfer from most of the other Euro States (if not the world, hello current account surplus). They were (are) keeping an artificially low exchange rate by pooling “their” currency to the rest of the euro area. In addition, Germany choose to buy cheap Russian energy without setting up alternative suppliers. Both are coming back to bite them in the ass.

        • Depth Charge says:

          “The US and Japan can just print themselves out of trouble.”

          Disagree, Wolf. We’ve been printing ourselves into trouble. Currencies fail, and ours can too.

          The problem is that bankers refuse to take the medicine for their sins, building bigger and more dangerous problems that will make the consequences far worse. Time to fire these aszhats.

        • Depth Charge says:

          “Markets say the ECB is done, their box is empty. But we are magic people. Each time we take something and give to the markets — a rabbit out of the hat.”

          ~ECB’s Governing Council Member Vitas Vasiliauskas

          The hubris….Alas, these clowns are at the end of the road. They’re going to destroy the currencies and the poor, and whole countries. They finally pushed it too far. This latest act of desperation is like putting a band-aid on a massive hull fracture in the Titanic.

        • Wolf Richter says:

          Depth Charge,

          In 2016, Eurozone CPI was negative. What’s different now is this:

        • Depth Charge says:

          “The Eurozone has a problem in that countries are helpless if markets refuse to buy their debts.”

          Time to stop going into debt. Default if you have to, zero out all pensions – go bankrupt. Whatever. Just stop borrowing.

        • FogCutter says:

          Wolf—genuinely trying to figure out and understand one dynamic after reading and listening to your wealth of knowledge on this topic. You eviscerate QT deniers (I’m not one, proof is in the current roll off), but then support that the US and Japan can just print their way out of policy speed bumps. If the issue is too much liquidity from the last 2 years or so, looking back to the last tightening cycle in 18-19, it would stand to reason that it won’t take long for something in the plumbing to snap. The repo tantrum in September 2019 was bailed out by the Covid money printer starting up shortly thereafter and pumping liquidity. Long road to my questions, if reverse repos are removing liquidity/assets from the market and therefore sitting as short term liabilities on the fed’s balance sheet, aren’t those assets (plus interest from the fed) piling back into the market at the agreed upon term and to some degree adding the interest/liquidity to banks? And my crystal ball question, in terms of relativity in balance sheet size and forecast roll off through qt, do you foresee liquidity issues in a specific timeframe?

        • Wolf Richter says:


          The trouble now in the US is inflation. Not a debt crisis. Same in Europe. Inflation is tearing up the economy. So central banks need to crack down. That means rates go up. In the US, this can be controlled. In Italy, this might be left up to some hedge funds that want to get rich on Italy’s financial collapse. So f*** them. Not going to happen. The ECB will raise rates to combat inflation, and it will crush the hedge funds that will try to get rich of a financial collapse in Italy.

        • Roger Pedactor says:

          Germany is (understandly) debt averse. German GDP carries the union. Italy and Greece are unproductive.

          The EU has to boot Italy and Greece. Nothing else works within the regulatory environments. Loading up on Italian Bonds, for example, simply doesn’t work with a country on its 135th government in 160 plus years. Spain and France are giant basket cases in their own right.

          It goes deeper than this very superficial take, but watch and see what happens in February of ’23 there. The Euro is going to go well below a dollar unless they do more than just raise rates and then good luck buying oil and gas.

        • intosh says:

          “You are expecting discipline and sacrifice when some irresponsible countries get massive bailouts?”

          Ask an ordinary Greece citizen if they were bailed out. This is like claiming average americans got “massive bailouts” in 2008-9.

        • joe2 says:

          I don’t know Wolf. Sounds fine in a perfect vacuum. But while I agree inflation is a monetary phenomenon, supply constraints have contributed to European inflation. Someone or something has to pay for the increased energy and food prices caused by political choices. That has to come from increased productivity or bonds or the kindness of citizens.

          Easy to say “the country would have to figure out on its own how to get markets to have confidence again” but that may be through unorthodox means like riots, government change, war, ??

          I need to see more practical actions rather than more financial engineering that acts to try to offset political choices.

        • ksp says:

          Governments in ICU, private sector in the graveyard

        • MV = PY says:

          MV = PY inflation is caused by access money supply in the system. To stop inflation, you need to QT. We can’t keep printing money.

        • SS says:

          Wolf, this is great article. It looks like central banks have to buy bonds because no one else trust the government to undertake lending risk at these negative interest rates.

          So now, if ECB says it won’t do that for some Euro countries, these countries no longer have the Fed Put like US. I can’t see how some of these countries won’t go bankrupt as they don’t have freedom to issue debt in their own currency and no one else will buy their bonds.

          They can technically issue bonds at very high rates, but everyone already knows that they cannot pay back!

        • Daniel says:

          It’s NOT a good solution – by offloading more German debt and buying up Italian debt to prevent Italian yields from exploding, the ECB basically subsidizes Italy at the cost of Germany. So strong EU countries become weaker and their wealth gets destroyed…

        • Wolf Richter says:

          Well, that’s what you get when you tie countries into one currency. There’s always one end that subsidizes another. Wait till they issue Eurozone bonds that are guaranteed not by one country, but by the Eurozone as a whole, just like US Treasuries, which are guaranteed by the federal government, as distinct from bonds issued by the states, such as California or Texas general obligation bonds.

          It’s very complex to have 19 countries under one currency. There are many benefits, but lots of compromises too because countries give up control over their monetary policy and currency, which ultimately impacts debt issuance.

    • VintageVNvet says:

      Not much of a close watcher on European markets these days, but seem to remember some history or herstory about similar ”glue” facilities tried over that way in the last few thousand years or so.
      All did not end well;;; in fact, can’t remember one that DID go well??? Anyone have any suggestions???
      Just the various and sundry and extensive ”crises” of the final few decades of the British Empire, that empire upon which the sun never set,,, ( so similar to USA empire today, eh) the most recent of these most overt such might serve as a Stirling example.
      ( Sorry una, couln’t resist.)

      • 91B20 1stCav (AUS) says:

        VVNV-heat-cycle engine???

        may we all find a better day.

        • VintageVNvet says:

          good one 91,,, this old boy was thinking of the ”pound stirling” but your idea might be much better,
          as we have already seen clearly, ”The Rise and Fall of the British Empire” the title of a book by an English author/historian that lays out pretty clearly far damn shore, the progression of THAT empire from 1600s to 2000s.
          Just gotta at least ”TRY” to maintain some clarity about the developments of ALL empires these days as the empire of USA slowly but certainly goes down the same, or close enough to same ”path(s)” as had all the other ”empires” in the his and her story of our species while many folks are in deep and deeper denial.

        • 91B20 1stCav (AUS) says:

          VVNV-you give me too much well-thought (and always-kind) credit for my jest. Having worked for a certain Brummie moto-engineer/enterpreneur many times over the decades, i was actually recalling being slagged for not properly differentiating between a certain UK-invented motive power (Stirling) and UK currency (Sterling).

          (“…bloody good thing you aren’t the one arranging letters of credit, lad!…”).

          best to you and all of the longtime frequenters of Wolf’s most excellent establishment!

          and-may we all find a better day.

      • Augustus Frost says:

        Sometimes, there isn’t a good solution to a problem, only bad options.

        That’s what exists here, except for the EU elites of course whose real aim has always been to create United States of Europe.

        • phleep says:

          > EU elites of course whose real aim has always been to create United States of Europe.

          They got tired of putting out fires on their children’s backs. Oh and Adolf was a populist, dontcha know?

    • Manoj says:

      I am troubled by the careless use of the term ‘inflation’ to mean ‘consumer price inflation’. That means inflation for the poors who spend most of their income [or more] on.. consumption. This is what the Fed wants to eliminate. Inflation in assets was okay though for 30+ years of bull market. That didn’t trouble the owner/power class a bit as they rented their inflated assets back to the workers and keeping them poor.

    • First of all, let’s not go overboard please. The EU is not being “hawkish”. They are also not recognizing or acknowledging their past foolishness. They are inflating a rubber ducky life raft while the Titanic is still heading dead-on toward the looming iceberg.

      The so-called “glue gun” is a joke. It is a convoluted (like everything EU) way of saying that they are going to bail out their weak southern cousins, something that the northern countries will never tolerate for long.

      NOTHING has been fixed regarding the shaky foundations of the common currency. It was not fixed during the last crisis, and it is not fixed for this new ongoing one.

      As long as the EU remains in its “half-hearted” stance of not truly being a unified monetary AND fiscal union, then it will continue to bounce along from one crisis to another.

      By the way, this should not give solace to U.S. citizens. Just because our European cousins are a train wreck does not mean that we are a paragon of monetary and fiscal virtue. Quite the contrary. We only look good on a relative basis, and the U.S. is using a pretty bleak example to compare ourselves to.

      • Cookdoggie says:

        “As long as the EU remains in its “half-hearted” stance of not truly being a unified monetary AND fiscal union, then it will continue to bounce along from one crisis to another.”

        Yeah, my thought too. Seems hard to have a unified currency if you don’t also have a unified fiscal union. Instead of each country having its own bonds, there should only be EU bonds. Then you have a union. This current setup is what you get if you ask a bunch of accountants to build a house.

      • JeffD says:

        When 0% interest rates are “too high”, we are in endgame territory. My guess is some form of implosion by end of 2025.

      • Arthur says:

        Political union was never going to happen. The single currency was an attempt to force the issue. Naturally force meets resistance. Not a basis for unity.

  3. 2banana says:

    So, basically, TPI is selective QE while raising rates and talking about QT.

    Yeah – the silliness.

    “the Transmission Protection Instrument or TPI – designed to prevent a sovereign debt crisis and keep the Eurozone together, even has the ECB hikes rates and reduces its balance sheet (quantitative tightening or QT) to fight raging inflation.”

  4. Seneca's Cliff says:

    The europeans face an unprecedented energy crisis over the next 12 months. There is not enough capacity in LNG tankers or terminals to make up for the lost Russian pipeline gas and the cost will be much higher. This is too short a timeline to replace the NG they are now using with any other source. The current increase in energy costs and the projected increases over the next several months will drive inflation in a way that will not be able to be contained by tightening. They better figure out how to make nice with the Russians and get the pipeline gas flowing or inflation will sweep over them like a Tidal wave.

    • VintageVNvet says:

      Europeans will be OK,,, sure, maybe a few really really stubborn folks will die from the cold, or more likely, heat these days as 1500 reported dead from heat in Spain alone recently.
      Kinda/sorta like chi town back in the days before everyone had AC; it was reported that city had more die from heat than cold some years, and God knows it get’s cold enough there when that wind whips across many miles of solid ice to freeze the appendages off a brass monkey, eh?
      Perhaps we will find that due to more challenges over the last few centuries the Europeans are more genetically programmed to deal with extreme events?
      Probably hard to analyze exactly the effects of the wars, weather extremes, etc., on folks, but the opportunity to compare fairly close cousins might be ending soon.

      • Seneca's Cliff says:

        Freezing in their homes is the least of the Europeans worries. Like Japan, Germany is a huge manufacturing powerhouse which supports itself with large and small industrial factories. It is not set up to support itself by offshoring manufacturing jobs and substituting financial and IP rackets like the US has for the last 25 years. Much of the critical industrial supply chain that keeps the world turning comes from Germany and even France, Spain and Italy. Sure they make consumer junk, happy meal toys and such in China but if you need precision valves, accurate machine tools, electric motors, important chemicals or intricate alloyed metals they come from Europe ( especially Germany. Energy costs that triple of quadruple will bring the industrial machine of Europe crunching to a halt while spreading massive cost based inflation far and wide. Having to huddle around the fireplace burning kinder egg boxes to stay warm is kiddie stuff compared to the economic effects of such dramatic energy price increases and volume shortages.

        • AK says:

          My guess is that Germany (and possibly few other European countries) will abandon their policy of unity with US against Russia, and switch to a neutral stance toward Russia. This would allow them to protect their industrial bases, and to relieve their inflation problem. Their current alliance with US comes with the unbearable costs for Germany and few other countries that don’t really believe that Russians have intentions to attack EU.

        • Wolf Richter says:


          You’re clueless about Germans.

        • VintageVNvet says:

          good one SC, and thanks for the education!!!
          While I am sure that many folks come on Wolf’s Wonder to ”express” something, ”pain” or great tidings, etc., I come on here for the education that continues in almost every one of his articles…
          But, far damn shore, I really and truly ‘learn’ a lot,,, TONS far shore from the commentariat here TOO…

        • RH says:

          The impacts will rebound through the world’s economies but worst affected will be mainland China: China’s holdings of US dollars (all of them, since Chinese are forbidden from holding foreign currencies) have declined and now, foreign investors are declining their holdings of Chinese bonds.

          Their reserves are running down when they need them the most as more and more foreigners are pulling their capital out of China. Aside from the CCP’s threats of war, imagine what will happen to producers of luxury or junk goods when the EU faces these economic hurdles.

          Per “Between 2011 and 2021, the EU continuously recorded a trade deficit with China, increasing from €129 billion in 2011 to a peak value of €249 billion in 2021.” Imagine what will happen if Europeans’ disposable income declined sharply if Russia cut off their gas and Germany and other countries went into a recession. I suspect the Europeans would buy less Chinese garbage goods: they would need to limit themselves more to food, gas, and essentials.

          China already was facing the reversal of the multiplier effects that its real estate sector had created for years, which its over-indebted local governments cannot now afford to keep funding with more projects: the real estate developers paid workers, steel producers, electric equipment producers, wood suppliers, etc. Now, more and more Chinese realize that paying 30 to 50 years of your ENTIRE annual income to buy poorly constructed, uninhabitable, unfinished condos in buildings that lack elevators or other facilities so you could choose when you wanted to finish them, when they are on leased land that was only leased from 30 to 50 years, is madness after prices for such start to decline 30% to 50%!

          Hence, because a concealed number of Chinese victim-home buyers are choosing not to continue paying on such bad investments, run by companies operating as Ponzi schemes by finishing the prior property (partially only) with funds from the next investors, their banks are going under: remember, the banks now lack not just the payments on the tofu dreg real estate but also the deposits formerly put in them by workers, suppliers, etc., on real estate projects.

          That is the multiplier effect that FORMERLY increased China’s GDP to SEEM to match the US and Japan. In Heinan, and other places, reportedly, tanks had to be used to discourage protesters. LOL. I predict that will continue and only increase: they cannot depreciate the Yuan even more by printing lots of yuan after just now depreciating it: too many foreign countries would object to such depreciation because it would drive their own companies out of business.

          They are in a very deep hole. In turn, Germany will also see a reduction of the cars it sells in China as Chinese buyers also get less disposable income due to the RE bust, but its cars were probably mostly for elites, or at least most German manufacturers’ profits came from the sale of luxury cars to CCP cadres, so as long as the CCP hold on to power by their nails, Germany may still sell a lot of cars in China.

        • RH says:

          To correct my prior comment, Germany can afford higher gas prices. It is VERY wealthy. It is the gas CUT OFF that I predict Putin may resort to out of desperation that may truly hurt Germany and cause the recession that I discuss above.

        • rankinfile says:

          It’ll be ok.They’re not allowed to lay people off in Germany anymore,as the CEO for Volkswagen found out.

      • 2banana says:

        It’s amazing anyone survived at all in Florida, Georgia, Texas, Alabama and Nevada before the 1960s and the invention of affordable, portable air conditioning.

        And let’s not even talk about Guatemala.

        • white says:

          I’m not going to work for a minute is the temperature is over 75F. See you at the beach, we don’t need an economy if we become Guatemala.

        • rankinfile says:

          People used to go to movie theaters much more often, because they were air conditioned.

      • Nat says:

        “Apendages on a brass monkey” doesn’t work.

        A brass monkey is a rack for cannonballs. The rack is brass but the balls are iron, so they have different coeficients of thermal expansion (or contraction). So when it gets ridiculously cold, cannonballs no longer fit in the brass monkey (which shrank far more) and they simply fall off the rack (monkey) designed to hold them.

        There are no apendages or anotomy involved in this old expression.

        • VintageVNvet says:

          Believe it or not, as a huge fan of POB, (Author Patrick O’Brian ) I am fully aware of what a brass monkey is in terms of older naval warfare, it being a device for holding round objects to be used as bullets for cannons.
          How some ever, the reference as more commonly known and used, at least in USA, is not that one, as I am quite sure you understand.

        • 91B20 1stCav (AUS) says:

          Nat-if i understand your explanation it sounds to me as if ammo in the monkey would be trapped in situ by the greater shrinkage of the brass rather than fall off, or, if not racked, couldn’t be stored there…nay?

          (Perhaps an rough analogy to many of our myriad problems…).

          may we all find a better day.

        • rankinfile says:

          Colder than well diggers ass works.

      • Sit23 says:

        Only balls get frozen off Brass Monkeys. Which was a frame made of brass upon which cannon balls were stacked ready for use on old battle ships. In Northern climes, in cold weather, the brass would shrink, and the balls would fall off.

  5. Poor like you says:

    I wonder if the crumbling situation is part of why Mario Draghi resigned. I

    • unamused says:

      His work is done, the pinhead.

      “Raging inflation finally forces the ECB to abandon its reckless and absurd monetary policies and turn hawkish.”

      Turning a fiscal dove into a fiscal hawk is a very substantial transformation. With the piddling interest rate hikes issued by The Fed and the ECB you can really only call them pigeons.

      • RobertM700 says:

        Draghi is the opposite of a pinhead. Take a look at his resume. He agreed to be PM for love of Country, nothing more. When the typical Italian ego infighting once more destroyed cooperation, Draghi resigned. He could do no more. Sad, but has earned a few years of retirement at 75.

        • SoCalBeachDude says:


        • unamused says:

          ‘Draghi is the opposite of a pinhead.’

          NIRP/ZIRP was pursued by Draghi, former head of the ECB, which is to say, reckless and absurd monetary policies.

          Raging inflation finally forces the ECB to abandon its reckless and absurd monetary policies and turn hawkish.

          Pinhead it is.

      • So true. See my comment to Wolf above. The EU is no hawk. I think you have the accurate analogy. A nice, fat clueless pigeon sounds about right.

    • SoCalBeachDude says:

      ‘Whatever it takes’ Mario was shoved out into the gutter in Italy.

      • phleep says:

        Not like Italy is a paragon of political or fiscal stability.

        • rankinfile says:

          With 6-8 weeks of vacation for everyone every year I’m surprised anything is remotely viable in all of Europe.

  6. Crunchy says:

    Just what will this TPI program do towards making the most debt-ridden EU countries reign in their detrimental policies?

    I predict that at best it will change nothing, but more likely it’ll allow those countries to dig wider and deeper debt holes for themselves.

    • phleep says:

      On the edge of the radar screen begin to appear alternatives too awful to contemplate. The EU is a pillar of our world order too.

    • Nathan Dumbrowski says:

      To big to fail. They have come up with another fabulous plan to fix the bad. It just might make things worse. When will they stop trying to cover and spend over there problems

  7. Bam_Man says:

    The Moral Hazard that this so-called “Glue Gun” approach will encourage is absolutely off-the-charts.

    • unamused says:

      True, but the only real alternative is to tax the Obscenely Wealthy, and you know THAT’s not going to happen because it would outright contradict the very reason for the existence of central banks, which is to facilitate the accumulation of riches by the Obscenely Wealthy.

      That said, taxing the Obscenely Wealthy would be a viable alternative. It would solve a lot of problems, and has the particular advantage of never having been tried. The problem is that your Overlords (and Overladies) would rather expedite The Collapse of Civilization ahead of projections than to ever allow it to happen:

      “People of privilege will always risk their complete destruction rather than surrender any material portion of their advantage.”

      – John Kenneth Galbraith

      • 2banana says:

        It’s ironic how the alternative of cutting government spending and living within your means never is discussed or even brought up…

        • unamused says:

          With the Financial Industrial Complex sucking up most of the world’s wealth taking Austerity to the Masses to feed the FIC even more is going to make you deeply unpopular with people who could get seriously interested in the pitchforks-‘n-torches approach to social problem-solving.

        • Cyrus says:

          We cutting the defense budget by 50%? Sounds good to me.

          Closing 90% of our overseas bases?

          Means test SS and MC payouts and just say “sorry rich boomers”?

          Oh, we’re not discussing this anymore?

        • Old Ghost says:

          2banana wote: “It’s ironic how the alternative of cutting government spending and living within your means never is discussed or even brought up…”

          I hear calls for cutting government spending to the 99% all the time. But taxing the 1% is a real no-no.

          I find it amusing that everyone seems to see the FRB and central banks as somehow having the answers to all of their problems.

          Most here seem to think that taking the “excess fiat” out of circulation and putting it into bonds solves the problem. But all that does is delay it.

          Any money “invested” in government bonds continues to exist. If the so called “investors” lose confidence in the bonds and decide to cash out, that is where hyperinflation will come from.

          Excess fiat needs to be destroyed. The only way to do that is with taxation.

        • rankinfile says:

          Tell that to the million people living in tents.As them how much they care about sending billions to Ukraine while you’re at it.

      • VintageVNvet says:

        thinking ol’ JKG forgot the ”peacefully” before the surrender in your quote una???
        however, if i were bill of the gate, ( or had his money that i had promised to get rid of ) ,,,
        i too would be buying up actual usable farmland while working out some serious estimating or at least SWAGs/algorithms for how many folks each area of that land will support with genuine sustainable farming practices…
        It should be clear that some when USA is going to be forced to get off the ridiculous amount of dependency on the extensive extended transportation of food that exists today.
        That alone an indication of the imminent fall of USA, exactly as per other empires, even though it took some centuries to the finale.

        • 91B20 1stCav (AUS) says:

          VVNV-and to more mouths than ever…

          may we all find a better day.

        • phleep says:

          Just try living in a country that IMPORTS that stuff, already.

        • Ccat says:

          So, where is all this (affordable) useable farmland given that most of the world is in a terrible, long term drought?

          Bill Gates is so rich that he owns lots of everything.

          Land with no water is useless.

          I am a small farmer, a real one.

      • Augustus Frost says:

        I’s fake wealth from the QE. It can’t be taxed at scale and used in the real economy without making the inflation problem much worse because the production doesn’t exist to accommodate it.

        You do know this, don’t you?

        • unamused says:

          So taxing the rich causes inflation? With a straight face you say this. What happens if you stop subsidizing them?

          Maybe you just forgot the \s switch to indicate sarcasm.

        • Cytotoxic says:

          “So taxing the rich causes inflation?”

          It destroys wealth. Spending their money can certainly cause inflation.

          “What happens if you stop subsidizing them?”

          We enter the world as we’ve ever known it. The wealthy are paying our bills not the other way around.

        • unamused says:

          ‘The wealthy are paying our bills not the other way around.’

          Excellent. The world’s workers can stay home from now on and stop knocking themselves out.

          ‘Taxing the “obscenely” wealthy is not remotely viable. They already pay tons in taxes’

          You should have said ‘I’, just to be clear.

          It’s not viable because tax evasion is the biggest industry in the world. Most of the world’s wealth, nearly all income gains, and most of the $30 trillion owed by the USG have all accrued to the Obscenely Wealthy, which is why Inequality has gone cosmic. The ‘tons’ they pay in taxes cycles right back to them because money flows upwards, and they’re at the top.

          Your turn.

        • Cytotoxic says:

          “money flows upwards”

          No it doesn’t. This is just gibberish that you think makes you sound slick and cool. It doesn’t. Money doesn’t ‘flow’. You don’t know anything.

      • Cytotoxic says:

        Taxing the “obscenely” wealthy is not remotely viable. They already pay tons in taxes and taxation has never prevented a sovereign default only spending does that.

        • unamused says:

          ‘Taxing the “obscenely” wealthy is not remotely viable.’

          You seriously need an IRS audit.

        • phleep says:

          Is that why the very wealthy spend more money lobbying and protecting their advantages than most folks see in a lifetime? Because taxing them is “not remotely viable?” And still have leftovers to spend on fourth houses, exotic car collections and yachts? I come from a town like that (as probably in the bottom 10% of wealth there, back then; folks like me cannot dream of buying in there, now).

          Per Fed data released in June, the wealthiest 1% of Americans controlled about $41.52 trillion in the first quarter. The bottom 50% of Americans controlled about $2.62 trillion collectively, about 1/16th as much.

        • Cytotoxic says:

          “Is that why the very wealthy spend more money lobbying and protecting their advantages than most folks see in a lifetime? Because taxing them is “not remotely viable?””

          Yes. That’s what you do when the behemoth that is government is breathing down your neck for money. Protection money of a sort.

          “Per Fed data released in June, the wealthiest 1% of Americans controlled about $41.52 trillion in the first quarter. The bottom 50% of Americans controlled about $2.62 trillion collectively, about 1/16th as much.”

          So? The 1% made everything good.

        • drifterprof says:

          “So taxing the rich causes inflation?”

          “It destroys wealth. Spending their money can certainly cause inflation.”

          The increasing percent of fiat money owned by 1% is not “wealth.” It is hedge fund kleptocracy generated by financial paper (nowadays digital) schemes in what has been an increasingly unregulated environment.

          So whatever taxing the decades long windfall spike of 1%’ers “money” numbers does, it is not destroying real wealth.

        • Jjjjj says:

          “1% made everything good”

          That logic is all well and good. But if they are responsible for everything good during the good times, they will need to take responsibility for everything bad during the tough time.

          In all honesty, our global system is setup to where governments are in place to control and placate the masses, and that job is funded primarily by the benefactors of the system, the extremely wealthy, via taxes. They really don’t have a problem paying so long as the system,overall, benefits them.

      • robert says:

        Said Mr JKG from his Swiss Chalet. But read his book, a co-authored discussion with Soviet economist Stanislav Menshikov in 1988, in which they rhapsodize about ‘Capitalism, Communism, and Coexistence’ [from a bitter past to a better prospect], published about the time the Soviet Union was on the brink of collapse and both failed to even see it.
        The Obscenely Wealthy already pay something like 60 to 90% of taxes (depending on the cut-off definition of ‘wealthy’), plus provide employment for workers that are taxed and pay the rest. The bottom 50% of workers, and state-dependents, pay almost nothing or get paid for just existing.
        Do you think that all the wealth, in whatever form, of the rich just gets buried in a hole in the ground so nobody else can use it? How do you confiscate companies? Sell all their shares at once? Maybe not. A time-proven way (Venezuela, et al) is to simply take possession of the companies, the shares go to zero, the government then runs the company into the ground which then produces nothing. Unfortunately you can only steal and squander wealth once.
        Envy is not a solution for government mismanagement. A balanced budget, with no gimmicks and off-balance-sheet expenses may be.

        • eg says:

          If nothing else, those on the payroll for those swimming in unearned income provide no end of amusement.

        • 91B20 1stCav (AUS) says:

          robert-and the frontline soldier (not many of the ‘obscenely wealthy’ found there) too-often pays with 100% of life or limb to keep things propped up back home…

          may we all find a better day.

        • Goat Se says:

          People here think within a very narrow mind frame. The rich are rich because they avoid fairness and laws by capturing institutions. Their gains are immoral and illicit. Bezos or Elon don’t work more than 300 employees. The stolen wealth must be returned to those who earned it.

      • NARmageddon says:


        Bingo. When Fed/ECB prints money against new/additional govt debt, it is to avoid taxing the rich, and to shift the burden to the poor in the form of asset inflation.

        The rich/elites will do absolutely anything to avoid seeing the numerical value of their wealth shrink, up to and including nuclear war.

        And the elites have to be stopped. The Galbraith quote is exactly correct.

        PS: It has always been in the back of my head that financial bubbles could eventually lead to nuclear war. And now, here we are, at the precipice of global destruction. The name NARmageddon was not a joke.

      • Yeah, let’s just tax Sergey Brin, Steve Jobs, Jeff Bezos, Bill Gates, Warren Buffet, and all those evil business types, right? After all, who needs Windows, next day delivery, Google Maps, and smartphones when we can all live on the beach in a worker’s paradise?

        • unamused says:

          Your gods are such benevolent deities.

          Brin, Jobs, Bezos, and Gates never invented anything. They exploited the creations of other people. Buffet is known with dead certainty to have systematically gotten away with tons of insider trading.

    • KPL says:

      “Moral hazard” has also been retired from the dictionary of the central bankers like “transitory”

  8. Old School says:

    I assume you could write a simple equation for what the real interest rate needs to be when you have a sovereign debt problem.

    Assume total sovereign debt and unfunded liabilities, assume nominal growth rate in GDP, assume total government tax take and growth in the same.

    Solve for real interest rate:. I assume it’s a big negative number and that’s why central banks ran inflation high to get the big negative real yield.

    Central banks can’t solve the problem that negative real rates is crack to politicians.

    • unamused says:

      “Central banks can’t solve the problem that negative real rates is crack to politicians.”

      No, it’s crack to the Financial Industrial Complex. That’s your inner predatory anarchist talking.

  9. The Real Tony says:

    They have to make it look like they’re doing something when in realty they’re doing nothing.

  10. Hank says:

    Gotta wonder if any of these ECB strategies are going to affect the price of oil and gas or cure the energy crisis driving the inflation.
    Or if they’re really showing up to the gun fight with a water pistol.

    But I guess it’s always easiest to blame the bureaucrats for the inflation bugaboo, rather than look at the administrative problem staring down the block.
    Reminds me a bit of the stagflation days when Iran was going tits up.

    • Wolf Richter says:

      Inflation started spiking in March 2021 — that was 16 months ago. So think this through a little.

      • Hank says:

        By your own graphs, Eurozone has had super low interest rates for nearly a decade, and inflation only spiked about a year ago. So the correlation isn’t there.

        But during the global post-pandemic supply chain crunch (which you wrote about) it does appear the correlation is there.
        And we saw the global oil cartels exercising their pricing power back then, limiting supply (which you wrote about.)
        Also seemingly corollary.
        And now, the markets nicely transitioned to another type of energy supply chain crunch, which might be increasingly corollary.

        You really should be looking at the gas and oil price graphs in the EU. You’d get to use your little WTF arrow.

        • Wolf Richter says:

          “You really should be looking at the gas and oil price graphs in the EU. You’d get to use your little WTF arrow.”

          Oil prices are global, and gasoline prices spiked, and they’re all over this website. And natural gas prices quadrupled in the US too thanks to LNG exports, and those charts are on this website, and more coming in a little while.

    • andy says:

      Not a water pistol. Glue gun!

  11. Mike says:

    […] countries must keep their debts on a “sustainable” path, and must have “sound and sustainable macroeconomic policies.” And if the yields jump because of “country fundamentals,” the ECB can terminate the TPC asset purchases.
    This sounds good but if Italy say, is not on a “sustainable” path, what would the ECB reaction be to a 8 or 10% bond yields? With Italy’s govt debt to GDP at 150%, how long could the country stay solvent?
    How would the populace react when the govt has to slash spending (because no one want to buy Italian bonds without a high premium)?
    The threat of ECB buying will scare away many would be short sellers but at some point, I think some Soros wannabe will smell the weakness and the blood in the water and take the plunge.

    • 2banana says:

      but…but…GLUE GUN!!!!!

      • Implicit says:

        Ha Ha Transmissions need liquidity for all the gears to perform well. The glue gun is to make the countries stick together no matter what.
        Stalled cars, economy and countries forthcoming

    • Bam_Man says:

      How do you even pretend to “keep your debts on a sustainable path” when you have no intention whatsoever of EVER paying off a dime’s worth, there is little to no actual economic growth and you continue to add TRILLIONS to the debt mountain every year?

      • SoCalBeachDude says:

        The US now has to and does repay in full around $15 trillion of its national debt each and every year upon maturity of US Treasuries and borrows $15 trillion again each year to keep that monkey show going.

    • Crunchy says:

      You are spot-on. As it was in the beginning when the Euromeisters fundamentally ignored the fiscal criteria for most of the countries joining the Eurozone, so shall it be in the end when those countries’ fiscal situations are thoroughly held in denial.
      “Sustainable path” – HA! Such a path has never existed for these countries starting from day one!

      • Anthony says:

        Be careful about Italy as it has two economies. The official tax paid economy and the, shall we say, darker economy. In most countries there is always a dark economy but in Italy and maybe Greece it’s off the charts……

        • VintageVNvet says:

          Of COURSE ”it’s” off the charts A,,, that is the MAIN characteristic of the dark market everywhere…
          As one who was in what was called, ”The Berkeley Corps of Engineers” back in the ’70s, totally off any charts, WE, in this case the BCoE WE could and would and did do anything to any building, residential or commercial.
          CASH only,,, and it worked very well for us and our clients,,, but only for a while,,,

      • Nacho Bigly Libre says:

        Sounds right. I have some follow up questions.

        “And if the yields jump because of “country fundamentals,” the ECB can terminate the TPC asset purchases.”

        1. To what levels should the yields jump for ECB to stop asset purchases of that county? Asking for a hedge fund.

        2. If countries are cast off like that, can they declare bankruptcy and start over with sovereign currency?

  12. ben sargent says:

    This will be a very interesting path for the EU and single currency. An aging population changing demographics, declining NS oilfields including Norway, and the possibility of recession that would hit Germany the worst.
    I wish the best to the EU and their people. Maybe USA can send some money in the form of QE. Less funds available for investment.

  13. Phoenix_Ikki says:

    Waiting for the same folks that said Powell will pivot very soon to come out and say ECB will pivot when the market throws a temper tandrum..


    • Einhal says:

      U.S. stocks went higher today on bad economic news, on the theory that bad data means the Fed will stop hiking and start printing.

      It’s a very sick market when bad news is good news.

      • John says:

        But how does the 10 year yield magically drop in one day from 3.06 to 2.91 if the Fed is supposedly doing QT. The 10 year tanking doesn’t that mean the Fed is buying bonds and adding more debt?

        • RobertM700 says:

          Maybe it’s not the Fed buying…how nice.

        • Not Sure says:

          Could be that bonds are actually being bought by investors of all types who:

          1) Have cash and are comfortable parking it bonds with some yield, which is better than no yield, or potential losses in other types of investments.

          2) Think we’re headed into a recession and the Fed will chicken out around 3% or less fed funds rate anyway.

          3) Think inflation will cool down significantly within the term of the bond.

        • SoCalBeachDude says:


        • Wolf Richter says:

          The Fed shed $12 billion in TIPS on July 15 when they matured. Didn’t buy any Treasuries. And its total holdings of Treasury securities dropped by $12 billion. The next run-off is at the end of July. So forget that theory. Markets do what they do from one day to the next.

        • Einhal says:

          The Fed is not buying. People are buying because they’re convinced the Fed will start buying again in January.

        • Depth Charge says:

          “The Fed is not buying. People are buying because they’re convinced the Fed will start buying again in January.”

          The FED has trained everybody with a pulse to “buy the fu(kin’ dip” because “the FED’s got my back.” This is the result you get – a country full of reckless gamblers.

          Nobody is taking the FED seriously anymore, which is why the yellow-bellied Jerome Powell needs to uncork a 200 basis point rate hike followed by a couple sentences. “Do you feel lucky now? Do you, punks?”

        • Augustus Frost says:

          Cause and effect don’t work the way you imply.

          You’re doing what most people do, applying physics when it’s not a mechanical outcome.

      • SoCalBeachDude says:


      • Harry Houndstooth says:

        In My Humble Opinion, looking at a daily move in the stock markets and trying to explain it based on the most recent news is a fool’s errand. Although it is true that some news moves the markets, for the most part the markets are affected by waves of fear and greed in various frequencies.

  14. Phoenix_Ikki says:

    This is pretty funny….yup big fat goose egg, yup that will fix their inflation problem in no time for regular savers if there’s any left…

    “Effective July 27, the ECB will hike its:

    Deposit rate, from -0.5% currently, to 0.0%. RIP NIRP.”

  15. DR DOOM says:

    The TPI will work just fine as long as producers such as Germany will pay to keep Italy afloat which has been business as usual. Real QT means somebody gotta go belly up.

  16. Michael Engel says:

    1) JP and madam ECB cannot control inflation, only with a glut they might.
    2) Future “Events” might cause inflation to reach the mid range 10%-20% , before rising vertically up.
    3) The higher the CPI, the lower the Dow, thanks to Madam ECB zero rates.
    4) The Dow S-wave was completed. After possibly testing Mar/Apr highs the Dow might test Mar 2020 low. That will take care of last two years.
    5) The bigger trend, bigger change.

    • Doris says:

      I don’t buy anything, I am selling the dollar. Don’t think it has 10 more years to go, maybe not even 5. Then we get the global digital currency.

  17. drowningfish says:

    Wolf do you think that the stock market has bottomed? seems like investors have shaken off the rate hikes and bad earning season, bullish sentiment is making a big return?

    • Wolf Richter says:

      I said some time ago that we would get a summer rally, and now we have a summer rally.

      I compared it to the dotcom-bust summer rally in 2000. During the dotcom bust, which started in March 2000 and ended in late 2002, the Nasdaq plunged 78% and it took 15 years and lots of money-printing to get back to its old high. But in the middle of the bust, in between May and mid-July 2000, the Nasdaq rallied 35%, but didn’t get back to its high, and then collapsed.

      • Depth Charge says:

        “…and then collapsed.”

        This is what I’m looking forward to, a total collapse of all the fake valuations, especially in crypto. Just wipe it all to zero and move on.

        • historicus says:

          All we hear is that the Fed is moving to quick, raising rates too fast into the face of a recession. Borrowing costs going up.
          Someone tell Congress.

          $50 Billion to the Ukraine
          And Schummer is tacking on $250 Billion to the Chip industry subsidy bill.
          The concern for high borrowing costs seems lost …. or fake.
          And now the ten year is 2.83% …coming off of 3.1%.
          The markets all changed direction the day after Powell finished his last Congressional “dog and pony” show. No 100 basis pt bump, and likely no 75 either. Look for 50…..and that was decided two weeks ago. IMO it was that decision not consumer spending or sentiment that changed the markets.

      • Nate says:

        Wolf, you’re probably right. That last one didn’t look/feel like a real capitulation.

        That being said, I can’t completely rule out that recession fears are overstated. Usually the us is the or a main driver of global economic conditions. This one feels a bit more imported with china COVID policy and Russian invasion, so challenging to determine and predict what’s homegrown inflation vs. inflation driven by external forces. Politically, everything gets framed as domestic policy to win the election cycle so lots of noise.

  18. Uber Driver says:

    “The ECB hopes that the mere presence of the tool will keep markets behaving so that the ECB won’t even have to use the tool. “

    This tool sounds identical to the bond buying Japan is using to stabilize its bonds. In this case the ECB prints Euros to buy bonds. No one is really worried about Germany, it’s the PIGS that have always been the problem. It’s good they went 50 but it’s still weak tea.

    My guess is the Euro is still in trouble, and everything will fall apart in short order. It would probably be for the best if the EU breaks up. Too much economic diversity within that alliance. I believe it much more likely that Powell will deliver on hikes over the ECB.

    If anything this new tool encourages more risky economic behavior on the part of the EU member states.

    • Cytotoxic says:

      Italy is going to blow this all to hell. This ‘psychological trick’ is just too cute and it won’t work when people call the bluff and short Italy’s bonds. That country is broken it has no economic growth. It’s super-Greece. They are in A LOT of trouble!

  19. Michael Engel says:

    1) If the Lireta (1807-2002) is back, Italy have to pay it’s Euro debt in
    deflated currency. Italy is enslaved to France..
    2) If the Greek Drachma (1832-2002) is back, it’s too late. Greece is enslaved to Germany, Portugal to Zeeland. They had to let go in 2011.
    3) The TPI crumbs glue them to the Eurozone.
    4) Viscosity might keep DET3M underwater.
    5) Inflation might rage, but gravity with Germany will keep US front end

  20. Michael Engel says:

    6) What about Ukrayina.

    • Cobalt Programmer says:

      She landed north of the caucus and looking for a chad…

    • phleep says:

      Mother of Supply Chain Headaches. Alongside Russiya. Imported oil and grain, same as it ever was, for western Europe.

  21. polistra says:

    The TPI sounds like the precise economic equivalent of Synchromesh, an earlier TPI.

  22. ru82 says:

    People are not paying their phone bills? I guess they will go on vacation before they pay their phone bill? Anyway, not sure if this is just AT&T and the type of customers they have or will Verizon and TMobile say the same thing?

    Is the people or businesses or both not paying.

    (Bloomberg) — AT&T Inc. fell the most in 20 years after saying some customers are starting to put off paying their phone bills, which contributed to the wireless carrier cutting its forecast for free cash flow this year by $2 billion.

    • Old School says:

      I assume people will be down grading to cheaper cell phone plans. They are out there at every price point.

    • Halibut says:

      When your business model involves carnival barkers harassing customers as they enter Sam’s Club, you may have lost your way in the modern world.

      • phleep says:

        It wasn’t me that wandered away from the modern world. It was the modern world that wandered from me.

    • RockHard says:

      Maybe they don’t have the money after the grocery bill. It’s possible that not everybody is heading off on vacation.

      Friend used to work for Verizon. Insanely mismanaged company, people going all over the place with no clear direction in mind. Stock pays a 5% yield though and it all looks good from the cheap seats…

      It’s also possible that AT&T is looking for cover for their own poor management. Dig into those numbers a bit and see where the problem lies.

      • Halibut says:

        There are industries out there that are well established with a limited number of equally mismanaged competitors. They buy congressmen cheaply, burn money like it’s yard waste and still produce good profits.

        Then, there’s AT&T and Verizon with perpetually dwindling customers. They bought people as well, but not enough. There are much cheaper options, as most of us already know.

        I don’t pay AT&T. Do you? Of course not.

        But you pay ADM and Cargill. Don’t ya?

      • ru82 says:

        Now that you say mismanaged company. I think that is probably spot on. They are just probably trying to cover for the management mistakes they keep making.

    • Isaac S. says:

      “are starting to put off paying their phone bills” does not equal “People are not paying their phone bills”.

      But in today’s economic climate, bills aren’t getting paid on time — and that impacts the telecom operator’s financials.

      In the earnings conference call, CFO Pascal Desroches said that customers were paying their bills on average two days slower compared to a year ago, which hurt the company’s cash flow.

      “The impact of this is almost $1 billion for the quarter,” Desroches says.

  23. Depth Charge says:

    “If this glue gun works as advertised, it would allow the ECB to follow through with rate hikes and QT, and keep doing them until the inflation spiral is under control, without getting distracted by a sovereign debt crisis and the threat of the Eurozone losing a member or two because some hedge funds decided to have a go at it.”

    What a joke. It’s just more QE – same old tricks – PRINT. Yeah, they’re going to roll off some of their balance sheet, but then they’re going to add to it, too.

    • Einhal says:

      It’s not really printing, it’s more transferring wealth from the rich countries to the poorer ones. It’s not a good thing.

  24. Old school says:

    Look at the chart above of basically the short term interest rate. If you held fiat for the interest you were not rewarded. Gold over 20 years in Euros was about a 5X reward if you could handle the volatility.

    Next 20 years for fiat will be different, but I don’t see how it’s going to be better.

  25. phleep says:

    Yeah but you know, the next revolution could easily be theocratic or fascist (or both). Those threads seem to be reactivating. Nationalisms at war are not pretty. All that does ultimately “simplify things” though, if only by clearing away lots of people and ideas. It is like a diet of wood chips and radioactive dirt.

  26. phleep says:

    Lumping together actual workers with free-riding losers and calling them all “workers” is one of the left’s most glaring fantasies and mischaracterizations. They call out the free-riding rich, but nobody else. Everybody else is a misunderstood saint, right?

    • unamused says:

      Wherever there is great property, there is great inequality… for one very rich man, there must be at least five hundred poor.

      – Adam Smith, Wealth of Nations, V, 1, ii.

  27. Ca state says:

    Volatility is something that is very difficult to deal with. Because it does not depend on us alone. We will have to see each other for a long time.

  28. THEWILLMAN says:

    Moral hazard to the extreme. Whichever country is the least responsible is going to get their bonds subsidized by the ECB.

  29. Hardigatti says:

    The EU will eventually have to follow the US model using a common bond. The US states’ economies are at least as diverse as the EU’s ( E.g. California, Louisiana) but do fine with a single bond. The US states cannot print $s but manage other ways to spend beyond their means. And sometimes a pandemic happens and federal money rains from the sky and everybody is flush.

    • Pehdro says:


      In the document “Save Gas for a Safe Winter”:

      The Commission can declare a Union Emergency or a Regional Emergency for a specifically
      affected geographical region upon the request of one or more Member States. In such cases,
      the Commission coordinates actions of concerned Member States and can act as a moderator
      if measures are introduced that can unduly restrict the flow of gas to other Member States and
      third countries, such as members of the Energy Community. This helps ensuring that gas
      flows to the countries and customers most affected in an emergency”.

      If you want TPI, send your gas to Alemania.

      It Will be a good solidarity winter…


    • historicus says:

      “…the US model using a common bond. ..”
      And thus one more step forward for the globalists…
      Which is what the ECB and EU are all about…
      Control the economics and you will control the politics.

      • Pehdro says:

        Globalist: how can we sell TPI from north to sud? Umm.

        1. Nuland goes Argelia.
        2. Spain brokes Argelia vía Sáhara.
        3. Italia pick Up Argelia gas. Draghi good job, go home.

        To be continued…

  30. Depth Charge says:

    This is somewhat off-topic though inflation related, but it really grinds my gears. We are starting to see animal shelters overflowing with pets. As inflation blows out household budgets, the pets are the odd ones out. If there’s one thing that tears at my heartstrings, it’s that. And for that reason alone I hope Jerome Powell and Co. ROT IN HELL.

    • Iona says:

      Lots of people bought pets during the covid lockdown. Do you blame them, and the pols that enacted the lockdowns, business shutdowns and stimmy checks?

      Powell may be a clown, but way too many blame everything under the sun on the fed. Pols control the fed board. We elect the pols. Pretty sure Powell takes good care of any pets he might have.

    • Lynn says:

      DC, The dogs are in bad shape psychologically. Because of Covid a lot of the 1 to 2 YOs have had no socialization whatsoever and are too fearful to be safe.. If you are into dogs and have time you might want to foster some otherwise healthy and adoptable ones here and there and give them some basic socialization and desensitization experiences and basic obedience. It would greatly improve their chances. I would suggest going with the shelters and rescues who do not retain rights to the dog once they are adopted out. Read the adoption clauses. Some people are boycotting adopting from those that do.

    • historicus says:

      And people drop off their unwanted dogs at the dog parks and walk away.
      That’s the new game.
      When you buy a dog, or adopt a dog, you are striking a bargain with that dog to take care of it.
      This generation that shirks their college debts are the same that drop their dogs off at the park, IMO.

      • Anthony A. says:

        Park drop off?

        That’s how we got our current dog (small terrier). He was dropped off on I-45 north of Houston. A young girl we know found him. Looked like he had not eaten in a week or two. He’s OK now, but won’t walk anywhere near a storm sewer opening along the street when we are out on our daily walk. He is terrified of going in the car. Best friend I ever had and with me every day.

    • Not Sure says:

      The gal I married works for a city animal shelter. Surrenders are up a little, and adoptions are slowing down a bit. But it’s not even a blip on the radar compared to how bad it was when the last housing bubble popped.

      Shelters are always overflowing with pets. You might read an article here or there that plays it up, but you won’t see a true flood of surrendered animals unless this housing bubble properly blows up. If people start losing their jobs, and then start losing their homes in greater numbers… That’s when shelters get clobbered while adoption demand falls off sharply and tragedies really start piling up. Inflation is having an affect, but it’s a slower burn.

  31. Mike R says:

    I wanna see the EU and US both attempt to avoid a massive economic depression.

    glue gun, eh .?

    • Wolf Richter says:

      I wanna see the US and the EU crack down on this massive inflation that kicked off in February 2021 and that I have been screaming about for 19 months.

      • Depth Charge says:

        Do you think Jerome Powell has the ballz to float another puny 25 basis point hike, then snicker to his buddies at the expense of the poor?

        • Wolf Richter says:

          Depth Charge,

          A 75-basis point hike next week takes the FF rate to a range of 2.25%-2.50%. They have projected to reach 3% or a little higher by the end of 2022. And maybe a hike or two early next year, to about 3.5%. That’s what “frontloading” is all about. It takes about 12-18 months before changes in monetary policies show up in inflation. So the idea is to then wait and see if this tightening is pushing down inflation. By Sept, QT will be around $90 billion a month. That equates to more rate hikes, in terms of impact. That’s a lot of tightening. The Fed never had this tool before.

          Inflation has surprised lots of people this year. And it might still dish up some bad surprises. If there are some bad surprises, all this is out the window. If CPI goes over 10% a couple of months in a row, all heck is going to break loose.

        • AK says:

          IMHO Federal Reserve has no choice but to reduce inflation down to a bearable level. Should they fail to do so, USD status as world reserve currency will be lost, and US empire would crumble. Wolf had an article on this site that shows drop in USD share of foreign reserve worldwide during 70s inflationary decade. If I recall correctly, this share dropped from 85% to 55%. This can happen again if Federal Reserve fails to suppress inflation. I am confident that Federal Reserve is determined to prevent this loss of reserve currency status, at absolutely any cost (stock market crash, housing market crash etc.)

        • Uber Driver says:

          The recent collapse in many commodity prices (particularly food) may trigger Powel to go 0.5 bp and or signal that future hikes will only be 0.25 bp. While I believe this is a 25% probability, the fact that Powell was doing QE for many months into a blazing inferno of inflation tells me he really wants inflation to be as hot as possible for as long as possible to inflate away the debt. The rich also love inflation because it keeps the proles working harder to get less. The asset heavy elite will not be harmed by prolonged 10% inflation.

  32. michel says:

    Wolf you are too negative about the ECB. You don’t really understand the real problem here. The real problem is political/institutional.

    The EU is a confederation. On some areas it’s like a federation, on others it’s like an international organization. The non federal parts are a mess.

    In reality, what the ECB is doing is not just illegal, it’s actually anti-constitutional. Initially the system was supposed to have no bail outs of any sort, that’s clearly in the constitution. The “every thing that it takes” was basically a coup from the ECB to resolve the constitutional crisis when politicians dropped the ball. Their excuses for the low rates is bullshit, it’s to manage the euro in the absence of federal taxation, without actually saying they are violating one of their constitutional mandates (no bailouts).

    You don’t understand that the TPI is actually a very big deal. Now they will directly subsidies some states at the expense of others( instead of forcing low rates on everybody while pretending it’s good for everyone). They created stealth euro bonds. And no one will complain, because they know it’s suicide not to do this. The real reason they where resisting rate hikes is that they would have been forced to do a TPI with all the controversy that that would have generated. Now, because of the high inflation, no politician in his right mind will try to stop them. And this will not be temporary, it will stick. The TPI is an other small step towards european federation. The real conditions for the TPI are in reality the general political approval from politicians. And this will work far better then the current broken system of unanimity.

    You are american, you don’t understand how controversial all this is. It’s a bit like the recent american supreme court ruling on abortion. Yea, that’s a very good analogy.

    The underlying real problem of the euro of the last 10 years is probably resolved. The system is now viable. It’s not as good as having federal taxes, but now it’s not as dysfunctional as before..

    • Anthony says:


      “You are american, you don’t understand how controversial all this is.”

      Have you ever listened to Wolf’s accent?

      “The underlying real problem of the euro of the last 10 years is probably resolved.”

      Something is resolved or it is not…there is no probably……

      The real problem for Europe(and others) , including, the non EU part, is that they may sanction themselves into a depression…..

    • joe2 says:

      “no bail outs of any sort”

      Just like the US, “We don’t need no stinkin badges.”

      Laws are racist if we don’t agree with them.

      You can have uniform rule of law, or rule of men, or rule of ideology, or mob rule.

      We are all on a Nantucket sleigh ride to the NDA not the NWO. (New Dark Ages)

    • The Real Tony says:

      Their negative interest rates sunk the entire banking system.

    • Wolf Richter says:

      I don’t think you read the article, from what you wrote. I’m being graceful here :-]

      Next time, before you decide from the headline what I said and what I understood or didn’t, go RTGDFA before you comment.

  33. joe2 says:

    ” reckless money printer, inflation arsonist, and NIRP-absurdist.”

    Wolf, you have a way with words. Practice make perfect. I’ve got to up my game to keep up.

  34. Michael Engel says:

    The Eurozone is Zollverein, a custom union, the whales are taking over.

  35. David Brewer says:

    I don’t like the look of the ECB’s tool. Maybe it works, maybe it doesn’t, but it’s yet another interventionist, market-defying instrument. The internal logic of such behavior is that one intervention eventually requires another and another until the market just doesn’t work any more to fix prices, allocate resources etc. The ECB and the whole EU is a long way down this track already. It always ends badly as it is fundamentally an attempt to deny reality.

    • COWG says:

      “I don’t like the look of the ECB’s tool”

      Neither does China…

      If the ECB doesn’t bail out Italy, China will make them an offer they can’t refuse…

      China and Italy are already partnering on China’s Belt and Road…

    • Yes, the reality may be that you can be a country or you can be a province, but you cannot be both.

      The euro countries want to be countries, but they have adopted a monetary system that treats them like provinces.

      This may be a case where the group psychology of belonging is more important to the participants than the actual effects.

  36. Michael Engel says:

    What will happen to the German 3M if Hurtano fall in love with Liza from Guyana.

  37. David Hall says:

    From MarketWatch, a publication of Dow Jones and Company Inc:

    “U.K. inflation hits fresh 40-year high of 9.4%”

  38. Citizen AllenM says:

    Look, fiat is a parking delivery pick up zone. Use it and get out. As for stable stores id value, there is nothing. Taxes have rise, or Empires fade into the sunset. Meanwhile the rubes keep on buying garbage. Nothing new except the Fed is going to spend years cutting liquidity to fight inflation.


  39. Asul says:

    The main problem is that the Eurozone entered a phase after the Great financial crisis of 2008, which resembled the crisis of 1929. First it looked like a deflation problem, then it spiraled into a debt crisis and sovreign crisis. No one knew how to solve this (Trichet was to busy sleeping), so what they did was call Super Mario, who will make his magic trick … and there it was: Hop! A Greenspan idea “zero or negative rates” for … let’s say … a decade!

    So they all smiled and congratulated each other, but what they did wasn’t a true solution. They just kicked the can down the road. Draghi knew that so he quitely moved to be the PM of Italy … far, far away from the crisis, that was brewing in the Eurozone.

    Lagarde, who is an absolute imbecil, never knew that. And appearently she still doesn’t realize, that she was offered the job, only because no one in their right mind would take it. And now we have completely incompetent people at the helm.

    The TPI is nothing more than QE for weaker countries. The debt of these countries went up from 2008 crisis, Greece is at 196% GDP, Italy at 156%, but there are even more countries with debt over 100 % (Belgium, Portugal etc.), so this decade was never about reforms or productivity, there was nothing done for the long term, but rather a spending spree, which acumulated more debt.

    It looks like even the Ukraine-Russia problem is being exploited. The EU inflicted sanctions on Russia, now there is a energy crisis which is completely selfinflicted. The North Stream 2 is built and ready to go, yet we are talking about gas crisis.

    The level of incompetence is mind blowing and Russia is now the culprit for inflation … which is nuts. It is 90 % selfinflicted, because no-one wants to be the adult in the room and say: “We don’t know how to solve this.”

    • Pehdro says:

      “The level of incompetence is mind blowing” or the level of NATO lobbying IS mind blowing…

    • Einhal says:

      Meanwhile, Europeans brag about their “free” college and health care all the time. The fact is, nothing is free, and they’ve done as a poor a job paying for their “free” stuff as we have in the United States.

      The real problem is that the West’s standard of living costs far more than the productive capacity of its economy. Rather than face that unpleasant truth, we’ve masked it with debt and financial wizardry. When the game will end is anyone’s guess, but be assured, it will end.

      • Augustus Frost says:

        You’re right, but the majority of Americans have no clue and of those who do, overwhelmingly believe the US is exempt from the same reality which applies to everyone else.

      • I would say the real game is for the folks in DC to adjust the economic environment to maximize the economic well being of the populace.

        Obviously the results have been mixed.

        But it looks like they are getting better at their jobs, with some reshoring happening and so forth.

        So muddling through may be the more hopeful assessment.

    • Augustus Frost says:

      Unlike what I hear for the US (which is total BS), debt levels aren’t rising because taxes are too low.

    • ChrisR says:

      You know how to solve this. It’s through the ballot box. But your feeble voters don’t want to work hard and give up the free stuff.

  40. SoCalBeachDude says:

    In 1929, just days before the markets crashed, Irving Fisher, one of history’s great economists, made a famous statement.

    “Stock prices have reached what looks like a permanently high plateau,” he said. “I expect to see the stock market a good deal higher within a few months.”

    That statement came to define Fisher’s career. And not in a good way. Stocks plunged 89% into 1932. The Great Depression was underway.

    It took stocks 25 years to recover their 1929 values.

    Ouch. Not a good look there, Irv.

    • Phoenix_Ikki says:

      Sadly, there’s so many of Irving Fisher type out in MSM land now…the perception of the matter is different and with absolutely no accountability for these people to continuously promote a false prediction and narrative, if there’s a next time it will probably be worse but that’s just my guess.

  41. eg says:

    I’m buying popcorn in bulk in anticipation of watching the stress the ECB’s new “glue gun” can, or cannot, withstand …

  42. SpencerG says:

    The “glue gun” is an interesting approach. Maybe it will keep the Soros wannabees at bay for a little while. But only if the governments of Italy, Spain and Greece do the right thing in conjunction with them. If they keep blowing out their national spending in the middle of an inflationary period then the ECB cannot save them.

  43. Tang says:

    Layman thoughts. ECB council with somewhat 28 members all well qualified financiers, economists n very important people . N they took days of deliberation to see how to solve the high inflation problem averaging 8% or more in many EU states. And full of self importance they took on the tasks..projecting the image that they can gear up to the tasks quickly. Interest rate hikes causes money to be more expensive thereby lesser people can effort. With demand reduced assuming no change in supply prices goes down and overall prices go south. Thereby inflation falls. Basic economic theory.
    But EU is in negative territory for real interest for many years…A 50 basis point hike only pushes the rise to just
    0% in many EU states. The cost of money is still 0 as the case maybe. Solving inflation in EU? How?

  44. Xavier Caveat says:

    What kind of glue are we talking here?

    • SoCalBeachDude says:

      The kind from old glue horses at old age corrals!!!

    • CrazyDoc says:

      Magical glue that can stop any breakages

    • Wolf Richter says:

      I saw Largarde yesterday at the Castorama hardware store in Paris, looking at various adhesives. She had several people with her, and they were reading the labels of all the different adhesives, one by one to see which might work best in the glue gun. However, due to the labor shortage, there was no one there to help them. Not sure what they decided on.

  45. Michael Engel says:

    Next year COLA is 10% up. The IRS collect after 25K income including SS. Med insurance will be up too.
    The gov will collect more taxes from the low end, from the lowest quintile, from people on min wages, whatever they are, and from retirees.
    If your income is rising u might lose gov goodies, during high inflation.

    • Depth Charge says:

      The government is going after those etsy hundredaires, and those ebay thousandaires with their new 1099 reporting mechanism. No dollar shall escape. But the billionaires are fine with their offshore accounts. They’ve got their priorities straight, as always.

  46. George Cloonotney says:

    Never say never…..

    What’s with the focus on Italy and Spain being ejected?
    How much more entertaining would it be if Germany walked out from the Euro?

    • Wolf Richter says:

      Yes, that would be a hoot.

    • AK says:

      IMHO Deutschmark would quickly appreciate vs everything, and German export industry would become uncompetitive. I think Germany has strong economic incentives to stay in EU. Not so sure about Italy or Greece.

  47. Tom H says:

    Great article!

  48. Tom T says:

    Great article!

  49. NARmageddon says:

    This so-called Transmission Protection Instrument or TPI means that the Euro will gradually move towards being backed mostly by Italian and Greek debt.

    If you want to have fun with it, call it the lirification and drachmatization of the Euro. Oh, the Dra(ch)ma!

    It will not end well.

    • Wolf Richter says:

      Not what it said. What it is means that these bonds can roll off at a different pace. For example, German bonds can roll off more quickly than Italian bonds, but both are rolling off.

  50. Rico says:

    The only inflation that really matters worldwide is U S inflation. If the world dumps the dollar because U S inflation is out of control it would be catastrophic. The Fed will go to deflation if it has to.

    • AK says:

      100% agree about Federal Reserve being determined to strangle inflation regardless of any costs

  51. Gyalogtank says:

    I was wondering about something: The FED needs to keep the dollar strong. A weakening dollar would mean that imports will become more expensive, thus pushing inflation higher with the monstrous trade deficit the US gathered. Up till now the currency fared pretty well, now they have achieved parity with the euro. However the ECB kept a negative interest rate, while the FED was hiking in an orderly fashion. So the ECB hiking aggressively would mean the euro will strengthen. If the FED does not want to let the USD weaken compared to the EUR, then they will be forced to hike more aggressively, to keep the purchasing power of the USD. Basically a worldwide race started to increase rates, the loser suffering debilitating inflation.

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