Time For Glass-Steagall, Not Monetary Alchemy

A related issue is the ECB announcement of an end to the APP (Assets Purchase Program) on July 1. So far, the APP has guaranteed monthly ECB purchases of sovereign debt in the Eurozone, thus guaranteeing the stability of the euro. The announcement has immediately sent the spread between German and peripheric yields close to the unsustainability threshold. The ECB does have a “safety net” ready for countries deemed debt “sinners”, but it is to be implemented under harsh fiscal conditions, similar to those that smashed the Greek economy in 2011. That perspective is already causing great concern in Italy.

Former Italian Finance Minister Giulio Tremonti is among the few who have pointed to central banks’ monetary expansion as the cause of the financial storm. In an interview with Il Giornale on June 10 he referred to that day’s “black Friday”: “The storm started yesterday. It is evident in the sales volume, in their objects, in their rapidity and in the action coming from the financial market as a whole.” For the online version

After giving classical examples of financial alchemy in Goethe’s Faust, Pinocchio and Thomas Mann’s The Magic Mountain, Tremonti noted “In 2008-2009 they thought that the crisis of globalization could have a financial solution and not a structural one. The Berlusconi government proposed to adopt a Global Legal Standard, going from free trade to fair trade. The idea, supported by OECD, was rejected by the Financial Stability Board, successfully chaired by Mario Draghi—which, unfortunately, produced very little stability. And that is how we went to Plan B: unlimited creation of money out of nothing. In that way in Europe, the ECB went beyond the two principles of the euro: [containing] inflation and a ban on government financing.”

Inflation, he said, is scarcely contained, as the target of 2% has been left behind, and is now at 8%. As for the ban on direct government financing, it “has been bypassed with a government-banks-ECB triangulation: governments issue bonds which are underwritten by banks, which sell them to the central bank. This is how money from nothing is created and the ECB has become a sort of Bad Bank. What was supposed to be an emergency scheme became long-term care. It lasted ten years among delusionary and universal satisfaction. That is how the ‘Whatever It Takes’ became ‘Whatever Mistakes’: all possible mistakes were made.”

The only solution Tremonti offered was urgent government intervention to protect households from inflation. In fact, the way out of the storm is a bankruptcy reorganization of the entire system, as Lyndon LaRouche insisted long ago, starting with a Glass-Steagall type of banking separation.