{"id":126011,"date":"2022-07-24T18:26:24","date_gmt":"2022-07-24T22:26:24","guid":{"rendered":"http:\/\/stateofthenation.co\/?p=126011"},"modified":"2022-07-24T18:26:53","modified_gmt":"2022-07-24T22:26:53","slug":"there-a-huge-war-going-on-between-the-us-and-the-eu-the-fed-is-facing-an-existential-threat-to-its-survival","status":"publish","type":"post","link":"http:\/\/stateofthenation.co\/?p=126011","title":{"rendered":"

There a HUGE war going on between the US and the EU. The Fed is facing an existential threat to its survival…..<\/b><\/h3>"},"content":{"rendered":"

ECB Raising Rates is Europe\u2019s Last
\nChance to Avoid Ground Zero<\/strong><\/h1>\n

\"\"<\/p>\n

Tom Luongo
\nGold Goats \u2018n Guns<\/p>\n

No matter what happens, as long as\u00a0Davos\u00a0<\/em>feels they have control over US foreign policy they will continue to act as if everything is coming up roses for them as they trash the global economy.<\/p>\n

This is why I find the myriad attacks against a mostly clueless Joe Biden so interesting right now. Is there a\u00a0Davos\u00a0<\/em>pivot in the offing or is this another signal that sovereigntist forces within the US power structure are gaining the upper hand?<\/p>\n

With that question in mind let\u2019s put some context on recent European events and what they say about the global story unfolding in front of us.<\/p>\n

The ECB finally raised rates for the first time since 2011, bringing the benchmark \u2018lending\u2019 rate to -0.1%, because I guess it would be beneath \u2018European values\u2019 for banks to have to pay to borrow money stolen from savers.<\/p>\n

Some would be shocked (SHOCKED, I SAY!) that the ECB went up by 50 basis points (0.5%) today, but given the dramatic events in Italy just yesterday, how could they have really done otherwise without looking like the out of touch midwits they, in fact, are.<\/p>\n

They just lost their top man in Italy and it looks like the populist right is set to take power in a core EU country in a couple of months without any of the\u00a0Davos\u00a0<\/em>poison pill legislation getting passed.<\/p>\n

Sound familiar? The same thing happened in the US last year and we\u2019re now staring down the barrel of an historic wipeout of the Democrats in November\u2019s mid-terms.<\/p>\n

This is a real, serious loss for\u00a0Davos<\/em>, as\u00a0I outlined in last week\u2019s article\u00a0<\/a>on Draghi\u2019s first resignation attempt.<\/p>\n

But at the same time that the ECB raised interest rates, it also announced a new \u2018without limit\u2019 QE program called the\u00a0Transmission Protection Instrument<\/a>, because, as Zerohedge rightly points out, calling it \u201cItaly specific QE sounds a little\u00a0gauche<\/em>.\u201d I\u2019d add it\u2019s also against core European values like telling the truth.<\/p>\n

ECB President Christine Lagarde was in full control in trying to outline this new experiment in monetary policy, clearly now more \u201cart than science,\u201d to quote Lagarde from the Before Time, you know, last week.<\/p>\n

\u201cWe have everything under control,\u201d has been the theme of all the headlines coming out of Europe this week. No matter the subject, even little things like the collapse of Mario Draghi\u2019s\u00a0Davos-backed<\/em>\u00a0government in Italy, can derail the European project.<\/p>\n

It\u2019s all good, we just have to stay the course, be \u2018data-driven,\u2019 and not yield on Europe\u2019s core values, which, at this point amount to, trusting the arsonists to run the fire department.<\/p>\n

\"\"<\/figure>\n

To give you an idea of how deeply embedded this controlling idea is, earlier this week it was the statement from\u00a0EU \u201cForeign Minister\u201d Josep Borrell<\/a>. \u00a0Europe, he said, must keep the pressure on Russia. It cannot \u201cafford sanctions fatigue.\u201d \u00a0It needs to keep pressuring Russia\u2019s economy for the long haul. We must keep up the saturation bombing of Russia\u2019s financial system no matter how many of those bombs land in Rome, Athens or Berlin rather than Moscow.<\/p>\n

The unstated goal of these sanctions is to keep advanced technology out of Russia\u2019s hands to domestically produce the weapons it will need to fight off NATO, not next month, but next year or in 2024.<\/p>\n

This is a long term plan. \u00a0In an episode of\u00a0RT\u2019s Crosstalk I taped earlier in the week<\/a>, host Peter Lavelle brought up the Biden Administration quotes about this being a 20-year war against Russia and\/or China.<\/p>\n

Pompeo\u2019s \u201cThree Lighthouses\u201d speech was the same conclusion; a generation of Americans are going to have to fight a holy war against the East for control over global energy. Too bad no one wants to sign up to join, Mike.<\/p>\n

They only have the existing plan and they were put in place to execute it, even if others counter it effectively.\u00a0Biden is also on the same script, but he\u2019ll be gone soon because he\u2019s no longer a credible messenger. Then we\u2019ll bring in Kamala \u201cWe Gathered here, because here is where we are gathered\u201d Harris to be the Moron-in-Chief at the White House.<\/p>\n

Because, they remind us constantly, those uncouth Yanks can\u2019t be allowed to run anything.<\/p>\n

With that in mind, look at what else the EU put out this week:<\/p>\n

\"\"<\/figure>\n

When\u2019s the last time you saw\u00a0any set of economic indicators come in perfectly in line with expectations like this? Seriously? This would be the first forecast by a European agency that they ever got right?<\/p>\n

Moreover, if this is true, why did this CPI print push the ECB to raise rates by 50 bps versus 25 bps? I mean, they expected this CPI print, right? So shouldn\u2019t they have been communicating 50 bps the entire time?<\/p>\n

There is logic and then there is the E.C.B.<\/p>\n

It\u2019s just a desperate narrative to keep up appearances they have everything under control, that they are on top of the economic situation and there is no reason for anyone to panic.<\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

Because panic, or \u2018unwanted and unwarranted\u2019 (Lagarde\u2019s words) changes in credit spreads will prompt the use of the TPI to keep the Central Bank That\u00a0Davos\u00a0<\/em>Built from going bankrupt.<\/p>\n

For the EU however, the clock is ticking down fast. It\u2019s the Fed\u2019s turn next week and with this 50 bps raise, you almost have to expect 100 bps from Powell.<\/p>\n

Remember that Eurocrats like Borrell and Lagarde have no Plan B (but maybe a Plan R, sadly<\/a>).<\/p>\n

Reversals of Fortunes<\/h3>\n

I invoked Dr. Strangelove here for a reason. \u00a0Watch the movie again structurally, note the myriad of \u2018reversals\u2019 in it. It\u2019s a marvel of screenwriting. \u00a0It shows you how clever humans are when they are single-minded in overcome obstacles to completing a task, operating as if the false is true.<\/p>\n

There is no better metaphor for the current state of capital markets and political warfare than that.<\/p>\n

I talk about reversals all the time in technical analysis of markets, but it\u2019s an idea that is embedded deeply in storytelling. \u00a0The first key to writing a great screenplay is knowing every scene has to have a \u2018reversal of value.\u2019<\/p>\n

A reversal of value can be as simple as a cold person finding a hat, to a poor person finding a suitcase full of money.<\/p>\n

The scene, no matter how small, has a controlling idea. \u00a0That controlling idea has to change a value in some way or the scene has no purpose.<\/p>\n

Good editors leave them out. Studios put them back in to sell \u2018Director\u2019s Cuts\u2019 on Blu-Ray.<\/p>\n

The EU is all about Director\u2019s Cuts of unwatchable French \u2018Cinema.\u2019<\/p>\n

Reversals are important, they create and release tension. \u00a0Good writing constantly builds up small reversals to set the stage for larger ones (Scene Arcs) which impact bigger ones (Acts) and so on.<\/p>\n

The Eurocrats and\u00a0Davos<\/em>\u00a0don\u2019t believe in reversals. \u00a0They believe in inevitability and if they can just \u2018stay on script\u2019 no matter the complication which has negated their plan, they can still get to the finish line and win.<\/p>\n

This is what happened at the ECB\u2019s pivotal meeting this week. They are staying the course. 2% inflation is the goal. Lagarde dropped all forecasts and talk of inflation being \u2018transitory.\u2019 Even though circumstances have reversed against them and they finally admitted it publicly, they won\u2019t give up the overall narrative that everything is fine.<\/p>\n

Europe\u2019s values can only be expressed through the EU and therefore anything to save the EU saves European values. Maybe Kamala can crib from that one.<\/p>\n

Thank the gods we uncouth Yanks left those European values behind, only to have them constantly try and impose them on us at every turn.<\/p>\n

To many investors the Fed had their pivotal meeting last month when they raised 75 bps, but that reversal of Fed policy was only in their minds. In fact, as I\u2019ve been saying for more than a year now, the Fed\u2019s pivotal meeting wasn\u2019t this past June but the one from June 2021, when \u2018stealth tightening\u2019 through reverse repo payouts began.<\/p>\n

That set in motion as series of complications for the ECB and\u00a0Davos<\/em>\u00a0which have been piling up like those thrown in front of the people trying to stop Armageddon in\u00a0Dr. Strangelove<\/em>. The ECB finally realizes that there is nothing to do now but to accept the smoking ruin and face reality.<\/p>\n

Stay on Target. Stay on TARGET<\/h3>\n

What we are seeing in the markets this week after the euro briefly broke parity with the US dollar is the predictable bounce which comes after a major scene arc was completed. The euro hit $1.03 and no further.<\/p>\n

But it\u2019s just that, a bounce, a brief comic interlude to release the tension.<\/p>\n

Lagarde\u2019s performance was her admission of a \u2018credit-spread gap\u2019 that is now unbridgeable. Italy\u2019s debt is headed towards oblivion and the ECB just said they will spend every euro of German savings to avoid that for as long as possible.<\/p>\n

So, we have this idea that the ECB is on top of everything. But, what about the war in Ukraine? What about the EU\u2019s future?<\/p>\n

The next headline is just as much of a stunner, in the face of a fracturing EU and Mario Draghi\u2019s tenuous hold on power in Italy:\u00a0EU Starts membership talks with Albania, North Macedonia<\/a><\/strong><\/p>\n

Translation:\u00a0Don\u2019t worry, the EU is healthy and everyone wants to be a member. \u00a0We will only grow stronger, not weaker. \u00a0We will absorb all of Europe, claim NATO from the Americans, force them to fight China while we starve Russia.\u00a0<\/em><\/p>\n

This is fine.\u00a0<\/em><\/p>\n

This is all part of the script. \u00a0But, it\u2019s clearly not.<\/p>\n

This is what they want us in the West to see, what we\u2019re only allowed to find in internet searches. Meanwhile, the Russians tell you what Europe is really doing,\u00a0namely lifting sanctions and desperately trying to get the energy and food<\/a>\u00a0it needs to stay one step ahead of the hangmen outside of parliaments all across the \u2018civilized world.\u2019<\/p>\n

The truth is, for the first time in a very long time,\u00a0Davos<\/em>\u00a0is not calling the shots for the entire West. \u00a0 Italy\u2019s government is gone because the populists were told they have US backing to end Draghi\u2019s reign of terror.<\/p>\n

Certified Ph.D. in Geography Liz Truss has even odds of becoming the next UK Prime Minister to keep US control over City of London strong and the UK in the game.<\/p>\n

Canada raised rates by 1% the other day, prompting comments about it having to follow, if not one-up, the Fed. \u00a0Clearly, the Canadian banks have had enough of Justin TrueDOH! and his Ukrainian Fifth Columnist,\u00a0Davos<\/em>\u00a0chick Chrystia Freeland.<\/p>\n

And next week, the Fed will raise the stakes again on Lagarde regardless of what she said today. \u00a0TPI is unusable garbage which traders will front-run her into oblivion over. If she wants to know what that feels like maybe she should talk with Kuroda over at the Bank of Japan rather than her data-driven experts in Brussels.<\/p>\n

My last point is the one so many people do NOT want to hear, but better consider very carefully. Anti-American commentators do not understand what is happening.<\/p>\n

They cannot wrap their brains around the idea that there are forces within the US hierarchy who see the Imperial Trap for what it is and that if it continues it will be the end of the US. That the Fed is facing an existential threat to its survival and that they have far more wiggle room than they think.<\/p>\n

Maybe, just maybe, the giants are fighting and we ants have a hard time distinguishing between not only who\u2019s winning but whose footsteps we should avoid.<\/p>\n

At some point the whole illusion will come crashing down. \u00a0Europe is the old whore who still thinks she\u2019s a hot twenty something. \u00a0The Fed is the guy at the bar who\u2019d rather drink alone.<\/p>\n

One only has to really look at the image Lagarde and EU Commission President Ursula Von der Leyen project to the world to see exactly what I\u2019m talking about. Thank the gods Merkel left the scene.<\/p>\n

These ladies will stay on script while riding the bomb to ground zero thinking they have dance partners the entire time.<\/p>\n

___
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ECB Raising Rates is Europe\u2019s Last Chance to Avoid Ground Zero<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-126011","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/126011","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=126011"}],"version-history":[{"count":0,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/126011\/revisions"}],"wp:attachment":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=126011"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=126011"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=126011"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}