2023-06-28 10:07:07
John Kennet Galbraith (1908-2006), a friend of John F. Kennedy (1917-1963) and a great economic popularizer, often somewhat provocative, said that “the process by which banks create money is so simple that it is repugnant to intelligence ». Even simpler is the method used by central banks. A simple note on your balance is enough and the miracle is done, the money comes out of nowhere. This is what the American Federal Reserve (Fed) and the European Central Bank (ECB) did above all to avoid collapse during the Covid-19 pandemic. The flood of money also laid the foundations for inflation – also for other reasons, but everything helps – to skyrocket. Now the battle, as the IMF and the President of the ECB, Christine Lagarde, recalled yesterday and the day before yesterday in Sintra (Portugal), is against inflation, which is still not defeated, and that war may be longer than previously thought.
On Thursday, the banks of the euro zone, have to return to the ECB almost 500,000 million euros of that money that was created out of nothing and that, now, in theory, should be destroyed. The ECB dedicated the huge amounts of currency it manufactured –with simple account notes– to lend it to the banks so that they could make it reach the real economy. He used a mechanism, the so-called TLTRO, “litrons of money for some”, which has already done its job. The repayment of all these loans supposes, in short, the withdrawal from circulation of that half a trillion euros – some 38,000 million correspond to Spanish banks – something that should help to mitigate inflation. It will also mean, sooner or later, that the banks return to remunerate the accounts of their customers. Until now they lived in an ocean of liquidity and, in practice, they did not need to pay for the money. From now on, everything begins to change and, as in the case of positive interest rates, everything returns to a certain normality. There will always be those who long for the strange era of almost free money. Clients will remember mortgages at 1% or 2% and how banks even charged for deposits. Times past that will not return, while the ECB prepares to destroy half a trillion euros, also in a way as simple as the one described by Galbraith.
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