By Julien Backhaus – Wealth Protection Today (Germany) –
In five days it will be particularly exciting for you. The Fed will meet for a regular meeting and will discuss its monetary policy. It is likely that it will raise interest rates slightly as the economy has started in the US and prices are rising again. This makes the 14th of December an important day for us all.
In the coming days, you will read a lot about the fact that interest rates could rise. The markets are tense and are likely to appreciate a minimal interest rate hike. This would make it clear that the US economy is strong enough to cope with rising interest rates. If the mark-up is not too high, ie by only 0.25 percentage points, then analysts and investors are jubilant.
The gap between euro zone and the USA could continue to grow
So it is already exciting on these exchanges these days. The likelihood that prices will rise is comparatively high, as the signs of such a rate hike are good. But why is it all so interesting to you?
It may be natural that you hold US shares in the custody account. This is likely to pay off for you if the expectations of the central bank are fulfilled. Regardless of this, however, you are more likely to be more closely acquainted with the US economy as a wealthy Euro than many of us will be fond of. An interest rate hike in the US would further increase the interest rate differential between the US and the euro zone.
The ECB can not be diverted from its wrong course
This means you get far less interest in the euro zone than in the US. Large asset managers will therefore direct their capital towards the USA. The euro zone would be weaker. This weakens the entire economy as it becomes more difficult to obtain capital that the economy needs for investment.
But the ECB will not let its course keep interest rates low. This has already been announced in the past days after the election in Italy. The central bank in Europe prints money by purchasing bonds from Italy, for example, without receiving high interest rates. They can actually produce the money themselves, so it does not cost them anything. We are all suffering.
If interest rates rise, Italy and Greece are almost broke
But the ECB believes that it is not an alternative. If interest rates were to be increased by simply asking the central bank for more interest on government bonds, then Italy is almost instantly insolvent. The same fate would be suffered by Greece. It would presumably be very narrow even in France. Again, the banks are massively under pressure.
The policy in the euro zone is also pleased about the low interest rates. This will make exports cheaper, European goods are easier to sell worldwide. This could create jobs first. But why am I annoyed?
The inflation rate in the euro zone will rise . In Germany, the rate is likely to grow even faster. Imports from the US or other countries that settle in dollars will automatically become more expensive if the euro is less or should be. Economists call this “imported inflation”. In Germany, the capacities within the industry are relatively well utilized. This in turn means that the demand is quite high. This is especially the reason for our prices.
For this reason, it will become more and more expensive for us from the 14th of December. As the European Central Bank simply watches the decision in the US, I call this “cold expropriation”. Especially in Germany, the course will be new from the coming Thursday. Compute with prices that are rising in tendencies.