Mario Draghi, President of the European Central Bank, had a press conference today. It was an important press conference given the fact that the ECB continues its policy of gradual bail-out of the Greek government without any corresponding measures of austerity and spending cuts from the Greek side. Last week the ECB bought 40 billion euro worth of Greek government bonds at a total face value of 53 billion euro.
The Greeks immediately tried to bargain, asking the ECB to forgo the profits on the bonds (that is, not expect to be paid the face value at maturity). Draghi refused, using the argument that that “would amount to the monetary financing of governments, which is forbidden.” The Greek government will have to pay to the last penny.
This is why in Europe, Draghi is considered a “strong” president of the ECB. Because he insists on the ECB making a profit on lending money to governments. And some even claim that he is on his way to solve the debt crisis of Europe.
The reality is different, when one examines the situation in details.
In order to purchase Greek government’s bonds, Draghi has to create those 40 billion euro out of thin air. The ECB has no assets of its own. Just like out Federal Reserve, it’s only “asset” is its legal monopoly on printing money. The ECB will not pull a resource from one segment of the market to finance another segment, like a private investor. It will simply create the money, and let the Greek government use that money to pay those that are favored by the government. Then, when the Greek government has to pay back, the private sector in Greece will be taxed heavily, so that the money returns to the ECB, with 13 billion euro profit, itself made out of thin air.
Meanwhile, the beneficiaries of that new money freshly created by the ECB – the Greek government bureaucrats, banks, and those that receive government pensions and welfare checks – will use the money to buy more goods and services. And since the Greek economy is in shambles, the goods must be imported – normally from Germany. The German workers and producers will see more euro flooding their economy, thus driving the prices up and the value of their savings down. Before they know what is going on, the 40 billion euro that Draghi created will have devoured a good percentage of their wages’ purchasing power. And that in favor of the Greek bureaucrats and politicians.
Let alone the fact that under the European lax rules for fractional reserve banking, the 40 billion euro just deposited in Greek banks will create additional inflation pressure by the banks lending and re-lending them, until every one of these euros have created ten new ones, moving about in the electronic banking system. The banks will make more profits, and the middle class of Europe – or what’s left of it – will have to sell its labor for constantly devaluing euros.
Draghi’s 40 billion euro are theft. At the end of the day, Draghi’s actions will be pure profit for the governments, the people who feed at the government trough, and the bankers. The average people in Europe will be robbed.
That’s what a central bank is: Massive theft, protected by a government monopoly. That’s what our Federal Reserve does too: robbing the American people, protected by government legislation. A central bank is always created for one only purpose: to rob the people for the government. That’s why the Fed must be ended, and we should return to the gold standard.