Dec. 13, 2021

Three Central Banks Meet This Week: ECB, BOJ, And USA.

This week three out of the top four economies will have their central bankers meet, to decide interest rates and monetary policy to begin the new year. The only one missing will be China.

What makes this week so interesting is that each of the three Central Banks finds itself fighting entirely different “Economic Dragons.”

For Japan, the issue is deflation and a declining economy. In many respects Japan today looks very much like the US last year. Before the Biden Administration took the reins and unleashed the current bout of inflation.

Like the US with its aging baby boomers, the Japanese population also is loaded with those who are retired. That time in life when people slow down, consume less and, of course, produce less. And their economy naturally follows that pattern.

For the Central Banks with an aging principal demographic, the challenge is always to pour on the fuel. To provide enough stimulus to move the economy ahead.

You can see what a difficult time the Japanese are having, by looking at inflation in Japan. For the past several years, they have managed to stay above a price level decline, deflation, but only barely. It's a struggle.

All of that is an exact description of the United States, up until Joseph Robinette Biden became the 46th President. Beginning with those first few days, when the President sat down at his desk and began by signing an unprecedented number of Executive Orders.

His apparent objective was to transform social spending in the country, and he did so with a vengeance. Forget FDR or LBJ, the new champion social spender, and after just one year, is President Joe Biden.

This social spending, combined with a dysfunctional supply chain, has made goods both scarce and expensive. And a Federal Reserve, which has acted this entire year as if it needed to stimulate the economy, like Japan. And we now find ourselves with excessive inflation.

We've gone too far.

The Fed's job, at this meeting and going forward is to try to put the inflation “genie” back in the bottle.

And then we come to the European Central Bank. What can we say? It has all of this and more.

Inflation, The ECB”s largest and most important economy, Germany just reported an all-time record jump in Wholesale Inflation. Memories of the Weimar Republic still remain in this Inflation Phobic country.

Nonetheless, German Wholesale Inflation rose at a staggering 16.6% this morning. A level that nearly doubles the rise in American wholesale prices.

Clearly, the ECB must make fighting inflation its first priority.

Well, hold on there “mon amie.” Just next door, in France, things aren't looking quite so strong. The French inflation rate currently is just over 2%.

By Fed standards, the minimum rate we should expect currently from a growing economy. Remember, before this year 2% inflation was the Fed's target?

So ECB, don't stomp on inflation for the Germans, France is just where it needs to be. If anything France could perhaps use a little more stimulus.

And so it goes through that loosely associated amalgam of countries, called the European Union. Some need restraint some stimulus.

Without a doubt, this week's meeting of the ECB will be the beginning of an extraordinary year. One in which, like the rest of the world, the Super State, will find itself with some members need to quell the first of inflation, while others will need more stimulus.

So there you have it.

For these three central banks, 2022 begins this week. With each headed in their own direction.

The Fed will conclude by reporting their results, and that all-important interest rate decision on Wednesday.

While the European Central Bank and the Bank of Japan will both report on Thursday.