Archive for wage growth

European Central Bank sticks to easy money pledge despite better growth

Once again the central bankers talk out of both sides of their mouth.  Mario says one thing, spooks the markets and then unwinds his statement and he is once again the brilliant hero for the markets to applaud. Are you nervous yet?

FRANKFURT (REUTERS) – The European Central Bank left its ultra easy monetary policy stance unchanged as expected on Thursday (July 20), keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens.

But the prospect of reduced monetary stimulus has kept financial markets edgy, with investors nervously sifting through clues to gauge how big central banks around the globe will unwind unconventional policy that have kept borrowing costs at rock bottom.

The biggest headache for the ECB is the apparent disconnect between inflation and growth. Having bought trillions of euros worth of government and corporate debt for years, the ECB has rekindle growth and the euro zone is creating jobs faster than expected.

Why Wage Growth Is So Weak

When the Central Banks play the entire system becomes distorted and has to fight to find (a new) equilibrium. The end result is that the can is kicked further down the road and the correction ends up being more violent and destructive without the unnatural insertion.

Many experts are puzzled by the subdued increase in workers earnings. After all, it is held the US economy has been in an expansionary phase for quite some time now.

The introduction of deregulation of financial markets since early 1980’s has set the platform for massive monetary explosion out of “thin air”. The proponents for less control in financial markets hold that fewer restrictions imply a better use of scarce resources, which leads to the generation of more real wealth.

This massive explosion of money out of “thin air” has severely damaged the pool of real savings. Rather than promoting an efficient allocation of real savings, the current so-called de-regulated monetary system has been promoting the banks’ ability to channel vast amounts of money out of “thin air” across the economy.