Gold and a Warning

Deutsche Bank’s overhaul is a sign of things to come for the global economy... starting in Europe.

The bank has decided to a “restructure” that’ll see 18,000 jobs cut by 2022.

It will also be closing down its global equities sales and trading business and will create a “bad bank” which will hold 74 billion euro.

The restructuring of Deutsche Bank will be one of many to come from the European region. It won’t just be limited to the private sector.

In case you had any doubt which direction monetary policy in Europe was headed, Managing Director of the International Monetary Fund Christine Lagarde has been nominated to become the next president of the European Central Bank.

Current ECB President Mario Draghi’s term ends on October 31.

Mr. Draghi’s tenure has been one failed promise after another.

If Ms. Lagarde is confirmed, she takes over the beginning of the end for the euro.

Despite calls for quantitative easing and interest rate cuts, inflation is half of the ECB's 2% mandate.

Lagarde is an interesting and qualified nominee as she oversees an organization — the IMF — of 189 countries that officially works to ensure the stability of the global monetary system, promote international trade and economic growth, and reduce poverty.

I could make a case it does a heck of a job of destabilizing wherever it gets involved but that’s a conversation for another day.

Far from an academic, Ms. Lagarde is an attorney and former politician whose political savvy will help Europe navigate the challenges to come. But that’s not the point of this piece.

The point of this piece is to connect the dots and oversee the direction of monetary policy out of Europe and elsewhere.

Lagarde oversaw the bailouts in Greece and Argentina.

She has been very supportive of both negative rates and quantitative easing.

In 2015, when Draghi announced his asset-purchase program, Lagarde commented:

“We welcome the measures announced today that will strongly reinforce the ECB’s accommodative stance. The planned expansion of the ECB’s balance sheet will help lower borrowing cost across the euro area, raise inflation expectations and reduce the risk of a protracted period of low inflation.”

— Jan. 22, 2015, IMF statement.

Fast forward over four years later and the 2% inflation expectations remain just that, expectations as low inflation continues to persist throughout the region.

A June 2019 statement Lagarde made in an IMF blog is telling:

"When the next downturn comes, which inevitably it will, policy makers may need to use all policy tools to maximize their combined effect. This means supporting demand through decisive monetary easing and fiscal stimulus wherever possible.”

Expect decisive monetary easing and fiscal stimulus.

Pivot here to the U.S. and there is more of the same, just from a position of strength.

President Trump’s Federal Reserve nominee Judy Shelton is known as a free trader who last year called for a “new Bretton Woods conference,” similar to the 1944 meeting that established the post-war economic order.

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