Money devaluation is increasing!
For May, statisticians reported a 2.2% rise in the general cost of living. Thus, the Federal Republic takes a leading position among the European nations in the price increase, because the Eurozone reported an increase in the cost of living by 1.9 percent.
In the United States, too, commodity prices are now rising sharply. Nevertheless, the cheering among central bankers was only cautious, because the failed formation of a government in Italy abruptly upset the ghosts of the euro crisis, who had been expelled. But while the US has already reversed interest rates for some time now, it will take longer to be seen in the eurozone. The crisis states are still too vulnerable to wean them from the interest relief granted by the European Central Bank (ECB).
In fact, the recent observable drastic falls in Italian government bonds suggest that the ghosts of the financial crisis are still not banned. It is good to remember that the big financial crisis was essentially a debt or over-indebtedness crisis caused by excessive lending. In Italy, the new coalition partners want to open a new debt cask without having been able to reduce the country's already huge debt since the crisis in recent years.
The political will was lacking in the land in which the lemons bloom. Flanked by the generous measures taken by the ECB, governments in Italy and elsewhere continued to enjoy steadily declining interest payments, sometimes leading to the erroneous impression that state budgets had been structurally reformed. The failure of Italian reform efforts is symbolized by Matteo Renzi's lost referendum on state constitution. There is no sign of any far-reaching zeal for reform beyond the Alps, and it is no wonder that two anti-European parties now have a parliamentary majority there.
After all, but it should be noted that Italy is a net contributor to the EU and in so far a withdrawal of the country on the model of Brexit would not be good news for Brussels. The situation gets even more ironic because the Italian state is clammy, but its citizens are comparatively wealthy. Conversely, it is in Germany, where the state is comparably good, while the private wealth of the citizens tends to be below average. If one takes the current wealth study of the Alliance at hand (Allianz Global Wealth Reports 2017), then it turns out that the Italians not only on average have more assets than the Germans, but rank, especially in the median consideration far ahead of the Germans.
A flare-up of the euro crisis would certainly prolong the low interest rate period that has lasted for almost a decade. And one can hardly imagine that the ECB and the European governments would support a controlled exit of Italy from the euro. At the same time, the US Federal Reserve announces its willingness to accept higher inflation rates than two percent without entering into a tightened rate hike mode.
For German investors, this scenario does not bode well. With nominal interest rates of ten-year German government bonds of 0.37 percent, they suffer enormous real wealth losses. This is also not a pleasant situation for the pension systems, because traditionally they are putting far too much emphasis on interest rates. As a whole, it is therefore difficult to see that interest rate investments can be an attractive alternative to equity investments.