The European Central Bank (ECB) has warned of the “vulnerabilities” of such assets as cryptocurrencies, junk bonds, and property should rising inflation drive up interest rates.
In its twice-yearly Financial Stability Review, the ECB warns that “investors taking risks” can lead to markets being “susceptible to correction”.
It might be wondered why these investors are taking risks? Could it be that the risks of remaining in a traditional financial monetary system right on the very precipice of a melt-down, has led to this decision?
According to the ECB, the Eurozone economies bounce-back from Covid-19 has led to the prospect of longer term risks. The bank said:
“Concerns particularly relate to pockets of exuberance in credit, asset and housing markets as well as higher debt levels in the corporate and public sectors,”
It blames rising inflation and zero percentage level interest rates on being the factors that have led investors to take more risks, which in turn could lead to corrections in the property, debt, and crypto markets. The bank stated:
“A correction in markets could be triggered by a weaker than expected economic recovery, spillovers from adverse developments in emerging market economies, a re-intensification of stress in the non-financial corporate sector or abrupt adjustments in market expectations regarding the prospective path of monetary policy normalisation,”
In comments on rising inflation the ECB said that there was a “deterioration in lending standards” and that governments should consider introducing more “macroprudential policy measures” to limit bank lending and impose higher capital requirements for mortgages etc.
The bank discussed in its review what it termed as “more exotic” areas of finance such as crypto asset markets, and it was especially concerned with the links between traditional finance and stablecoins, calling for “urgent implementation of regulatory, supervisory and oversight frameworks.”
Opinion
Once again, the big banks are blaming anything and everything except the ridiculous printing of money for the malaise in global economies. Of course investors are going to be looking into assets that are outside of the traditional finance system, given that what is within it is totally incapable of supplying them with a way to avoid having their wealth stripped from them.
The ECB is there to promote a continuation of the current system, one that has failed totally, and that is only able to continue enriching the banks and those nearest to the money.
Deep regulation and an ensuing stifling of emerging innovations such as cryptocurrencies will undoubtedly follow. It remains to be seen though whether rapidly evolving technologies will enable the common man to escape the chains of regulation.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
