Exactly 30 years later, the European Central Bank (ECB) has discovered Lyndon LaRouche’s “Typical Collapse Function.” In a speech given at the 10th ECB Annual Research Conference joint with Stanford’s Hoover Institution on “The Next Financial Crisis?” on Sept. 17, Christine Lagarde described the gap between financial aggregates (at least, a section of it) and the real economy (the GDP as proxy) as a source of concern.
“In the euro area, non-banks—ranging from investment funds and insurance corporations to money market funds and securitization vehicles—have expanded from about 140% of GDP in 1999 to close to 400% today….” Lagarde said.
She went on: “Non-banks now account for over 60% of the euro area financial sector.... The bank and non-bank sectors are not just changing rapidly, they are also highly interconnected. In the euro area, for example, banks’ asset exposures to non-banks are considerable and, on average, account for around 10% of significant institutions’ total assets.”
She also listed Fintech and stablecoin as adding new threats to the stability of the banking system.
Whistling past the graveyard, Lagarde insisted that the question mark at the end of the conference title “signals inquiry rather than prediction” and ensured that the ECB is drafting measures to prevent it, namely “simplification,” which she insisted “does not mean deregulation.” “Excusatio non petita, accusatio manifesta,” my old Latin teacher would say. Or, it’s six of one and half a dozen of the other; if you think that the ECB has a solution other than printing money, you’d better not bet on it.
